GLOBALIZATION
NEEDS REINVIGORATION
PART 6
2022 JANUARY ISSUE
By : Andrew Sia
We have noticed that supply chains are becoming more regional and local which we don’t deny that this can be a solution. But populism and nationalism are not to be encouraged. That is why we need to reinvigorate globalization. Those who shouted hysterically that globalization is dead has taken the matter too dramatically. Again, this should not be encouraged.
The supply chain can be reconstructed and we have to bring out the strength from each and every player. We have to try to be more equal and considerate for the weaker economy entities.
I have seen the benefit of globalization that started in the early 1980s. Without any question that it has brought the world to such a big improvement. Now we have to extend this tool to benefit the countries in the African continent. They have such a resourceful minerals and raw materials that can build up their nations and bring the prosperity to their people. The developed countries can tap into all these possibilities but should bring their heart and the moral with them but not to exploit them. After all, it has such a young population on an old continent and its median age is only 20.
By 2050, the world’s population will reach 9,725 billion but the population of Africa will be 5,267 billion. I keep reminding myself that our ancestors walked out from the African continent and reached the four corners of the world.
Like the cartoon that I have used for this article, currently our globalization is like a rollercoaster ride.
Introduction
Globalization needs to change. This time we are moving into a more difficult and complicate world and we need to set up new courses under the new challenges. The world leaders met in May in Davos for the first time since the coronavirus pandemic began to discuss about globalization after admitted that after more than a three-decade of golden era, we have seen the world going the reverse.
This era of globalization which we considered from 1980 to 2019, thirty-nine years in total, but for the last three years, from 2000 to 2022, we considered that the globalization has been disrupted by the breakdown of the supply chain in most cases.
But without question, for its thirty-nines years in operation, it has brought all countries to become substantially better off and also narrowed down the inequality of all nations. In 1981, the share of extreme poverty of the world population was 42% and it was only 8.6% in 2018. Without deny this has been such a big improvement.
First and foremost, we have to focus on trade as globalization is all about trade. Our global capital markets have been very fluid and the flow of the capital can generate waves of financial tsunami. It can be so powerful that when the market takes the impact, it will make more people found hard to comprehend. Its volatility can also be hard to fathom. This is how some people make money and some lose in their investment.
United States
We repeat that globalization is all about trade, no matter how big you are, or even how small. We have formed the perception that the U.S. can be the most self-sufficient country in the world. With its location on the North American continent, Pacific Ocean on one side and Atlantic Ocean on its opposite side, and in case of any international dispute, such as the last two world wars, it could close it borders and isolated itself from the outside world.
With the globalization happened in the 1980s, the U.S. has been using the economic advantage of those low-cost countries to help to manufacture it parts and machinery, small items that are needed in the daily life, computers and mobile phones, clothing and shoes, furniture and electrical appliances. Instead of being a very big manufacturer, it has switched to the service industry. This is not to forget that its marketing and product development are becoming very strong. It has made its country’s economy stronger, but its manufacturing segment relatively weak.
Under the last Trump administration, it came to form the opinion that the policy of openness to trade has shown the lack of dependence of its manufacturing segment, and it is talking about bringing back the manufacturing, also known as reshoring. In order to promote this policy, it introduced import tariffs to certain product categories and all of a sudden it has brought impact to the specific industries that have been involved.
Lately, we have found that Biden administration is trying to cancel the import tariffs as an act to combat the high-rising inflation. We have no idea if this is a smart move but to have our reservation especially when the two parties are trying to defuse what the other party had done during their time in the office. We found that in many occasions the changes are always tie with the political measures instead of any actual benefits that can favor the country largely. This is very unfortunately.
European Union
European Union, a large trading blocs with its current 27-member countries, is shaping the world’s trading system because of the biggest market it is located and also its sophistication. It is without any doubt that smaller countries like Switzerland, and even Denmark and many others, they need to trade to attain its financial activities, although Switzerland has retained its independence from the EU.
Within the EU, there are some high-income countries, and some who are less prosperous, such as those who joined after Russia had dissolved the Soviet Union. Those countries would need to stay together and to find their way out as a union. Some of them haven’t been allowed to enter into the Euro-zone as it was considered a bit too early for them in the first place.
Now with the Russia’s invasion of Ukraine, and Russia’s intention to rebuild its Soviet Empire under Putin, this has made the situation more complicate. And all of a sudden, the smaller states’ admission into NATO and the building up of their armies are more desperate. The need to defense themselves was not considered earlier on this year, it is becoming an issue now. We have seen Germany is going to build up its army for the first time after the Second World War.
China
One of the key players in this globalization is China. The country started to climb out from its manhole created by Mao during the Cultural Revolution after Deng Xiaoping took over the Communist party and started the opening of the country and allowed the foreign investors to invest in 1978. The world couldn’t realize that they have unleashed the dragon as its potential is almost unlimited and the world was astounded.
During that time China was under the scrutiny from the U.S. and every year it had to pass the criteria for their acceptance as the most-favored-nation. It was until China’s accession into the WTO in 2001, and the world started to be exploited by the trade opportunists. The ability of competing in global-value-chain was limited to China only. We saw Bangladesh tried to squeeze into the game and the collapse of Dhaka garment factory—Rana Plaza alerted the labor activists. It was a setback.
China became the “world factory” and supply chain was built around China as the prime source of supply. Output was at its all-time high until the dissolve of the Lehman Brothers and the U.S. subprime mortgage market in 2009. The world found that globalization dwindled away because the business demand reduced in the developed countries.
The world tried to recover from its last financial recession and it took almost nine years to get fully recovered, but by then China was getting more expensive, and talks about opening production in the African continent and diversified some productions to the Southeast Asian countries were taking place. But all along the time, China still claimed that they could produce at any price for any orders that they would receive.
World at this stage
Since the beginning of 2020, the world entered into the pandemic, which was something we haven’t seen or experienced before. All the businesses were lockdown for one year and resulted the breakdown of the supply chain. We have noticed the weakness because of the disruptions of all kinds took place, and something as rarely could have happened in the Suez Canal on March 23, 2021, that a container ship, Ever Given, with 18,000 containers was grounded. It blocked the waterway for almost one week and it stopped the cargo traffic completely.
We have not seen the fright cost that has been so inflated that not only it is costly but it takes longer than expected for the goods to arrive.
This is not over yet and since March of this year we have seen the surging of the Covid-19 cases in China and it is against China’s net-zero policy. Many cities have been closed and the situation is still unclear nowadays. It seemed that it is something that has been politicized by the Chinese Communist party and we haven’t seen the damage it has created to the world trade as at this stage.
WTO and the World Bank like to talk about inequality created by in some high-income countries. But what is there to do when we have the global pandemic which is still haunting us? It has brought a lot of inconvenience and has caused inflations we haven’t seen for a very long time.
Talking about the demise of globalization is perhaps something too exaggerating. Bring the production closer to the market and using what the industry would like to call—nearshoring, onshoring, reshoring—are only ways trying for improving the situation. But one thing is for sure that globalization is not dead, it is hemorrhaging for obvious reasons. We need to do something to it.
The world is also very much split with the rise of populism, nationalism, protectionism, nativism, chauvinism and even to a certain extent of xenophobia. It has resulted all of the great powers to have power conflicts. It is important that none of the above ideologies are to be encouraged or else it will make our world more split.
Looking for greater self-sufficiency to protect economies from the recent supply chain disruptions at the modest cost is simply unpractical. Many of the situations would never have happened if it has not because of the pandemic.
The war that Putin declared on Ukraine seemed to have been coming from nowhere. It is only adding problems to a world situation which is already punctured by the pandemic. I wish for a solution and I am praying for something positive to happen.