Globalization, political tensions, and economic uncertainty, what is going on?
[ By Antoine Martin ]
Globalization has become a major topic over the last decades and years. The issue is broad, ranging from policymaking to legal and financial, not to forget politics and politicisation.
Globalization these days
There are several ways of looking at globalization. One way is about asking why globalization is an important global policy move and why countries all over the world should make their economies more and more available to global business and trade.
In a related manner, another way to look at globalization is to affirm that the model is important and necessary to worldwide growth and development and to elaborate on how liberalization is to be designed, implemented and enforce for the model to become real. Of course, to the opposite, the idea that globalization as an economic and political model was forced on people and thus is somehow detrimental to many is similarly valid, depending on one’s personal beliefs.
An alternative way to look at globalization is to simply admit that, for good or worse, global markets and globalized policymaking are key characteristics of modern international relations, and to look at what recent trends tell us about how today’s world is changing.
But there is a catch: while markets have been continuously opened and interconnected over the past decades, today’s globalized world seems to be changing, not to say moving backward. Fast. Yet, leaders do not seem to notice. So, between politically correct discussions and political uncertainty, where is globalization going?
The European Union after Brexit
The most crying blow to globalization this year was undeniably the so-called Brexit, which put into practice the most commonly formulated criticism of globalization: the people, whatever their country, want to be led and governed according to their own needs rather than through the regional and global ambitions of their bureaucratic leaders.
At the EU level, the UK violently broke up with strong claims that the EU is now part of the past but walks towards the exit door as slowly as possible: while the EU leaders deplore a problematic level of political and regulatory uncertainty at the EU level because of the UK and do not want for ‘things to be up in the air’ (FT 21/07/2016), the Article 50 card is about showing that even though it has lost all the influence it might have had towards EU, the UK is planning for its best while ensuring that the regional model will not prevail over domestic needs.
Still, currencies have suffered, the UK is having financing difficulties with capital markets, and no one knows how the EU will be impacted by London’s decision to put its own interests first. Short after the Brexit was announced, some for instance considered the possibility of London becoming a disrupting off-shore platform for EU finance, where lower tax not influenced by the EU Commission might become a competitive advantages working towards more and more… global but segmented relations.
In fact, the very ability of the EU as a political and economic union to guarantee political and legal stability seems impacted. Obviously, commentators have mentioned the possibility of other countries following London’s path.
So far, nothing happened, and perhaps nothing will happen but this nonetheless suggests that efforts to promote the EU as a super regional organization capable of influencing global business and politics have taken a hit. The Union and its regionalization ambitions, in fact, are now facing major democratic deficits which one way or another will require reviewing globalization efforts, the way citizens are ruled, and the way current models ought to evolve in the future to allow more balance between national interest preservation and international cooperation promotion.
Unifying Asian countries in a South China Sea crisis context
Interestingly, the Brexit is not a blow to regionalism at large, and the idea of creating regional-size economic and political alliances seems to be progressing elsewhere in the world, particularly in the Asia-Pacific region through the APEC and the ASEAN. In a decade or two, in fact, these organizations will most likely have emerged as actors without which no negotiation will ever take place because regional leaders will by then have taken steps to coordinate their actions and plan their policies together.
But here again, creating political, legal and economic ties between countries without suffering from regional politics is a major challenge, particularly as far as Beijing’s plans towards the South China Sea are concerned. Late August, Vietnamese President Tran Dai Quang for instance expressed concerns as to the negative impact of the South China Sea tensions on regional efforts to improve security and generate growth and made it clear that unless Asian leaders implemented regional coordination all would ‘lose’ and suffer from unilateral behaviors (SCMP 31/08/2016).
Globalization is obviously having a hard time on the free trade side of things too.
More specifically, there have been two main topics of discussion lately: the TPP Agreement between the US and the Asia-Pacific, and the TTIP Agreement between the US and the EU. Problematically, both are being put on a sever standby.
TPP, on the one hand, has been signed and released by its members fairly recently, but debates towards the US presidential elections have generated a massive political shift. Playing the ‘national interest first’ card, candidate Trump has made it clear that TPP would not happen while candidate Clinton, who was around the negotiations table, has admitted that TPP would have to be significantly reviewed in order to be deemed acceptable to the US.
TTIP, on the other hand, is in a conflicting but different position. President Obama’s administration is trying to push the agreement before a new President overtakes the Oval Office because he knows the TPP factor will ruin all the efforts made so far to have the Agreement signed. On the EU side, however, the perception is that the Agreement is all but in the interest of EU citizens. Late August, France even urged the Commission to stop trade negotiations with the US, claiming high and loud that granting EU partners ‘crumbs’ was no way of improving globalization.
The deadlock issue
On the trade side of things, in other words, globalization is in a deadlock and, whilst tensions used to be about a general regulatory noodle bowl creating legal complexity they are now also about politics. Free trade agreements, in essence, are about facilitating the development of trade in goods and services (say, financial services, e-commerce, telecommunications or cross-border investment promotion) but to the people, free trade is about domination and has thus become politically incorrect. In the US, these agreements are perceived as potential job losses or, in other words, as giving away US economic power to the rest of the world. Elsewhere in the world, however, the very same agreements are criticized as an additional privilege being granted to the US, to the detriment of domestic sovereignty. Deadlock.
Confusing signals from China
Globalization also suffers from various confusing signals from China, with the South-China Sea issues actually being one amongst the various confusing foreign policy signals sent by Beijing at the moment.
The delicate position issue
As discussed in various of the Circle’s insights, Beijing is currently in a delicate position when it comes to international trade. Amongst the important issues is China’s recognition as a ‘market economy’ – a topic to be decided by the end of the year at the level of the World Trade Organisation.
The stake here, as a reminder, is to have Beijing recognized as a ‘market economy’ – in contrast with the country’s current ‘non-market economy status – so as to have tariffs and quotas against Chinese goods levied all around the world.
Yet, Beijing’s reaction to the release of the International Arbitral tribunal’s decision on the South China Sea dispute suggests that the country clearly is not planning on playing by the rules not in its advantage and, instead, might attempt to rewrite international law as its needs and ambitions progress.
Beijing, globalization and the world
The point actually plays against Beijing as its answers might impact its ambitions and diminish its influence within the WTO, and so despite its numerous efforts to become a major economic player.
The Yuan is progressively becoming an international currency, China is multiplying free-trade zones on its territory while extensively communicating on the development of its One Belt One Road project (aimed at increasing Chinese trade influence over the west).
Of course, Beijing is also making tremendous efforts to grow its regional political influence in the Asia-Pacific whilst developing its Asian Infrastructure Investment Bank (AIIB) – to be joined by candidates such as the UK, Germany, France or Canada – so as to finance structural development at the regional level and create an alternative to the IMF’s development-funding power at the global level.
In other words, whilst Beijing is discussing arrangements with major countries and doing all it can to be recognized as a genuine player on the international scene, its territorial ambitions – not to mention its inability to solve burning issues such as its steel overcapacity problem – suggests that whatever the rules, they will be mitigated, applied on a multi-speed basis and / or adapted sooner or later depending on domestic political agendas.
G7, G20 and global leaders, if any…
Sadly, one of the issues faced by the global leaders, particularly within the G7 and G20 (G-20 members account for 85% of global GDP) is that they most likely have no idea what the world will be like in the next decades.
A mitigation issue?
At the moment, the main issue seems to be about increasing globalization while mitigating powerful influences and nationalist surges, one way or another. But apart from applying plasters on wounds, little is done about actually making things change.
In May, for instance, the US and Japan clashed on Yen and monetary easing stimulus policy matters at a G-7 meeting but in June the OECD insisted on the inability of governments around the world to take effective actions or reach goals towards investment and growth (TWSJ 23/05/16)…
Saving the strange beast?
All in all, the world leaders seem to talk about saving globalization and modern capitalism but do not seem interested in finding out how globalization works – in practical terms – or in wondering what the world will be like in a decade or two, for real.
The business community, unsurprisingly, seems to have more long-term expectations than politicians, with some important ideas emerging here and then.
Discussing growth in the financial press, some experts formulate the idea that emerging markets nowadays might be about economic potential rather than political risk, while developing economies and their inability to move forward might increasingly convey an uncertainty message (FT 18/07/2016).
Amundi’s Chairman Pascal Blanqué for instance says that the structure of trade and growth is shifting. Goods and manufacturing are progressively becoming trade in services worldwide, hence the emerging markets which were set aside over the last years could once again become a focus point for business (FT 10/08/2016).
Of course, the idea that the development of financial and telecommunication services is likely to prevail over goods production in Asian countries (for instance) will be no surprise to analysts. But it is difficult to understand why politicians do not hold that discourse.
A little bit as if today’s leaders had no long-term views on how our global and interconnected world is about to develop. In fact, it is even very likely that leaders have still not figured out whether globalization ought to be about integrating countries in a global démarche (global integration) by imposing liberal views even to those who reject them, or whether globalization ought to be about coordinating efforts for better results.
Globalization vs Nationalism: wrong debate
Parallel to the current globalization problem is the necessity to reconsider the notion of nationalism.
What the EU crisis shows is that perhaps the question should be about how national interests could contribute to greater coordination and foster global progress instead of dragging efforts behind. Or, as very interestingly noted by Martin Wolf last week, international relations recently have sent the following burning message: ‘democratic capitalism is in peril … to maintain legitimacy, economic policy must seek to promote the interests of the many, not the few’ (FT, 31/08/16).
Globalization heading towards greater global uncertainty
In short, perspectives to approaching globalization must change.
All in all, while all efforts to promote liberalization and market openness have been aimed at harmonizing, coordinating and simplifying, globalization as of September 2016 has become a politically incorrect topic which has also become increasingly complex and might in the future generate greater global political, legal and economic … uncertainty.
Solution or problem?
Economic and political unions were once a general solution against wars and tensions, but this is not the case anymore.
Nowadays they constitute coordination solutions in the Asia-Pacific where major development plans are being made. But elsewhere, in Europe for instance, they are the root of the problem. There, union leaders have taken over domestic expectations, thus transforming globalization into a beast to many, and counting.
For the same reason, free trade is also becoming a very uncertain science, with actors across oceans all seeing the negative aspects of liberalization as certainly undermining their own interests. In fact, while free trade used to be about facilitating trade, it is nowadays creating legal complexity and unreadable political uncertainty, thus suggesting that free trade might become less and less ‘free’ in the future.
At the global political level, it also appears that while politics in the US make very unclear what liberalization will be in a couple of years, a lack of clarity and predictability is visible on the Chinese side of things.
Unilateral domestic policies can seriously hit regionalism and globalization efforts, but it is surprising to see that now more than ever national interests are the enemies of globalization.
Overall, none of the mighty – G-7 and G-20 included – seem to have a long-term perspective on how globalization ought to develop, but it seems very unlikely that the future will be about blending countries into a global mold and applying one size fits all international rules.
The challenge, in other words, is not to force the model, but to adapt it to ensure that all are willing to move onward. Only business leaders, in fact, seem to look at globalization for what it is and ought to be, i.e. a necessity to coordinate efforts to adapt to domestic, regional and global changes and needs. Leaders, too, ought to think about this. Failing which, globalization is going towards more political, legal and economic uncertainty.
Dr Antoine Martin | Co-Founder & Head of Insights
Dr. Antoine Martin is the Head of Insights of The Asia-Pacific Circle, which he co-founded in Hong Kong in 2016 with Philippe Bonnet. Antoine follows analyzes and comments on developments in international trade and Fintech policy, with a particular focus on Asia-Pacific relations. He is also a scholar at The Chinese University of Hong Kong, Faculty of Law, a leading academic institution in Asia.
Beyond following Asia-Pacific trends, Dr. Martin enjoys pushing, challenging and helping entrepreneurs, lawyers, bankers and experts of all kinds to identify their message and formulate their ideas. His ultimate goal being, of course, to give them more tools to engage in value-creating discussions with their interlocutors. Now, can you see a trend? Would you like to share some thoughts? Please get in touch!
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
More food for thought?
Are you looking for a big picture approach to APAC developments? From Financial Markets to trade diplomacy and geopolitics, The Asia-Pacific Circle connects the APAC dots in good business intelligence. [ Read all our APAC Insights ].
Looking for hints and tips about business trends? Our Asia-Pacific Business Insights closely look at Business developments in the APAC region. From regional investments to blockchain developments and China’s digital economy, our expert contributors connect the dots. [Read our Asia-Pacific Business Insights].
Financial Markets are predominant nowadays, hence our Asia-Pacific Insights closely look at financial developments in the APAC region. From financial regulation to Fintech policy and cryptocurrencies, the Circle’s Financial Market Insights connect the dots. [Read our Asia-Pacific Financial Markets Insights].
Pro-business policies or interventionism? Free trade or protectionism? What is the impact of China-US relations on global and APAC trade and business? Our APAC Trade Diplomacy insights also connect the dots! [Read our Asia-Pacific Trade Insights].
The Asia-Pacific Insights published on The Asia-Pacific Circle are copyrighted content and cannot be republished without the approbation of their author(s).