Author: Dhruv Muralidhar, Graphics: Walton Bullard
The BRB Bottomline
The long-accepted norm of globalization has been thrown into question by current events which indicate that the future might not be so secure. This article examines the rise and fall of globalization through an America-centric lens and ponders over its future.
Globalization is not new. People have traded goods across oceans and continents since the Silk Road. But this 2,000 year legacy may now be in jeopardy as an increasing number of experts warn that globalization, as we know it, may be coming to an end.
The Birth of Modern Globalization
The modern notion of globalization was born in the post-WWII era as countries, haunted by the international conflicts of the preceding half-century, sought to intertwine their economies to increase interdependence and reduce the viability of war. Following the fall of the Soviet Union and the “westernization” of the Soviet bloc, globalization became truly global. The creation of the World Trade Organization and the proliferation of the internet only hastened the restructuring of the world economy. Countries embraced the theory of comparative advantage, believing that more open trade and capital flow was the most efficient way to organize markets and deliver everything to everyone everywhere.
Purveyors of globalization acknowledged that while some would be worse off, the global economy as a whole would offset those losses through the spread of cheap goods and services. And while there were loud critics of globalization, their concerns were largely ignored as the world marched in unison towards its vision of the economic equivalent of unicorns and rainbows.
The Cracks Begin to Show
On the surface, globalization worked. Peace and prosperity were plentiful. For the longest time, the “everybody wins” narrative was pushed by the World Bank, the International Monetary Fund, the World Trade Organization, the Democratic Party, the Republican party, and more or less everyone in between. And who were we to question them?
Soon enough, however, Americans began to feel the effects of the system. While yes, their avocados were cheap, things felt off. Manufacturing was dying. Companies were moving jobs overseas. Entire towns were abandoned after the sole corporate employer moved away. Stepping away from the United States for a moment, it is also important to note the growing anti-globalization sentiments that were bubbling in other countries. Developing nations saw their labor being exploited by large American and European conglomerates. Often incurred disproportionately by the working class, the environmental costs of globalization are numerous as well. But, hey, everyone’s winning, right?
And then, 2008 happened. In the aftermath of the Great Recession, the political and economic awakening for a generation, people began to realize that maybe there might be more to the story.
The establishment media and mainstream politicians tried to restore the status quo after the Recession. They chose to blame technology and automation for the layoffs, telling blue collar workers to “just learn how to code” as a way to reclaim financial security. Meanwhile, some people on both sides of the political aisle recognized the hurt and tapped into that frustration. This became clear in the leadup to the 2016 presidential election. On the right, there was Donald Trump, vowing to curb the illegal immigration that was supposedly stealing American jobs and stand up to China in the realm of trade. On the left, there was Bernie Sanders, railing against the corporate multinationals that apparently shipped jobs overseas and then collected government bailouts. Populism was making a comeback in the United States.
Our Current Predicament
While the populist sentiments festered in American political discourse, slowly becoming more widely accepted, the universe threw its biggest curveball in the modern era: COVID-19. Borders closed, trade slowed, and the world was shut down. The pandemic saw the international supply chains, which had been touted as the cure for inefficiency, crumble. Even after the availability of vaccines in developed nations, the United States’s dependence on China, India, and other vaccine-poor countries for manufacturing and imports was a limiting factor in its own economic recovery. The semiconductor shortage caused massive price hikes in technology. Images of ports crowded with backlogged shipments flooded the news. But somehow, even while everyday Americans faced inflation and shortages, the corporations that we relied on for everyday necessities had some of their most profitable quarters.
And just as the world was ready to live with COVID-19 as an endemic disease, Russia invaded Ukraine, and the whole world erupted again. In the weeks following Putin’s attack, the United States and its NATO allies unveiled a set of unprecedented economic sanctions that started to cut Russia off from the rest of the world. And while the invasion of Ukraine was unjust and the American people sympathized with the plight of the Ukranians defending their homeland, the implications on our already precarious economic situation were apparent to all.
Larry Fink, the founder of Blackrock Inc., one of the largest investment management firms in the world, recently claimed, “the Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.” The United States recently banned Russian oil imports and is attempting to convince countries in Europe to do the same. Of course, some say that cutting Russia off from global trade as a punishment is evidence that our system of globalization is beneficial for those who are a part of it. However, the detrimental effects these actions are having on the markets of the countries imposing the sanctions show that attempting to sever the ties of the global market is a double-edged sword.
That’s the multi-trillion dollar question. And, honestly, no one really seems to have a clear answer at this point. We have become so reliant on this economic system that to imagine a world beyond globalization is difficult. One thing is clear: we cannot remain at the status quo.
For all of its often overlooked downsides, globalization does have its perks, especially for consumers. Trade is good. International cooperation is good. But, as with anything in life, too much globalization is not good. While it is not the aim of this article to advocate for doing away with globalization in its entirety, recent events have made it clear that we need to reform the way we consider it. Making changes to our economic policy at the national level will better protect our workers and our consumers in the face of an uncertain geopolitical future.
Reducing our dependence on foreign nations is not just smart economics, it’s proactive national security. Germany’s current energy dilemma proves this. Russian gas imports make up about a third of German gas supply. This is why Germany has been so reluctant to ban Russian oil: it has no way to make up the difference. Reducing our own reliance on other countries to fulfill the needs of our domestic consumers is one way to reduce the leverage these countries have on our economic prosperity. What if, in the future, China nationalized the Qualcomm factories that make our precious semiconductors? The crippling effects on our domestic economy would be catastrophic. Forget an adversarial reason for another country to do this; what about differing national policies? China recently shut down the manufacturing hubs of Shenzhen and Changchun as its government pursues a zero-COVID policy. The detrimental impact this has on Apple, Foxconn, and other tech companies cannot be understated.
It’s easy to say that we need to be more self-reliant. One half of that equation is reducing dependence on foreign entities. But the second, arguably more difficult, half is making up for that loss on the domestic front. This means embracing American manufacturing again. As President Biden said in his State of the Union address, “let’s make it in America.” One rationale behind globalization was that goods are cheaper when they are made using foreign labor. But current events have shown how these tangling international supply chains can be the very reason prices go up across the board. Polling even indicates that Americans are willing to pay more for goods that are made right here in the United States. Investing in our infrastructure, penalizing companies that ship jobs overseas, and cultivating an educated, well-rounded workforce are just the beginning. As a country, we need to research and develop new strategies to make sure this never happens again.
Change is difficult. Change is painful. But change is natural. Just as there was a time before modern globalization, there will be a time after it. The time has come to learn how to reform our current outlook on the issue. Recent events have held up a mirror to our economy’s greatest vulnerabilities, and as traumatic as the last few years have been, we should do everything in our power to ensure that we learn from our mistakes lest we repeat them. This is our chance.
- Globalization is the long-accepted framework around which the world economy is organized.
- The last decade has shown us that globalization is not without its flaws, and those flaws could spell out economic doom.
- Reducing our reliance on foreign supply chains and increasing domestic manufacturing are just a few ways to strengthen our economies.
- We need to ultimately reform our outlook on international trade and use the experiences of the last decade to form our policy.