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Four big factors are driving the world away from globalisation - The Australian - 21.01.23

Updated: Jan 23, 2023

China didn’t obey the rules of globalisation but reaped all the benefits. Now it’s stone motherless dead as a motivating force in the West. Where do we go from here? Article by Greg Sheridan.


While the new era will be challenging for us, we could well emerge as winners in the deglobalisation era.


This was the week that China’s population began to fall, China’s economic growth rate slumped to its lowest level in decades and China’s Vice-Premier, Liu He, told the exquisitely timed and mostly fatuous World Economic Forum at Davos that Beijing was committed to economic liberalism, free trade and globalisation. Any of those three stretch your credulity at all?


We are living through a hinge moment in history. The era of globalisation is coming to an end. Is globalisation dead? Maybe not quite dead, but like a Covid virus it’s mutating into something new and different.


De-globalisation, decoupling, democracy versus dictatorship, Cold War 2.0, national resilience economies, national ­security conservatives, renewed military alliances, grey zone conflict, regional wars, free markets lacking advocates or post-globalisation – whatever you call it, we are rushing into the third era of history after World War II.


Era one, which began as soon as Hitler and Imperial Japan were defeated, was the bipolar Cold War: the United States and its allies against the Soviet Union and its empire. This was when the US created the so-called rules-based liberal international order – the United Nations, NATO, the International Monetary Fund, the World Bank. Later on, with help from the US, regions inaugurated their own pro-US organisations, the European Union and, much later, bodies such as APEC.


They all believed in globalisation, which was another term for US power. The Soviet Union stood outside globalisation. The object of Western policy was to triumph over the Soviet Union while avoiding nuclear war. The West was successful.


That led to Era Two, the unipolar era, when the US, for a time the hyperpower, was alone at the top and sought to underwrite a much more genuinely global liberal order than had ever existed before. Free trade was linked to free societies. Economic integration, followed by social integration, would solve all geo-strategic problems. Economic freedom would be contagious; peaceful evolution would lead to liberty’s triumph. Francis Fukuyama called it the end of history.


The problem with this era was that the winner was China. Beijing didn’t obey the rules of globalisation but reaped all the benefits of everyone else obeying the rules. It got the fastest economic growth of any big society in history. More than a million American jobs migrated to China.


Beijing could subsidise any strategic industry, rig the rules of investment so that it got the intellectual property of any Western company located there, use the openness of Western societies to enable traditional and cyber espionage to steal technology and gallop up the technology ladder, all the while engaging in the greatest peacetime military build-up the world has seen.


Now we are entering a new era. We haven’t got a good name for it yet. Post-globalisation seems too negative but globalisation is stone motherless dead as a motivating force in any Western economic or political argument.


This doesn’t mean the world is moving back to 1950s-style protectionism, much less 1930s-style protectionism. But it is going to find a new balance between free trade, open economies, national resilience, not giving your adversary your best technology or your critical infrastructure, securing supply chains and military readiness which means both hi-tech kit and sufficient mass to deter attack.


It’s going to see national security, military alliances and regionalism come back to the centre of how nations behave.

This is not all down to China. There are four factors, four huge historic dynamics, driving the world away from globalisation. These are: China; Russia’s war in Ukraine; Covid; and the energy crisis in Western societies brought about by attempting rapid decarbonisation.


Take them one by one. When China was a small part of the global economy, the US and some of its allies could pursue free-trade policies on a no-regrets basis. Even if China cheated in restricting imports and putting all kinds of non-competitive rules around foreign direct investment, we, the US and its allies, still got cheap Chinese products and overall China was still a big market. Australia did well because our big exports to China were unprocessed commodities – iron ore and coal in particular.


Two things changed. China got too big an economy – now about two thirds the size of the US though it may not catch the US in size for many years – to give that kind of advantage to. And it became an aggressive strategic competitor building military capabilities designed to invade Taiwan, occupy the South China Sea and cripple US forces in Asia.


So it’s just plain strategic insanity for the West to help Beijing dominate hypersonics, artificial intelligence, quantum computing, microchips, telcos, machine learning, battery technology and the other hi-techs determinants of the future. Yet even now, with all the decoupling talk, since 2000 US venture capitalists have invested more than $US50bn ($72bn) in China.


The Chinese government essentially produced Donald Trump, the first anti-globalisation president. He was chaotic in his rejection of globalisation but he used tariffs and technology boycotts to begin decoupling. He wanted industry back in the US. Joe Biden has continued Trump’s policies. US allies and friends have selectively applied similar measures, Australia, Canada, Japan, Britain, even India have all banned Huawei from their 5G networks. Many nations restrict Chinese investment in critical infrastructure. This is fully bipartisan in the US, almost the only issue that is.


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