Populism and pandemic put world economic order at risk

It was one of Joe Biden’s last public remarks before leaving office as US vice-president in January 2017, in an address to the World Economic Forum in Davos, Switzerland. “Globalisation has not been an unalloyed good. I am a free trader, I am a strong supporter of globalisation,” he said. “But it has deepened the rift between those racing ahead at the top, and those struggling to hang on in the middle, or falling to the bottom.”

The remarks are a reminder of the angst over the future of an integrated global economy — and some regret over its political impact — in the wake of the twin blows of Brexit and the election of Donald Trump as US president. Four years later the disruptive forces of populism have combined with a pandemic to make the picture even more complicated. The spread of coronavirus this year has hit trade and travel as it plunged many countries into recession. It has also triggered renewed efforts to nationalise supply chains, particularly for key medical equipment and drug ingredients. The tensions in global commerce that flared up in recent years between the US and China — and the UK and the EU — are turning into permanent features of a new and far more precarious economic order.

Yet the ties that have come to increasingly bind the world’s economies together have proved remarkably resilient through this period — so far. At the start of the pandemic, the WTO predicted global trade would fall anywhere between 13 per cent and 32 per cent this year. But by October, the forecast was more optimistic, with global trade dropping by 9.2 per cent, with a rebound in 2021 of 7.2 per cent. “The net result has been a deeper but less prolonged decline in trade, although considerable uncertainty remains about the strength of any recovery going forward,” Yi Xiaozhun, the WTO’s deputy director-general, said as he announced the revised findings.

Meanwhile, the basic structure of global economic flows has been proven hard to change in a meaningful way — as Trump has discovered by failing to strongly reduce America’s trade deficit even after waging disruptive tariffs battles with strategic foes and allies alike. The US goods deficit with China, for all of 2016, prior to Mr Trump’s arrival in the White House, was $346.8bn, but it had dropped only to $345.2bn for all of 2019.

Nonetheless, as integrated global economies have become about much more than shipping manufactured products, there are increasing warning signs that the pandemic is delivering some Balkanisation that could be hard to reverse in services, travel, immigration, financial flows and technology. In particular, tensions between the US and China remain extremely high, and while decoupling of the two largest economies is not proceeding in a uniform way, it is certainly high on many minds.

“There was already a strong case that globalisation had stalled and in some respects was going into reverse. The globalised world that centred on the twin poles of China and the US was breaking apart. But that shift became all-but-irreversible this year,” Mark Williams, chief Asia economist at Capital Economics, wrote in note in September.

Even with the Trump administration’s chaotic policymaking ways, the US crackdown on Huawei, the Chinese telecommunications equipment group, and TikTok, the video-sharing app owned by China’s ByteDance, show how Washington has become increasingly uncomfortable with any projection of Chinese economic and corporate power internationally.

The US crackdown on China includes TikTok © Mike Blake/Reuters

Across the world, governments including in the EU have began looking far more closely at processes for screening foreign investment as well as more robust industrial strategies designed to protect sensitive industries and promote the reshoring of jobs, even if this is often a quixotic goal.

Should Mr Biden win the US presidency, ending Mr Trump’s days in the White House, he has vowed to prioritise investment in US green energy, childcare, education, and infrastructure over any new trade deals — which could also put talks with Brexit Britain on ice for some time. He has also called for the expansion of “buy America” provisions in federal procurement, which has long been met with irritation by some of the US’s closest trading partners, including in Brussels.

Yet it is almost certain that despite some concerns about globalisation, a Biden presidency would seek to restore America’s status as a constructive presence within multilateral organisations from the WTO to the World Heath Organisation as well as regarding the Paris Climate Accord.

That restoration of US global leadership compared to the years of Trump may go a long way towards rebooting globalisation and restoring faith in some of the pillars of the world economic order that have felt very much battered by the US administration’s unabashed unilateralism.

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