English for Diplomacy: What are the main characteristics, benefits and drawbacks of globalization and the current trends?

These notes go with the long articles on globalization (Chained to Globalization/Why Globalization Stalled/Globalization’s Wrong Turn) that are in the Dropbox.

https://www.theguardian.com/business/2020/nov/15/china-and-14-asia-pacific-countries-agree-historic-free-trade-deal

https://www.wto.org/english/news_e/pres20_e/pr862_e.htm

https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world

https://hbr.org/2020/09/global-supply-chains-in-a-post-pandemic-world

https://global.chinadaily.com.cn/a/202004/07/WS5e8bc145a3101282172849df.html

https://www.wto.org/english/news_e/news19_e/trdev_21nov19_e.htm

https://www.theguardian.com/world/2017/jul/14/globalisation-the-rise-and-fall-of-an-idea-that-swept-the-world

https://www.washingtonpost.com/opinions/globalizations-ill-effects-have-been-wildly-exaggerated/2017/05/14/06d12334-3724-11e7-b373-418f6849a004_story.html?utm_term=.265d71a7a506

Recent background

EXECUTIVE SUMMARY

1. This 30th Trade Monitoring Report on G20 trade measures arrives with multiple crises affecting the global economy. Inflation and large external debts in many countries, the war in Ukraine, climate change, high food and energy prices, as well as persistent pandemic-related ramifications, are all impacting the global economic environment. The recent outbreak of hostilities in parts of the Middle East is also adding to the uncertainty for the global economy.

2. This Report shows that between mid-May and mid-October 2023, G20 economies introduced more trade-restrictive than trade-facilitating measures on goods, unrelated to the pandemic. Most of these measures were import measures. In the area of services, 10 new measures were introduced by G20 economies, marking a significant slowdown compared to previous Reports. New general economic support measures by governments, including various environmental impact reduction programmes were also introduced. Overall, implementation of new COVID-19 trade-related measures slowed significantly. These and other findings are detailed below.

3. The number of export restrictions by WTO Members has risen significantly since 2020, first in the context of the pandemic and more recently because of the war in Ukraine and the food security crisis.

4. World trade growth continued to slow, as high inflation and rising interest rates weighed on trade and output in advanced economies, and as property market strains prevented a stronger postpandemic recovery in China. World merchandise trade volume growth is expected to slow to 0.8% in 2023 (down from the previous estimate of 1.7%), before picking up to 3.3% in 2024.

From https://www.oecd.org/daf/inv/investment-policy/30th-report-on-G20-Trade-and-Investment-Measures.pdf

The global economy was then hit by the Covid-19 pandemic in 2020 and although some of the recent trade barriers were later removed by the Biden administration Covid-19 trade restrictions had to be put in place. This exposed global supply chains to delays, disruptions and interruptions.

https://www.oecd.org/newsroom/services-trade-restrictions-increased-in-2020-compounding-covid-19-economic-shock.htm

https://www.wto.org/english/news_e/pres19_e/pr840_e.htm

https://www.nytimes.com/2019/10/01/business/wto-global-trade.html

https://www.ecb.europa.eu/pub/economic-bulletin/articles/2019/html/ecb.ebart201903_01~e589a502e5.en.html#toc1

However, many countries tried to reach new free trade agreements to boost exports while being forced to adopt a series of Covid-19 trade restrictions, e.g. on transport and travel.

https://www.wto.org/english/news_e/news19_e/trdev_21nov19_e.htm

https://www.wto.org/english/news_e/news20_e/trdev_11dec20_e.htm

https://www.wto.org/english/news_e/pres21_e/pr889_e.htm#:~:text=The%20WTO%20is%20now%20predicting,%2Dpandemic%20long%2Drun%20trend.

https://www.wto.org/english/news_e/news21_e/trdev_28oct21_e.htm

Russia’s invasion of Ukraine led to trade sanctions on Russia and retaliation by Russia in the form of gas and oil price rises. Western countries have responded by seeking diversification of suppliers and resources (more investment in the development of green energies and a greater reliance, at least in the short term on coal and nuclear power).

Some notes

Globalization (or globalisation) refers to the increasingly global interconnectedness of cultures, people and economic activity.

https://www.piie.com/microsites/globalization/what-is-globalization

Most often, it refers to economics: the increasingly global distribution of the production of goods and services, through reduction in barriers to international trade such as tariffs, export fees, and import quotas (as well as invisible barriers such as complex and slow bureaucracy) and the transfer of such goods and services to consumers. It also involves the freer movement and circulation of workers around the world, delocalization (relocation of factory and service providers from one country to another – see ‘Outsourcing’ and’ Offshoring’) and glocalization of products and services. Globalization contributes to economic growth in developed and developing countries through increased specialization and the principle of comparative advantage. All this helps to lower the price of goods and thus benefits the consumer and raises the standard of living. Globalization of financial markets makes money available at low interest rates for investment.

The rapid increase in the process of globalization was the result of a number of factors: the end of the Cold War and the end of the relative isolation of countries like Russia, the old Warsaw Pact states and China, and their integration into the global trading system; the work of the World Trade Organization to eliminate or reduce trade barriers; the work of the World Bank, which is a lending institution whose aim is to help integrate countries into the wider world economy and promote long-term economic development; the work of the International Monetary Fund which aims at promoting global monetary cooperation and financial stability and thus supporting trade; developments in transport technologies, infrastructure and procedures and thus reductions in transport costs, e.g. container ships and ports, low-cost airlines; developments in Information and Communications Technologies (ICTs) that facilitate trade, e.g. the internet, cell phones and satellite technologies. In many ways, this is all in line with the old Functionalist theory of international relations.

Supporters of globalization argue that it also promotes peace. In the 1960s and’70s there was very little trade between the West and the Communist bloc. In the 1990s the level of trade between, for example, the US and China or the EU and the Russian Federation was very high, and it is difficult to imagine how such trading partners could become involved in a general conflict without seriously damaging their own economies. However, the start of the war in Ukraine, the sanctions that followed and the increased tension with China have made the claim that globalization fosters peace seem much less convincing.

The countries that gain least from globalization will be those least integrated within the global trading system, either by choice (by political decision and the maintenance of strong trade barriers) or through a lack of the necessary infrastructure (e.g. ports, airports and roads), or know-how and expertise, or technology, or an adequate industrial base or a secure business environment (e.g. failed or partially failed states or states with high levels of corruption, bureaucracy, red-tape and insecurity of ownership).

The term globalization can also refer to the transnational circulation of ideas, languages, and popular culture, particularly via the internet and social media or on satellite TV across political borders. Many Western political commentators identify its most positive effects in the spread of democratic and human rights values at a grass roots level, a phenomenon which authoritarian regimes may find difficult to control. Paradoxically, cultural globalization in this sense may actually lead to tension and political instability, at least in the short term, as the rapid changes taking place in the Arab world and around the globe demonstrate (the 2019 street protests in Lebanon, Iraq, Hong Kong, Venezuela and Chile). On the other hand, globalization may lead to a mixing of cultures and an enriched, more vibrant multicultural society. This is an important argument both for the EU and for a city like New York.

Globalization also means the growing role of international organizations, both global and regional, like the UN, the WTO, the IMF or the EU and AU, and the diminishing ability of nation states to confront their problems alone – problems which are now often global challenges requiring international cooperation at an ever-increasing level.

Critics of globalization make a series of points:

Globalization encourages competition to lower prices. This can damage developed economies with strong social welfare systems which find themselves in competition with countries like China where social welfare costs for companies are small or non-existent, and overheads may also be relatively low. Many Europeans commentators would now argue that this aspect of globalization outweighs the benefits to Western consumers of low-cost goods because European companies will be unable to compete and either close, move their factories and other production facilities abroad where costs are lower, or outsource part, or all, of the production process to other companies located in low-cost areas. This will lead to more unemployment in the developed economies. They call for trade limits on countries like China until those countries provide their own workers with adequate health care, education and pensions. The freer movement and circulation of workers around the world has also been criticized as leading to a decline in salaries as workers from the host state compete with migrants (often willing, or forced, to work at lower pay rates and usually less organized in terms of unions), and a rise in social tensions between these two groups. There may also be rising friction due to cultural and linguistic differences. Further criticisms in this field concern the risk of increased threats to security, terrorism and pandemics. The greater volume of trade makes it difficult for the customs authorities to effectively check the goods being transported and this has, it is argued, made illegal trafficking in drugs, arms, organs and human beings easier. The same argument is made for the increased number of people moving across borders.

The Covid-19 pandemic and the war in Ukraine led to delays and interruption in global supply chains and to a rethinking of the whole question of globalization. Many companies, countries and groups, including the EU, NATO, their democratic allies and other groups have adopted a two-fold strategy: continuing to seek free-trade agreements with reliable partners while at the same time prioritizing security, diversification of supplies and suppliers and regionalization (a shortening of supply chains) instead of always prioritizing efficiency in terms of comparative advantage and the lowest price available globally. They want to avoid over-dependence on supplies that may be interrupted by an event like the Covid-19 pandemic, and on suppliers who may use supplies as an economic or political weapon by imposing price hikes or reducing or cutting of supplies. All of this was stated very clearly by Christine Lagarde, President of the ECB in April 2022

https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220422~c43af3db20.en.html

This has led to trends like ‘reshoring’, ‘nearshoring’ and ‘friendshoring’ moving some production back to the home country or to a country nearer geographically or politically allied to or more reliable for the home country.

Globalization is also criticized as producing a tendency towards a global monoculture (Coca Cola, hamburgers and bland pop music and the destruction of local cultures) and towards an agricultural monoculture of crops, which reduces agricultural biodiversity and could put the world at risk of sudden reductions in food production due to crop diseases.

Since the start of the economic recession in 2008 many experts have argued that globalization makes the spread of a financial or economic crisis more likely because of the interconnectedness of the world economy, and thus renders the global trading system less stable, rather than more stable as supporters claim. However, other economists point out that this interconnectedness is not a new phenomenon as the Wall Street Crash of 1929 and the Depression of the 1930s demonstrates. In fact, they argue that today’s global institutions and our awareness of global economic realities made it possible for countries to react more effectively this time by adopting common policies rather than pursuing protectionist policies as happened in the 1930s. However, the globalization of financial markets and the removal of or reduction in the rules controlling financial and banking transactions, together with the availability of credit on easy terms to those who were not really credit-worthy led, in the opinion of many critics, to a financial culture of irresponsibility based on short term gains from the stock market and property markets, and lending to high-risk borrowers rather than sound, long term investment of this money in industrial and technological projects and research. This, they say, led directly to the financial bubble and crisis in the US real estate market, in particular the sub-prime mortgage market (but also in the Spanish and Irish real estate markets). It also allowed too much lending to some states and now too much speculation against these states and their currencies (e.g. Greece, Greek Treasury bonds and the Euro) on financial markets. Critics argue that a distinction should be made between the real economy (the production of goods and services) where the bankruptcy of even the biggest company will not create an economic crisis for a government, and the financial sector where financial institutions may lend on such an enormous scale that should they face bankruptcy they put the country’s entire economic system at risk. This argument leads to the conclusion that financial institutions require much stricter regulation and oversight than other types of companies and that this is still lacking.

Critics argue that poor countries, particularly small poor countries with little or no industrial base, and thus dependent on the export of agricultural produce or raw materials are under pressure from developed economies and emerging economies to open up their economies to foreign companies. They may thus be exploited or face very great fluctuations in the global price of the commodities that they export.

https://unctad.org/news/commodity-dependence-5-things-you-need-know

This may prevent them from accumulating enough capital to develop and grow their economies. It is argued that they may need to protect strategic industries, with trade barriers and national institutions and management, in the early stages of the development of these industries, as most developed countries themselves did (e.g. Italy and Japan) and China still does.

Globalization has also been criticized for prioritizing global economic growth (in which it has been very successful) over global issues such as sustainable development, climate change, deforestation, the reduction in biodiversity and global warming. A series of conferences (the most recent were the UN Climate Change Conference in Paris November 2015, in Marrakech in 2016, in Bonn in 2017, in Katowice in 2018 and in Madrid in 2019. The 2020 Glasgow COP26 UN Climate Change Conference has been postponed and the rescheduled conference in 2021 will be hosted in Glasgow by the UK in partnership with Italy) have attempted to address these issues, but there is great disagreement among commentators as to the effectiveness of these conferences and the extent of the real progress made. Some praise the conferences as a ‘breakthrough’ (the UN) in terms of commitment, while others see them as too little, too late (many NGOs).

Cultural globalization has also been criticized as leading to a dehumanized monoculture based on materialist and essentially Western consumer values. In this context we should note the rising criticism, in the more traditional fringes of some cultures, of international institutions like the WTO, the World Bank, the IMF and even the UN itself as Western (i.e. ‘foreign’) and imperialist.

Globalization is criticized as making it more likely that an epidemic will become a pandemic. The response of most countries to the Covid-19 pandemic was to try to isolate themselves. However, there has been growing awareness of the need for global cooperation

https://www.oas.org/fpdb/press/Declaration-AfM-COVID-final.pdf

Finally, globalization has also given international criminal and terrorist organizations more space to operate and these threats to security will require an ongoing, collective response.

More on the EU’s position:

https://www.eunews.it/en/2024/02/14/eu-competitiveness-goes-through-free-trade-agreements/

https://www.europarl.europa.eu/topics/en/article/20190528STO53303/making-the-most-of-globalisation-eu-trade-policy-explained#:~:text=The%20EU%20is%20a%20strong,adopts%20reports%20assessing%20their%20state.

https://www.europarl.europa.eu/RegData/etudes/IDAN/2019/639306/EXPO_IDA(2019)639306_EN.pdf

Conclusion – The Covid-19 pandemic and the war in Ukraine have shown how globalization exposes countries to potentially fragile global supply chains and overdependence on a limited range of suppliers and supplies. The EU and many of its allies and partners are now moving to promote trade deals to achieve diversification in both areas and a review of their mechanisms and approach to dealing with globalization. Meanwhile, the EU continues to negotiate trade deals aimed at liberalization with partners it considers reliable. A re-examination of the terms of trade between developed, emerging, and developing countries is also clearly necessary and the goal of ongoing global negotiations. At the same time, as many of the problems of the 21^st century are now on a global scale, only shared global strategies and cooperation will succeed in dealing with them (e.g. climate change and the COP21 conference in Paris in 2015, and COP28 in Dubai in the United Arab Emirates in 2023). As Sustainable Development Goal 17 makes clear, in order to deal with the current economic challenges faced by developing countries and made worse by climate change, debt levels, disruptions to trade and population trends, a global partnership will be necessary. However, critics argue that so far negotiations on global challenges have produced only modest consensus and even less in terms of practical results. The Covid-19 pandemic and the war in the Ukraine have damaged, distorted or simply changed global trading patterns and the duration and extent of the effects on the system are still difficult to forecast. All in all, it seems likely that countries will become more dependent on local production or production by friendly states. However, since globalization is driven by technological progress, which is unlikely to halt, countries, their partners and allies and the international community as a whole will need to learn to manage more effectively this largely irreversible process.

http://en.wikipedia.org/wiki/Globalization

http://en.wikipedia.org/wiki/World_Bank

http://www.worldbank.org/

http://wiki.answers.com/Q/What_are_the_objectives_of_the_International_Monetary_Fund

https://www.wsj.com/articles/new-rules-to-make-globalization-work-1491335443

https://www.forbes.com/sites/mikecollins/2015/05/06/the-pros-and-cons-of-globalization/#2025f589ccce

https://www.theguardian.com/commentisfree/2016/nov/20/the-guardian-view-on-globalisation-its-death-is-the-making-of-it

http://www.bbc.co.uk/worldservice/specials/182_financial_mdg/page3.shtml

http://en.wikipedia.org/wiki/Globalization_and_Its_Discontents

http://www.worldwatch.org/node/559

http://www.independent.org/publications/tir/article.asp?a=457

http://www.theguardian.com/environment/georgemonbiot/2015/dec/12/paris-climate-deal-governments-fossil-fuels