Globalisation's end could mean the end of good times

This is not the best of times but the worst of times; this is not the age of wisdom but that of foolishness; this is not the epoch of belief but that of incredulity.

Readers who are familiar with Charles Dickens' A Tale of Two Cities would certainly think that I got the above quote wrong, but it is intentional. I tweaked the words to put forth the main idea of this article: we are indeed living in a terrible, foolish world today filled with incredulity.

The Russia-Ukraine war has been ongoing for over a year, with speculations of an impending spring counteroffensive. I have a particularly ominous feeling about Europeans fighting wars because their wars had the tendency to escalate into world wars, as was seen twice in the last century, both of which were devastating.

I once believed that the Europeans have become smarter - the process of European integration has been going well and nothing truly major happened even after Europe was divided into two separate areas during the Cold War. Alas, they still messed up.

On the one hand, the "peace dividend" is disappearing; on the other hand, the wave of globalisation over the past 30 to 40 years is also faltering.　　

What is globalisation? Put simply, it is an international division of labour: everyone does what they are best at, while capital, technology, labour, land and markets can be exchanged and complement one another. Everyone is interdependent, and the world is integrated into one.

The disadvantages counter to this are evident. Take for example a person who has to hunt, farm, weave, cook and trade all by himself. Putting aside how exhausted he would become, nothing would be done well. Hence, the countries that remain closed off from the rest of the world and are unwilling to or cannot participate in the "global exchange system" are definitely the most inefficient and materially poor countries.

But today, a great reversal has happened - technological decoupling and blockades have become commonplace, and tariff and non-tariff barriers have mushroomed. While these actions have recently been whitewashed as "de-risking", it is clear that trade has been weaponised. In terms of industrial policies, an "arms race" has begun, and everyone is reshoring - out of security considerations, countries are striving to keep strategically valuable industries within the country or to re-establish advantages through subsidies and taxes at all costs.

If a country is unable to build its own production lines and must find a partner to cooperate with, it will choose "friendshoring" - drawing a boundary and only playing with friends in the inner circle.

But the problem is that these so-called friends are not necessarily true friends. For example, to support its own zero-carbon industry, the US passed the protectionist Inflation Reduction Act, which rattled the European Union (EU). If friends are already treated in this manner in the era of deglobalisation, what more is there to say of geostrategic rivals?

Last December, TSMC founder Morris Chang famously said in Arizona during the company's symbolic first equipment installation at its new plant, "Globalisation is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don't think they will be back."

Indeed, the recent happenings in the advanced chips sector are no different from bullying in real life. The US's "Chip 4" alliance is essentially four people conspiring to gang up on their enemy. China's "economic coercion", in which it refused to buy lobster and wine, is no big deal in comparison. But the problem is that its track record in trade has not been great and the country has long been criticised for its harsh forced technology transfer. 　　

In addition, products that can "interfere" with one's thinking are not allowed to enter the country at all, and tech companies such as Facebook and Google do not even have a chance to be heard in Beijing. While US President Joe Biden wants to ban TikTok, those against the ban are American users of the platform; China is simply unable to speak up. In any case, no party should ever forget that when you point one finger, three fingers are pointing back at you.

While globalisation certainly has its own drawbacks, these are outweighed by its advantages. For one, it keeps the cost of living down.

I understand that people are currently feeling the pressure of inflation, but if we stretch the timeline, several things have in fact become "more affordable" based on today's income levels. For example, two to three decades ago, a coat may be sold for US$200 to US$300. Today, the coat is still sold for the same price but with no difference in quality because money has devalued. Although some people may be unhappy about the fact that these coats are made in Vietnam or Bangladesh, they are instantly appeased by the fact that many of Armani's clothes are also manufactured in various factories across Asia.

Furniture prices seem to have stagnated since the last century as well. Six or seven years ago, my friends and I visited Lecong near Guangzhou, and found that it is practically a "furniture town" littered with furniture factories. At the end of our three-day shopping spree, we had to ship our haul back with a container. I guess if such direct-to-consumer enterprises were available when I was younger and had just started a family, my house wouldn't have looked so bare. 　

There is also online shopping, where one can get anything under the sun right from the comfort of one's home, from toilet paper to the most popular bags. This is all thanks to globalisation.

Recently, I read an article on the World Economic Forum website analysing changes in the prices of goods and services in the US over the past 20 years. While the costs of healthcare, education and housing have increased, the prices of many daily necessities have actually decreased. For example, a flat-screen TV cost about 17% of the median income (approximately US$42,000) at the turn of the century, but nowadays you can buy one for less than 1% of the median income (approximately US$54,000).

Prices of items such as mobile and internet connection, and toys have also gone down, while clothes and furniture cost almost the same as 20 years ago despite the high inflation over the past year.

Low-income earners in the US are now boycotting globalisation due to income inequality and job losses. However, they forget that they have been compensated in terms of price stability. If they are forced to buy products made in America in the future, I can only wish them good luck. I have my doubts about how many Americans would be able to afford an iPhone 14 produced by American workers and assembled in the US.

The second downside of the decline of globalisation is that it has dashed the hopes of many people to escape poverty.

In the past, due to the division of labour, as well as the flow of trade and investment, some countries and regions developed rapidly. First, it was the Four Asian Tigers, followed by China as the world's factory, and then the Tiger Cub economies. Vietnam later caught up as well. Hundreds of millions of people were lifted out of poverty, and some significantly improved their lives to cross into the middle class.

Such a magnificent large-scale transformation has never been seen in human history, and will unfortunately be unlikely to be replicated. When efficiency, mutual benefit and win-win outcomes are no longer advocated, the window of opportunity for poverty alleviation is as good as gone.

Throw in the advent of intelligent robots, and the situation becomes even more precarious, as the number of jobs taken away by robots will surely exceed the number of jobs they create. Perhaps right now one robot can replace ten workers, but what will happen when that becomes a hundred or a thousand replacements? Think about those countries that missed out on globalisation and are still lagging behind. Would they have any chips to compete or any bargaining power when the time comes?

Finally, the third area of concern is the dangers of a geo-economically fragmented world.

This ominous sign previously appeared in the 1930s. Today, we can learn from old photographs or textbooks about the devastating Great Depression, with its bank failures, stock market crashes, economic stagnation and high unemployment rates. But there is less focus on the governments' highly interventionist industrial policies, brutal trade wars, the rise of nationalism and populism in the socio-political spheres, and the emergence of right-wing and even authoritarian forces in many countries. Do any of these feel familiar in today's situation?

The lessons from trade wars run the deepest, especially the landmark Smoot-Hawley Tariff Act passed by US Congress in 1930. After the act came into effect, the US raised various import tariffs, prompting European countries to retaliate, leading to an uncontrollable trade war.

Here's a frightening statistic: between 1929 and 1934, global trade volume actually shrank by two-thirds! Mainstream economic opinion believes that the trade war exacerbated the Great Depression. The ill-conceived idea of protecting the domestic market by US politicians failed to help businesses survive; instead, it dealt them a fatal blow when external demand dried up, resulting in even larger-scale bankruptcy. In Europe, people's lives became increasingly difficult, and there was ongoing social and political turmoil, eventually leading to the Second World War.

One might say that protectionism, the Great Depression and the Second World War are interlinked. After the war, people learned their lesson and began reducing tariffs and establishing a multilateral trading system, which marked the beginning of contemporary globalisation. It went full steam ahead.

However, it seems that things have come full circle, and now globalisation has come to an end again.

Previously, the trade war broke out mainly between the industrialised nations on either side of the Atlantic. Today, the main players are even more powerful - the world's two largest economies located on opposite sides of the Pacific. In the past, trade conflicts and the pursuit of self-interest among neighbours ultimately set the stage for war. And now? Some pessimists say that decoupling and re-industrialisation are simply preparations for war.

Isn't the worst human failing that of forgetting history? Then again, the Great Depression and the Second World War are not too distant in the past.

Or maybe within us as individuals or as a civilisation, there is a self-destructive mechanism that appears intermittently, always leading to self-inflicted suffering.

Yet, there are some differences between the two eras. First, after so many years of deeply intertwined relationships, disengaging is not easy when each party has stakes in one another.

Second, the global distribution of economic power today is far more extensive than before, with many countries still advocating for free trade and endorsing the multilateral system, such as the expanding BRICS group (of which China is a member), the rising ASEAN region, and the vast group referred to as the global south, most of whom do not bother arguing with the West but still want to be part of globalisation.

There are those who concur even within the EU. And as long as there are enough of such countries, the decline in global trade may not be too severe, and Morris Chang's doomsday prophecy may not come true.

In the end, it is human nature that will be tested. However, the dark side of humanity appears to be prevailing at the moment, as evidenced by the noise and hostility in daily international news. Many political figures are leading their people in a mad rush, in a terrible, foolish world filled with incredulity.

As a word of caution, please allow me to paraphrase a line from A Tale of Two Cities: we are not all going direct to Heaven, but going direct the other way...

This article was first published in Lianhe Zaobao as "告别全球化，告别美好年代".

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