While the world is going through challenging times, the same old concerns came up again. Is the world going back to the times when rich nations are closing doors to the world? Is protectionism coming back? Have we come to the end of globalization? How will our country be affected by the looming and existing crises?
There is no country that is far from these questions because everyone feels this distress to their bones. Like individuals, companies want to see their future and are pessimistic about how to run their business.
Most enterprises around the world do business with other countries and are confused and worried about how the current global political and economic situation will affect them in the long run.
Is globalization dying?
No. And it’s never going to die. In the chart below we see the global economic integration starting from the 1500s. It was just before the outbreak of World War I when the industrial revolution needed more resources and labor that globalization exploded.
It was only World War II that disrupted the rising as we see in the chart. But after that all the doors opened and nations from around the world raced to benefit from globalization.
China’s integration to the global economy in the late 1970s accelerated the momentum.
As a generation born into this acceleration we were all shocked by the Covid-19 pandemic and the following effects it brought along such as the disruption of GVC, supply chain, insane economic turmoil, high inflation and so forth.
We were not expecting such a disaster in the modern world. All the pandemics were a thing of past times. But it turned out to be the opposite. All of us were caught off guard and none of us had a plan against such a crisis.
The world immediately blamed globalization, grumbling about the fallacy of being dependent on distant countries. Once the initial shock wore off, we turned back to being reasonable but warier than ever.
Did politicians think that way too? The shock of being caught off guard revealed how unprepared and incompetent they could be in times of crisis.
Especially right-wing populist leaders did what they knew best. They resorted to their populist policies, first blaming Covid, then playing the savior role.
As they never expected such a crisis, the pandemic hit them the hardest. Because populist politicians are far from long-term strategies. They try to convince their people that their country can only live in prosperity during their rule. And we’ve all seen how things went for them.
On the other hand, countries governed by contemporary, democratic and institutional norms recover more quickly than the ones led by right-wing and populist politicians.
Today we understand very well that a-b-c plans, alternative strategies, partnerships and policies are very important for every nation in every era. We can see it by looking at the GVC or the Russian invasion of Ukraine. And the pandemic taught the whole world a good lesson not to put eggs in one basket and clearly revealed that globalization also comes with vulnerabilities.
Blaming globalization had already begun with the trade wars initiated by Trump which ignited the tension in the global economy. However, it also showed that globalization could not be prevented so easily. Imports from China shifted to other Asian countries such as Vietnam, Thailand and Indonesia instead of turning into domestic production.
As for the EU, the disruption of the supply chain was the clear picture of the fallacy being dependent on China so much. Since then they have been working on building new partnerships with other countries from trade agreements to foreign direct investments.
We have begun to hear terms such as friend-shoring, ally-shoring and nearshoring more often.
In the meantime China watches everything happening around the world and has its own plans. Xi Jinping is aware of the fact that western block is looking for ways to reduce dependency on China.
Despite the various problems, they keep on investing on the OBOR initiative. Besides, they are building a maritime logistics empire with state-owned companies.
There is one big thing that China has an edge over the west: raw materials. While the EU attaches great importance to the green economy, it’s only possible by using raw materials and rare earth again. And China has them all. In the production of EV cars, solar energy and all kinds of digital technologies raw materials like copper, lithium, nickel, cobalt and rare earth are needed.
This brings us back to globalization. It’s obviously impossible to imagine a deglobalized world. And for sure the world needs peace to survive. Politics and trade are intertwined and require the parties to be more reasonable. China’s zero covid policy and rejection of vaccines from the west clearly confirm this thesis.
The world can no longer break with globalization even in times of sudden shock and crisis. We can only see globalization slowing down for a period of time. In the long run, global trade practices will become even more different. With matters such as the climate crisis, the green deal, and decarbonization on the agenda, the future of global trade will evolve and be shaped by these subjects.
Neither the USA’s strict war with China nor China’s decoupling from western partnerships is good to any nation in the time of globalization.
Emerging markets must evolve and adopt
Developing economies will only be able to integrate into global supply chains and take their place in global trade as long as they can adapt to the new global trade standards. An uncertain future awaits the countries that cannot adapt to the new world in the light of new norms.
Therefore, companies and individuals need to see this trend, understand what is happening in the world and put pressure on their governments in this direction.
Otherwise, they would turn into countries that are rapidly falling behind and whose economy is deteriorating.
Countries are struggling with an unexpected shock for 3 years. The struggle seems to continue in the new year. Rising inflation, unemployment and the decline in global growth are heralds of what kind of year we will have.
Nevertheless, the world economy will continue to grow, at least for 2023, despite the slowdown in its pace.
All these show us that the world will continue to globalize. The precautions and early warning reflexes of companies will be more sensitive.
Companies will take risk management more seriously. And contrary to common belief, the world will become even more global. Countries will spread their risks more by diversifying and expanding their investments, supply networks and cooperation around the world.
In the long run, we’ll see more strategic moves. The world is tired of playing chess, now it’s playing GO.