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Jan 11, 2024 by Michael Bluhm & Martin Wolf


REMODELING GLOBALIZATION

Why is international trade slowing down? Martin Wolf on advanced technologies,
left-behind communities, and economic warfare with China.
Economy Diplomacy 11 minute read


This week, a U.S. Congressional committee pushed the Biden administration to
consider banning American tech companies from working with an AI development
firm based in the United Arab Emirates—a firm that has contracts with military
and state-owned organizations in China.

This move is news, but more fundamentally it’s part of a deeper transition
that’s been happening for years now—away from unfettered free trade, through
tariffs, domestic subsidies, and, increasingly, national-security policies.

From the outset of Ronald Reagan’s and Margaret Thatcher’s era more than 40
years ago, international commerce had been shaped by greater and greater
liberalization, deregulation, and globalization. The fall of communism in
Central and Eastern Europe in 1989, and then China’s admission into the World
Trade Organization in 2001, helped global trade reach a record high in 2007—just
before the Great Recession.

But things have since started moving the other way. In 2018, referring to
himself as “Tariff Man,” Donald Trump provoked a trade war between the United
States and China. The United Kingdom’s departure from the European Union,
meanwhile, upended Britain’s longstanding commercial ties with the continent. In
2020, the Covid-19 pandemic disrupted supply chains worldwide. And in February
2020, after Russia invaded Ukraine, nearly all European countries broke off
trade relations with Moscow. Data shows that the world’s 20 wealthiest countries
have dramatically increased barriers to trade, including import quotas and
subsidies to domestic industries. What’s going on here?

Martin Wolf is the chief economics commentator for the Financial Times and the
author of the 2023 book The Crisis of Democratic Capitalism. As Wolf sees it,
the world has entered a new era—with the U.S. having decided to abandon
globalized free trade and America’s economic power impelling the rest of the
world to adopt the new model.

Washington’s strategy, Wolf says, is driven by a mix of economic and security
concerns centered on its great-power competition with Beijing. It’s an approach
that looks to move supply chains from China to friendlier countries—and to
repair the damage done to U.S. industries by China’s rise and by global trade
generally. This shift could lead to a decline in global growth, Wolf says—though
developing countries could see gains, as they become alternative production
locations to China. Still, we can’t entirely yet say how other countries will
respond to the new dynamics of global trade—or, more specifically, how China
will react to a system intended to damage its economic standing.

--------------------------------------------------------------------------------

Michael Bluhm: It seems a transformation is underway in international trade. How
do you see it?

Alexander Schimmeck

Martin Wolf: We’ve been living in an era of trade characterized by the immensely
rapid growth of globalization.

Now, globalization can mean a number of connected but different things—so here,
I mean specifically the integration of production across borders. It’s about
trade in goods—not so much in commodities or services. And the most important
element of that trade in goods is manufacturing.


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