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Covid-19 | Strengthening alliances in a post-Covid world: green recovery as a new opportunity for EU-China climate cooperation?

30 September 202029 September 2020 0 min read

As nations turn their attention to fighting the economic crisis resulting from the Covid-19 pandemic, green recovery seems to be a good—and perhaps for the first time, possible—option. As climate change remains the most pressing challenge despite the severity of the global Covid-19 pandemic, a green recovery plan to slow down global warming and meet climate goals becomes imperative. Leaders in the EU are taking the lead in greening the recovery, while China seems to be following suit. A ‘green consciousness’ seems to be emerging. Could these efforts improve EU-China relations and help these two global powerhouses work together to fight climate change? asks Hao Zhang.

As the IMF’s latest report on fiscal policies shows, the Covid-19 crisis won’t change the global climate that is also in crisis, but responses to it might. Even though science hasn’t produced an answer on whether the current economic crisis induced by the pandemic will indeed affect the stock of greenhouse gases in the atmosphere, efforts to address it certainly will. It is undeniable that the current health and economic crisis together create a threat to our current development trajectory and that the scope and severity of the issue to some extent make lasting efforts and immediate actions crucial. These decisions on how we will recover from the pandemic and the resulting crisis will shape our society for the next few decades and, even more importantly perhaps, how we deal with our climate and environmental challenges. As the IPCC’s report warned that our current ambition and willingness are far from pushing us to reach our goal of containing global warming, a green recovery plan becomes imperative in a post-Covid-19 world.

The question then arises: How do we green our recovery? As the IMF suggests, fiscal policymakers should take the lead in making policies that support climate goals without undermining the purpose of boosting the economy. Then, finance ministries should be able to set up concrete and practical projects to implement these policies. In addition, public support for the green policies with the rationale that curbing emissions would likely reduce the risk of respiratory diseases is indispensable. In a post-Covid-19 world, this might sway the public in support of green measures in a way it never has before.

The EU seems to be taking the lead in employing green measures to recover its lockdown-hit economies. As policymakers tend to believe that a green plan can better help revive the economy, concrete actions can be witnessed. In May this year, the European Commission proposed a €750 billion recovery fund with green conditions, 25% of which is to be set aside for climate action, meaning that one-quarter of expenditure with a ‘do-no-harm’ clause can potentially rule out environmentally damaging investments.[1] In addition, the Commission also issued a €1.85 trillion, seven-year budget and pandemic recovery package. This EU green recovery package could be introduced elsewhere to stimulate the economy while fighting climate change.

In addition, the EU launched the world’s largest programs for innovative low-carbon technologies under the fund from the EU’s emissions trading system. This innovation fund is created to finance breakthrough technologies for renewable energy, energy-intensive industries, carbon capture, use and storage, etc. These could help create local job opportunities, lead the economy to a climate-neutral place, and also help the EU maintain its technological leadership in climate change. It is obvious that the EU pays great attention to the future of clean technologies, yet it allows member states and the market space to decide how the money is spent. The member states will be allowed to use their allocations from the EU’s Recovery and Resilience Facility for a wide range of green projects detailed in their national energy climate plans, and their proposals will be reviewed by the Commission; at the same time, private capital will be encouraged to invest in clean energy technologies.

On the other side of the world, in China, residents also survived the first wave of the pandemic, and the government is now also making recovery plans. This May, in the report on the work of the government, the development of renewable energy and efforts toward the clean and efficient use of coal were emphasized.[2] At the same time, this year for the first time Beijing has decided not to set an economic growth target, which is interpreted as a way to help China shift away from energy-intensive infrastructure projects.[3] This indeed has sent out a very positive signal; however, given that China still hasn’t submitted its Nationally Determined Contributions (NDCs) for the next reporting round, it also raises concerns about a lack of practical assurance.

Nevertheless, the cooperation between the EU and China in regard to green recovery seems promising. At the recent 22nd China-EU Summit on September 14 this year, President Xi Jinping stated that

China is interested in forging a green partnership with the EU and constructively participating in the global process of tackling climate change and preserving biodiversity. We are researching on reaching our long-term vision in the mid-century,[4] which includes carbon-peaking and carbon-neutrality.[5]

It is thus obvious that economic recovery after the Covid-19 pandemic is considered a top priority for leaders of both the EU and China, and it becomes increasingly clear that both parties are interested in a recovery package that aligns with their green transition goals.

Looking ahead, the EU and China can cooperate with each other in a few fields. First, the EU’s experiences could help China transition more rigorously to the use of green energy, especially in cutting the number of carbon-powered plants and subsidizing new energy vehicles. Second, the EU and China could agree to channel public and private funds to low-carbon investments both at home and abroad. Both parties are big investors of overseas development projects; they can thus work together to invest in projects subject to green terms. Going a step further, the EU and China could also work on developing international standards for sustainable finance[6], and China could learn from the EU’s experience in committing to more ambitious climate targets, specifically making ‘decarbonization’ a top priority in its next five-year plan.[7] Hopes are high for future cooperation between the EU and China in leading the world toward a green recovery, yet key decisions need to be made by both parties.

[1] Refer to Climate Home News, “EU €750 billion Covid recovery fund comes with green conditions”, May 27, 2020.

[2] Refer to ccchina.org.cn, 一图读懂2020政府工作报告, May 29, 2020.

[3] Refer to Climate Home News, “China prioritises employment over GDP growth in coronavirus recovery”, May 22, 2020.

[4] President Xi confirmed that China will try to reach carbon-neutrality before 2060 in his speech at a high-level meeting to mark the UN’s 75^th anniversary on September 22^nd, 2020.

[5] Refer to Global Times, “推动疫后全球经济复苏中欧领导人视频会晤定目标”, September 15, 2020.

[6] Refer to China Dialogue, “Hopes for EU-China climate deal centre on a green recovery”, June 17, 2020.

[7] Refer to China Dialogue, “中欧气候协议前景如何？”, September 14, 2020.

About the author:

Hao Zhang is a PhD candidate at the International Institute of Social Studies (ISS), Erasmus University Rotterdam (EUR). Before joining ISS, she was a master’s student majoring international affairs at School of Global Policy and Strategy at University of California, San Diego. Her current research focus on policy advocacy of Chinese NGOs in global climate governance. Her research interests lie in Chinese politics, global climate politics and diplomacy.

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To fight or to embrace? Divergent responses to the expansion of Southern China’s industrial tree plantation sector by Yunan Xu

8 April 201918 May 2020 4 min read

The industrial tree plantation sector has been expanding rapidly and massively in Southern China, affecting the livelihoods of the local population residing in the region. But is change resisted or embraced? A recent study on the political economy of Southern China’s industrial tree plantation sector shows that differentiated positions of villagers in their communities lead to distinct political responses to the expansion of the sector.

In the past two decades, the industrial tree plantation (ITP) sector has been expanding rapidly and massively in Southern China, and especially in Guangxi Province. ITPs refer to monocultures of fast-growing tree crops (such as eucalyptus, pine and acacia) mainly used for inedible industrial raw materials. The rise of the ITP sector, involving both foreign and domestic actors, has led to extensive changes in land use and land control, as well as in labour conditions and livelihoods of the villagers in this region. These changes and the resulting encroachment by the ITP sector have led to diverse political reactions by affected villagers residing in this region.

A recent study analysed the dynamics of the ITP boom in Southern China. The main finding of the study is that, contrary to what has been observed in many other places around the world where a crop boom has taken place, the local population in Guangxi Province did not necessarily lose and thus did not always resist the expansion. It shows a more complicated trajectory of the livelihood change and political reaction from below in the course of the crop boom, which is beyond “resistance against expulsion”.

Beyond expulsion

In this case of Guangxi Province, interviewed villagers’ livelihoods were not fully threatened even when some of their collectively owned forest land was appropriated due to their diverse livelihood sources and their ability to retain of their farmland owing to certain institutional settings in China (e.g. the household responsibility system). As a result, when part of their land was leased out, they remained capable of maintaining their subsistence. Hence, when studying the local population’s livelihood change during the massive changes of land use and land control, examining what and how much is left to the villagers is just as important as analysing what and how much has been taken from them.

Moreover, affected villagers are not a homogeneous group, but have varying interests and resource endowments, including land control, labour conditions, financial resources and social relations, and were thus affected differentially during the crop boom. Those villagers who controlled little (or even no) means of production and had little (or even no) access to alternative livelihoods became more vulnerable, whereas those with privileged access to livelihood resources were able to benefit from the sector.

In a few cases, some villagers gained control over the land from local or nearby village collectives and became owners of ITPs. Over the course of these practices, grabbers were not outsiders, but local villagers themselves. They were then able to accumulate land and the associated benefits at the expense of their fellow villagers, rather than simply being victims or resisters in a land deal. Such relatively small-scale land grabbing dominated by local villagers is called intimate land grabbing.

These are critical reminders to go beyond the dichotomies of “small vs. large”, “outsider vs. local actors” and “victims vs. grabbers”, and to focus, instead, on the dynamics of social relationships around land and production processes.

Beyond resistance

Because of their distinct positions and diverse degrees of dispossession (or no dispossession), villagers had varying perspectives and diverse political responses towards the expansion of the sector. When villagers were able to get actively incorporated into the crop boom, benefiting from the crop boom, they tended to embrace these changes. When the villagers were passively excluded and had lost out, they were more likely to resist. Thus, the villagers’ concerns were mainly centred on their subsistence and economic gains/losses, which are closely associated with the terms of the villagers’ inclusion/exclusion and their access to the alternative livelihood opportunities. Hence, to understand the trajectory of political reactions, the villagers’ differentiated interests and wins and losses should be the key focus of future analyses.

About the author:

Yunan Xu is a recent PhD graduate of Development Studies at the International Institute of Social Studies (ISS) in The Hague. She has published several journal articles, reports and conference papers. Her research interests include: land politics and policies, rural livelihood, rural politics, agrarian transformation, crop booms, flex crops and food politics, with the geographic areas both in China and beyond (Southeast Asia and Latin America).

Deglobalisation Series | China: ‘restarting’ globalisation? by Chenmei Li

17 April 201818 May 2020 5 min read

After benefiting from international trade and investment for the past 30 years, China’s global position is starting to change. This is perhaps most evident when regarding its position at the centre of an ongoing ‘trade war’ with the United States. Given its role as leader in international trade, will China be able to ‘restart’ globalisation and offer an alternative to globalisation and deglobalisation as defined by the West?

As developed countries appear to step back from globalisation, China senses an opportunity to step forward and set new rules for globalisation. A major component of the Chinese strategy to lead changes in how globalisation is thought of and practiced is the One Belt and One Road Initiative (OBOR) of the Chinese government. Aimed at improving infrastructure and connectivity between China and the world, this initiative comprises more than physical connections. The Chinese government argues that this initiative includes not just economic, but also socio-cultural linkages, ultimately leading to mutual benefits for all countries involved. The OBOR defines China’s idea of globalisation in a new era in which emerging economies backed by rising economic power and strong alliances are seeking greater influence on global issues.

2000px-One-belt-one-road.svg.png — Figure 1. Map of China’s One Belt One Road Initiative, with China in red and the land (black) and sea (blue) routes indicated. Source: https://en.wikipedia.org/wiki/One_Belt_One_Road_Initiative

China’s push for globalisation has evoked mixed reactions across the world, and Beijing has had to deal with multiple obstructions to its vision. Moreover, logistical and bureaucratic issues are plaguing countries participating in the OBOR. For instance, although China has signed bilateral cooperation agreements with Pakistan, Hungary, Mongolia, Russia, Tajikistan, and Turkey, with a number of projects planned under those agreements, the proposed projects have not been implemented. Most such projects are infrastructure-related, for example a proposed train connection between eastern China and Iran, which eventually may be expanded to Europe. Powerful Western economies and neighbouring Asian giants have remained cautious in their assessments and acceptance of the initiative.

Sustaining the benefits of globalisation

An important motivation behind the OBOR is the endeavour to continue to benefit from globalisation. Since 1979, China has implemented an Opening and Reforming Strategy. However, its export in percentage of GDP (trade openness) in 1980 was only 5.9% and outward Foreign Direct Investment (FDI) was 1.7 billion US dollars. Only after the 1990s China’s globalisation process really began. Joining the WTO in 2001 pushed its trade openness to the highest point—higher than the world average and the levels of the UK and US (Figure 2).

Figure 2. Trade openness from 1960 to 2016 for four of the world’s largest economies, with the world average also indicated. Source: World Development Indicators (2018).

China is said to have been the largest beneficiary of globalisation until the economic crisis hit in 2008. After the economic crisis, the international market became weak and the Chinese economy could no longer count on export as its most powerful economic ‘carrier’ (besides investment and consumption). Immediately following the crisis, the Chinese government injected 4 trillion renminbi (RMB) into the economy and boosted short-term investment and consumption. Its long-term plan, which was not clear until 2012, is to further stimulate trade openness and integration into the world economy. China thus seeks to leverage the global market and resources to boost its economic growth.

At the helm of rebuilding globalisation efforts?

China does not only want to continue to benefit from globalisation, but also wants to lead the rebuilding of a global system where it could assume a leading role. The current deglobalisation phenomenon does not mean that the general globalisation trend will cease, because the core driver of globalisation is technology, which is advancing faster than ever. However, it does suggest a splintering (if not collapse) of the current globalisation system created after World War II and shaped to its current state largely by developed economies.

Trumpism and Brexitism are both symbols of the deglobalisation phenomenon but are not evidence that the traditional leaders of globalisation are deglobalising their economies. Instead, such symbols show the recognition of the need for a new globalisation system by both ‘traditional’ world leaders like the US and UK as well as emerging powers who were largely excluded from the last global rulemaking process and now hold a share of the world GDP so significant that they cannot be ruled out again.

However, globalisation in China has always been selective, well-managed, and restricted mainly to economic and trade-related activities. Besides its achievement regarding global trade, China shows little achievement or/and willingness to be globalised in terms of, for example, finance, human resources, and culture. The exchange rate is under careful control. English education in China is mandatory since middle school, but the real usage of English is still quite limited. China is known to be the most difficult country for foreigners to attain residence permits, and to date it blocks direct access to the global internet. These are all signs that Beijing is not too eager to participate in all forms of globalisation.

China needs to tread carefully

And thus its attitude may jeopardise China’s idea of globalisation through the OBOR initiative. The explanation often used by Chinese government for the selectivity related to the initiative is its desire to minimise the negative effect of Western-Defined Globalisation and to respect China’s special country situation. However, China’s attitude towards the OBOR must be open-minded and holistic, both tolerable of and acceptable to a wide range of ideologies.

The Chinese government seems to realise that and is promoting the OBOR as ‘the most inclusive globalisation system’. Formally, the OBOR emphasises five key areas of cooperation, including economic, financial and social exchanges, and the private sector is encouraged and expected to be the main driver of the initiative. Unfortunately, the current situation suggests that OBOR has been largely driven by state-owned enterprises and government-level trade agreements, and is limited to global trade. The areas that are not engaged by the plan, such as culture, education, data sharing and immigration, are likely to hinder China’s efforts towards globalisation, especially in a digital world where technology is developed at such a high speed.

In conclusion, China will continue to seek leadership in restoring the globalisation system, with the OBOR initiative as its core measure. However, both traditional leaders and other emerging powers still have a say in how and whether the globalisation system is re-established. Consensus may not have been reached between countries, but the globalisation trend is likely to continue—and at a faster pace due to new technologies. If China truly wants to become a major global leader in the quest to ‘restart’ globalisation, private sector involvement in areas other than trade need to be encouraged through a more open-minded attitude.

Also see: Deglobalisation 2.0: Trump and Brexit are but symptoms by Peter. A.G. van Bergeijk and Challenges to the liberal peace by Syed Mansoob Murshed

About the author:

Chenmei Li is a Project Analyst at Institute of New Structural Economics, Peking University—one of the top 25 think tanks in China. She is working on economic transformation of developing countries (especially in Africa) and China’s engagement with LDCs. She received a Master’s degree from the ISS in 2016.

The imperial intentions of Trump’s trade war babble by Andrew M. Fischer

6 April 201818 May 2020 6 min read

In defence of his trade war with China, Trump claims that ‘when you’re $500bn down you can’t lose.’ The problem with this stance is that persistent US trade deficits with China are arguably a sign of US strength or even imperial privilege, not weakness. However, on this issue, he has much of conventional economics wisdom supporting him in his delusions that the US is being treated unfairly or is ‘behind’ based on these deficits.

Trump’s trade tirades are being vigorously disputed by liberal economists the world over, although the riposte is usually in defence of free trade and existing trade deals. However, many of these same economists have promulgated the underlying idea that US trade deficits are the result of some sort of disadvantage or decline.

For instance, as I discussed in 2009, 2010, 2011 and 2012, many prominent economists such as Paul Krugman argued then (and many still do now) that China’s undervalued currency gave it an unfair advantage, causing deficits and even financial bubbles in the US. Many economists on the left have taken a similar line of argument. For instance, Yanis Varoufakis argues that US trade deficits have planted the seeds for the downfall of the US ‘Minotaur’ because it has made the country increasingly dependent on the willingness of other countries to finance these deficits.

Beyond methodological nationalism

The problem with this reasoning is that international trade, income and financial data mostly represent the trade, income and asset movements made by corporations. Conversely, our system of international accounts is severely out of date given that these data are still reported on the basis of country residence rather than ownership. It also treats these flows as if they were arm’s length trades in final goods, or so-called ‘autonomous’ flows of income or finance, rather than the internalised operations of lead firms and their networks of subsidiaries, affiliates, or subcontractors.

The country-based framing of the international accounts serves to obscure the very resilient and virulent foundations of US power, based in the private corporate sector. Corporate ownership and/or control of trade, income and financial flows have become increasingly internationalised, even while remaining predominantly centred in the North and with a strong allegiance to maintaining US dominance. International efforts to track and govern these aspects of ownership or control from the 1970s onwards have also been systematically undermined, especially by the US. As a result, the antiquated international accounting system is very unfit for the task of tracking these corporate activities. Most of the discussion on global imbalances avoids this reality.

In this sense, as argued by Jan Kregel already a decade ago, the US shift to systemic trade deficits from the late 1970s onwards is best understood as a reflection of this internationalisation of US-centred corporations as well as the increased profitability of these US corporations operating in the international economy.

A simple stylised example is the iPhone. When Apple sends a production order to a subcontractor, this is not recorded as a service export from the US. However, the return export of the iPhone is reported as a goods export from China, even though the export is contracted by Apple, a US company. The iPhone is then sold in the US at many times its exported value, and the vast majority of the value of the final sale is accrued in the US. The US has a merchandise trade deficit in this production and distribution network, even though this deficit is associated with the immense value-added accrued in the US and the profitability of Apple. The same applies when Walmart exports from itself in China to itself in the US.

The idea that China’s surpluses and foreign exchange reserves constitute increasing power is similarly based on this flawed understanding of international accounts. As I have argued in 2010 and 2015, a rarely acknowledged attribute of the explosion of China’s surpluses in the 2000s was their rapid denationalisation. Foreign funded enterprises (FFEs)—most fully foreign funded—quickly came to dominate the exports of China, and then the trade surpluses themselves, to the extent that by 2011, FFEs accounted for over 84% of the merchandise trade surplus.

This share subsequently fell sharply due to a surge in exports from non-FFEs, although this was also in a context of falling current account surpluses as a proportion of GDP. As shown in the figure below, this was due to increasing deficits on China’s services account, which reached 2% of China’s GDP in 2014-16, knocking out about half of its goods surplus in 2014 and 2016.

China also returned to running deficits on its income account from 2009 onwards (with the slight exception of 2014), despite being a major international creditor. As explained by Yu Yongding, this is because China’s foreign assets mostly earn very low returns, such as in US treasury bills, whereas foreign investment in China is very profitable, possibly in excess of 20-30% per year, thereby cancelling out any of the balance of payments benefits that would normally accrue to being a major international creditor.

Graph Andrew Fischer article — Source: Author’s calculations from IMF balance of payments and international finance statistics (last accessed 21 March 2018).

Notably, the US is the mirror image of China: it is a major international debtor and yet it earns a surplus on its income account. Both situations were due to profit remittances, e.g. profits leaving China and entering the US. Indeed, Yilmaz Akyüz estimates that the net current account position of FFEs in China has been in deficit in recent years, meaning that their profit remittances were cancelling out their merchandise trade surpluses.

In other words, after the exceptional but historically brief period of running very large ‘twin surpluses’ (on both the current and financial accounts), the current account structure of China has reverted to a pattern that, as I explain in a recent article, is common among peripheral developing countries. The pattern is characterised by goods trade surpluses that counterbalance service account deficits (dominated by payments to foreign corporations) as well as the profit remittances of foreign corporations (and of other foreign investments, whether licit or illicit).

These rapid transformations have been reflective of the increasingly deep integration of China’s foreign trade into international networks dominated by Northern-based transnational corporations. The model has resulted in exceptional export performance, although this has occurred through the injection of considerable but underappreciated sources of vulnerability.

Indeed, as noted by Yu Yongding, from 2015 to 2017 the People’s Bank of China undertook the largest intervention in foreign exchange markets that any central bank has ever taken in order to prevent a run on the renminbi. This depleted its foreign exchange reserves by over 1 trillion US dollars. In another recent article, Yu adds that from 2011 to 2017, around 1.3 trillion US dollars of China’s foreign assets had effectively disappeared, probably reflecting capital flight. Together with the run on the renminbi, these were the principal reasons that the Bank of China put a hold on capital account liberalisation and tightened capital controls to an extent not seen since the East Asian financial crisis of the late 1990s.

Considering that much of such capital flight is destined for the US, either directly or indirectly via multiple offshore financial centres, in addition to the profitability that US corporations derive from China’s trade with the US, it is clear that the US is in the more powerful position in this bilateral relationship.

The imperial utility of trade decline discourses

From this perspective, the deep US trade deficits that have persisted since the early 1980s arguably represent a new form of advanced capitalist imperialism, the emergence of a system of tributes whereby states around the world effectively subsidise the expansion of US-centred capitalism. At the very least, the deficits are signs of a structural shift underlying global power relations, based on an increasingly predatory form of financialised capitalism, with the US still at its helm.

Much like with discourses of Soviet rivalry in the 1960s and 1970s, the current babble of US decline and lagging serve an ideological purpose within these continuing transmutations of US-centered power. It is effectively aimed at subordinating other countries and shifting the burden of adjustment onto them, while distracting attention away from the US-centered, corporate-led restructurings of global production systems that underlie US deficits in the first place.

Main photo: https://pixabay.com/en/donald-trump-politician-america-1547274/

About the author:

Andrew M. Fischer is Associate Professor of Social Policy and Development Studies at the ISS, and laureate of the European Research Council Starting Grant, which he won in the 2014 round. He is also the founding editor of the book series of the UK and Ireland Development Studies Association, published by Oxford University Press, titled Critical Frontiers of International Development Studies. He is also editor of the journal Development and Change. His forthcoming book, Poverty as Ideology, won the 2015 International Studies in Poverty Prize, awarded by the Comparative Research Programme on Poverty (CROP).

Deglobalisation Series | Challenges to the liberal peace by Syed Mansoob Murshed

3 April 201818 May 2020 6 min read

We may have reached a stage where economic interactions have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace.[1] But the logic of the capitalist peace still holds water; the intricate nature of the economic interdependence between advanced market economies almost entirely rules out war, but other hostile attitudes can still persist, and even grow.

Liberal peace theories posit that peace among nations is not a result of a balance of power, but rests on the pacific nature of commonly held values, economic interdependence, and mutual membership of international organisations. Ideal theories of the liberal peace can be traced back to the work of Immanuel Kant, who in his essay on the Perpetual Peace[2] argued that although war is the natural state of man, peace could be established through deliberate design. This requires the adoption of a republican constitution simultaneously by all nations, which inter alia would check the war-like tendencies of monarchs and the citizenry; the cosmopolitanism that would emerge among the comity of nations would preclude war. The European Union is the most obvious, albeit imperfect, example.

Mirroring Kant’s thoughts is the contemporary philosopher John Rawl’s [3] notion of peace between liberal societies, which he refers to as peoples and not states. He speaks of well-ordered peoples. These are mainly constitutional liberal democracies, which arrive at such a polity based on an idea of public reason. In a well-ordered society, based on public reason, human rights are respected, and the distribution of primary goods (a decent living standard, dignity, respect and the ability to participate) for each citizen’s functioning is acceptably arranged.

Another version of the liberal peace theory based on economic interdependence is the ‘capitalist’ peace notion.[4] The intensity of international trade in an economy is the least important feature in the peace engendered by capitalism. The nature of advanced capitalism makes territorial disputes, which are mainly contests over resources, less likely, as the market mechanism allows easier access to resources. The nature of production makes the output of more sophisticated goods and services increasingly reliant on “ideas” that are research and development intensive, and the various stages of production occur across national boundaries. Moreover, the disruption to integrated financial markets makes war less likely between countries caught up in that web of inter-dependence. It is also argued that common foreign policy goals reflected in the membership of international treaty organisations (such as NATO and the European Union) also produce peace.

The chances of the well-ordered, tolerant societies envisaged by Rawls living in peace within themselves and with one another have greatly diminished with the recent rise in inequality, the growing wealth and income share of the richest 1-10% of the population, and the rise in varieties of populist politics. Also, the quality of Kant’s foedus pacificum has been dealt a severe blow by nations such as the UK choosing to leave the European Union, adversely affecting the utilisation of soft power via common membership of international organisations.

We also may have come to a stage where economic interactions such as the exchange of goods, provision of services and the movement of finance have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace.[5] But the logic of the capitalist peace still holds water; the intricate nature of the economic interdependence between advanced market economies almost entirely rules out war, but other hostile attitudes can still persist, and even grow, given recent developments. This includes the rise in populist politics.

The rise of populist politics

The growth in inequality, but more especially the creeping rise in the social mobility inhibiting inequality of opportunity, has spawned the illiberal backlash manifesting itself in the rise in mainly right wing populist politics. A large segment of immiserated voters vote for populists knowing that, once elected, the populist politician is unlikely to increase their economic welfare, as long as they create discomfiture for certain establishment circles, vis-à-vis whom these voters see themselves as relatively deprived. Immigrants and immigration is scapegoated and made responsible for all economic disadvantage and social evils following the simplistic and simple-minded message of right-wing demagogues. It has to be said that left-wing populism, too, has emerged in many societies, mainly among educated millenarians whose economic prospects are often bleaker than those of their parents, and in regions (such as Latin America) with a strong Peronist tradition.

By contrast, during the golden age, which lasted for a little over a quarter of a century after World War II, no particular group in society was disadvantaged by economic growth and the advance of capitalism. The elites appeared to internalise the interests of the median and below-median income groups in society. Social mobility was palpably present, and social protection cushioned households against systemic and idiosyncratic economic shocks. The growth in inequality linked to globalisation and labour-saving technological progress since the early 1980s has disadvantaged vast swathes of the population: it first pauperised the former manufacturing production worker through either job offshore relocation or stagnating real wages, and latterly it is emasculating even median service sector occupations. At the same time the income and wealth share of the top 1-10% of the population grows at an accelerating pace, faster than the rise in national income.[6]

In developing countries there has been a growth in autocratic tendencies, the liberal half of a liberal democracy, even when the other part of democracy, the electoral process, is broadly respected. The use of plebiscites by strong men to garner greater power has been a frequently used tool. There is even talk of autocratic rulers delivering development and economic growth and autocratic tendencies may be greater in nations that have achieved economic structural transformation. But the logic of the “modernisation”[7] hypothesis that argues that democracy is demanded by society as it becomes affluent may still ring true, even if the process is non-linear, and other complex factors need to be taken into account.

A hyper-globalisation trilemma?

Faced with these challenges, we need to abandon our “Panglossian” faith in the ability of markets to always do good. The rules of globalisation and capitalism only serve elites who are owners of internationally mobile skills and wealth. There may be a hyper-globalisation trilemma[8], whereby the simultaneous achievement of national sovereignty, democracy and hyper-globalisation is impossible. It is worth reiterating that hyper-globalisation refers to a situation where for the collective the pains from increased globalisation in terms of adverse distributional consequences outweigh the gains in terms of enhanced income.

Earlier advances of globalisation was made relatively more acceptable in Europe compared to the United States, given the greater prevalence of social protection in the continent. Gradually, after 1980, and especially since the dawn of the new millennium, more and more groups have been disadvantaged by globalisation, and the politics of austerity has diminished social protection, fraying pre-existing domestic social contracts. Thus, many advocate a more limited globalisation, akin to the halcyon days of the golden age, also known as the Bretton Woods era (1945-73), whose hallmark was that the demands of globalisation never exercised veto powers on the domestic social contract.

A retreat from hyper-globalisation is desirable, but not through channels that diminish international cooperation and partnership, like Brexit and President Trump’s protectionist sabre rattling that undermine agreements like NAFTA. What is needed is internationally coordinated checks on hyper-globalisation and agreements on certain wealth taxes on the richest individuals, which is needed to address the alarming rise in wealth inequality given the fact that social protection can only have a palliative, and not curative, impact on these stupendous inequalities.

References:

[1] Rodrik, Dani (2017) Straight Talk on Trade: Ideas for a Sane World Economy, Princeton: University Press.

[2] Kant, Immanuel (1795) Perpetual Peace and Other Essays on Politics, History and Morals, reprinted 1983. Indianapolis: Hackett Publishing.

[3] Rawls, John (1999) The Law of Peoples, Cambridge, MA: Harvard University Press.

[4] Gartzke, Erik (2007) ‘The Capitalist Peace’, American Journal of Political Science 51(1): 166-191.

[5] Rodrik, Dani (2017) Straight Talk on Trade: Ideas for a Sane World Economy, Princeton: University Press.

[6] Piketty, Thomas (2014) Capital in the Twenty-first Century, Cambridge, Massachusetts: Harvard University Press.

[7] Lipset, Seymour (1960) Political Man: The Social Bases of Politics. New York: Doubleday.

[8] Argued by Dani Rodrik; see, for example, Rodrik (2017), op. cit.

Also see: Backtracking from globalisation by Evan Hillebrand

About the author:

Syed Mansoob Murshed is Professor of the Economics of Peace and Conflict at the International Institute of Social Studies (ISS), Erasmus University Rotterdam in the Netherlands. His research interests are in the economics of conflict, resource abundance, aid conditionality, political economy, macroeconomics and international economics.

Deglobalisation Series | Backtracking from globalisation by Evan Hillebrand

27 March 201818 May 2020 5 min read

While globalisation still enjoys strong support in the Global South, major economies in the Global North now seem less enthusiastic about its purported benefits. This article explores how the United States through its previous policies came to backtrack from globalisation, showing that it is an altogether unsurprising development.

From the perspective of the United States (US), embodied in US president Donald Trump’s recent discourses, the liberal international trading system faces at least three major economic and socio-political challenges going forward: (1) income redistribution, (2) the rise of Asia and a potential shift in comparative advantage, and (3) the rise of China and the national security argument. Given the growing domestic unease with free trade and the fact that these exacerbating issues are worsening, I suggest that US policies will become less supportive of globalisation.

US withdrawal: surprising or expected?

In our 2011 article, “Backtracking from Globalization” (1), my coauthors and I discussed the declining support for globalisation in the United States and elsewhere. Since then the trend has gotten worse.

But why shouldn’t it? The US, after all, has only had a liberal trade policy for 60 or so years. In its early years, US policy focused on high tariffs, large subsidies to key industries, and infrastructure investment designed to create an industrial economy for the sake of military and economic power (sounds not too dissimilar to China today). The US moved to a freer-trade stance when the US was economically dominant and an expansion of global markets seemed as if it would be economically beneficial.

The US free trade strategy was also based on political theories and grand strategy. After World War II, trade expansion was seen as a good way to bolster Europe economically, tie it to the West, and strengthen the West against the Soviet Union. The US spurred the creation of the GATT/WTO in an effort to bring all countries into a democratic rule-based system under the assumption that trade would help all countries prosper under US leadership. Since 1980 or so, the US has tried to lure China into the world market system to foster interdependence and peace. In many respects, that policy can be considered a great success—ushering in a vast improvement in the material standard of living almost everywhere and many decades of great-power peace. China also did turn away from its Maoist phase of development.

Ebbing enthusiasm for globalisation

Support for globalisation, however, is clearly headed in a negative direction and the ebbing of enthusiasm has been particularly dramatic in the United States. Recent polling data from the Pew Foundation and the Council on Foreign Relations (2) show that there is still support for international trade, but a majority worry that trade generates labor market costs in terms of job destruction and lower wages. This worry helped elect the current US president and his administration talks more about fair trade than free trade: ‘Nothing about the theory of comparative advantage would lend itself to a defense of a status quo that imposes higher barriers to exports on American producers than on foreign producers’ (Economic Report of the President 2018: 219) (3).

It is important to understand that it is not ignorance that has led US policy in this direction.

Many voters were lured to Donald Trump’s “America First” pitch because of a perception that wages were stagnant and communities were hurt because of globalisation. In reality it is more than just a hunch: income distribution in America has worsened and academic research by Paul Krugman (4) and others attributes some of that worsening to trade, although the magnitude of trade’s contribution is (and always will be) in dispute.

Support for globalisation has to some extent rested on the theory of comparative advantage, but that theory has never been the “slam dunk” argument that enthusiasts have made it out to be. It depends on so many assumptions that do not fit the current world economy, so the theory should only be relied upon as a general principle, not the decider of every policy dispute. Paul Samuelson (5) claimed in 1972 that the aggregate gains from trade are not necessarily positive. He expanded on this idea in his (2004) paper, ‘Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization’, saying that growth in the rest of the world can hurt a country if it takes place in sectors that compete with its native exports—where it has comparative advantage.

The rise of China

Relative, and even absolute, per capita GDP can fall in such a situation (6). Whether China’s rise can actually diminish the US is not clear, but the current Chinese government continues to employ active trade policies to push its industries up the value chain, aiming explicitly at sectors that have been the mainstay of US industrial pre-eminence. Samuelson says that ‘economic history is replete with examples like this, first insidiously, and later decisively’, pointing explicitly to British manufacturing being overtaken by US industry after 1850.

In addition to the economic threat posed by China, the US government has long worried about the security threat posed by China’s rise. The US-China Economic and Security Review Commission is an organisation chartered and funded by the US Congress and dedicated to the proposition that China poses a multifaceted threat to the US. It yearly issues a massive report that cites declines in the US defense industrial base, insecurity of defense supply lines, financial threats, Chinese ownership of critical US facilities, cyber threats, and other problems—all related to China. In the most recent report (7), it lists 26 recommendations for congressional action, many of which would amount to new trade restrictions.

Trade policies, while often rooted in interest groups scrambling for distributional gains, are also related to national economic and security concerns. In the past, pragmatic national interests have pushed trade policy in varying directions. There is no reason now to believe that the US is giving up on international trade, but there is every reason to believe that for a variety of national interests it will be much less enthusiastic about globalisation in the future.

References:

(1) Hillebrand, E.E., J. Lewer and J. Zagardo (2011) ‘Backtracking from Globalization’, Global Economy Journal 10(4).

(2) Poushter (2016) American Public, Foreign Policy Experts Sharply Disagree over Involvement in Global Economy. Pew Research Center, http://www.pewresearch.org/author/jpoushter.

(3) Council of Economic Advisors (2018) Economic Report of the President. Washington, D.C. https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL.pdf

(4) Krugman, P.R. (2008) ‘Trade and Wages, Reconsidered’, Proceedings of the Brookings Panel on Economic Activity. Spring conference. Available at: (http://www.princeton.edu/~pkrugman/pk-bpea-draft.pdf).

(5) Samuelson, P.A. (1972) ‘Heretical Doubts About the International Mechanism’, Journal of International Economics, 2(4): 443-453.

(6) Samuelson, P. (2004) ‘Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization’, Journal of Economic Perspectives 18(3): 135-146.

(7) U.S.-China Economic and Security Review Commission (2017) 2017 Report to Congress. Washington, D.C. Available at https://www.uscc.gov/sites/default/files/annual_reports/2017_Annual_Report_to_Congress.pdf

Also see: Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

About the author:

Professor Evan Hillebrand taught international economics at the Patterson School of Diplomacy and International Commerce at the University of Kentucky. His most recent book is Energy, Economic Growth, and Geopolitical Futures (MIT Press, 2015).