December 15, 2023: Global News Roundup—Year in Review
“Paradigm shift”—Trade, finance, empire, and the death of globalization
The Global News Roundup collects news stories from entirely international (non-US) media sources on variety of pressing global issues and events.
The US-led global economic order—the one we often refer to as “globalization”—was born from the ruins of WWII, and in 2023, it died. The signs are everywhere, as are the markers of a new, emergent global economic order, one that so far appears to be quite different from its predecessor. As my post from two weeks ago argued with reference to the growing power of commodities exporters, the old order was organized and enforced to meet the needs and interests of the industrialized West, but the new one is empowering a whole new set of countries and economies. This is a big topic, and the discussion below barely scratches the surface. I start with a brief historical discussion and then add in news reports and current events that, for me, served as markers and signposts amidst 2023’s whirlwind of political-economic change.
Political economist Stephen Krasner found back in the 1970s, in an article entitled “State Power and the Structure of International Trade”, that globalized trade and financial systems are a symptom of unipolar international structures, occurring during periods in history in which the international system is governed by a single superpower of overwhelming strength. As the superpower’s strength and power wanes, so too do the open markets over which it presides and from which it extracts economic and political benefits. Krasner studied the period of free trade under the British empire in the 19th century, as well as the post-WWII trade system governed by the US empire.
Globalization since WWII is typically defined with reference to relatively free cross-border trade and financial flows and highly integrated world markets for goods, services, and capital. It is associated with US- and European-dominated institutions like the World Bank, the International Monetary Fund (IMF), the United Nations (UN), and the World Trade Organization (WTO), as well as with the overwhelming dominance of the US financial system and the US dollar.
Following the collapse of the Soviet Union in 1991, many writers and pundits rejoiced and celebrated the victory of the US-led order over its major international rival, and for several decades a sense of permanence, inevitability, and invincibility permeated mainstream analyses. In 1992, Francis Fukuyama, for example, boldly proclaimed the US-dominated, global economic order to be the “end of history”. In 2002 Deepak Lal penned a controversial essay in support of US empire and its associated economic and political institutions entitled “In Defense of Empires”. And in 2005 Thomas Friedman explained how globalization had “flattened” the world, creating opportunity and prosperity for poor and developing countries, permitting them to strive for the enviable standards of living enjoyed by Americans and other Westerners.
But, just a few years later, trouble in US housing and mortgage markets catalyzed a global economic crisis, and globalization began to unravel. In the wake of the Great Recession (2007-2010), gradually and unevenly, governments around the world embraced new kinds of policies and arrangements to protect their economies from volatile and fickle global trade and financial flows and reduce dependence on and vulnerability to the faltering US economy.
A 2011 paper from the US’s National Bureau of Economic Research (NBER) describes how the Great Recession changed international perspectives on financial markets and spurred mounting concerns about globalization’s costs and dangers:
The crisis raised the possibility that integration among advanced economies went too far, reinvigorating the debate about the desirability of a laissez-faire approach towards financial integration. The heavy exposure of European financial institutions to assets associated with sub-prime US mortgages largely explains Europe’s financial havoc and subsequent recession. Going forward, the specter of large and volatile capital flows is raising concerns in emerging markets about their adverse and destabilizing impact on financial stability and economic growth…Episodes of financial and economic distress related to capital flows – e.g. Asian financial crisis of 1997-1998 – and relative under-development of their financial systems further heighten such concerns.
Similarly, referring to shifts and breakdowns in global trade patterns over the prior decade, a 2019 report from the European Central Bank noted,
The drive towards economic integration that characterized previous decades has now faded, which is evident in the slow pace of trade growth in recent years. Having expanded at approximately twice the rate of global GDP in the years leading up to the global financial crisis, the ratio of average imports to GDP growth – or the income elasticity of trade – has fallen to around 1 since 2011. By 2016 there was a growing consensus that lower trade growth had become a permanent feature of the world economy. For example, ECB analysis concluded that global trade was unlikely to revert to its pre-crisis trend and that post-2011 developments constitute a “new normal”.
About six months after the ECB published this commentary, sources in China began reporting the rapid spread of a strange, pneumonia-like illness. By March 2020, the global covid-19 pandemic had effectively shut down large swaths of the global economy, sending US-led globalization into a terminal decline. Governments tried in vain to revive the old order, taking on massive debts in order to provide financial life support to failing businesses and struggling households as consumer spending collapsed, trade slowed, supply chains snarled, and financial markets froze up. In December 2021, the IMF reported that “In 2020, we observed the largest one-year debt surge since World War II, with global debt rising to $226 trillion as the world was hit by a global health crisis and a deep recession. Global debt rose by 28 percentage points to 256 percent of GDP, in 2020.”
Then, in February 2022, Russia invaded Ukraine, setting in motion a grinding proxy war between Russia and the US-led NATO coalition, a conflict that effectively pushed globalization into hospice care. Among other tactics, US and European governments tried to undermine Russian strength with trade sanctions, cutting it out from the major international markets on which it relied for export revenues, including oil, natural gas, grain, fertilizer, and metals markets. Cutting a Great Power out of the global marketplace is a very big deal, and was, in itself, a major contributor to de-globalization. No longer welcome in the globalized system, Russia went ahead and built new, parallel markets and trade and financial arrangements to support its export-dependent economy.
In hindsight, a variety of current events and news stories from 2023 served as signposts and markers along globalization’s downward path. Taken together, they help to roughly chart and outline the final stage of collapse. In January 2023 I discussed deepening economic “fault lines” issuing from the Ukraine war and its impacts on food and energy prices. In February, I covered fragmentation in oil and gas markets associated with sabotage of the Nordstream pipeline, the development of what appeared to be a parallel oil market arising in response to US and European sanctions against Russia, and the emergence of military-economic blocs that were reshaping the global economy into a new system marked by rivalry, competition, high levels of geopolitical risk, and conflict between distinct groups of allied countries.
By March, it had become clear that the US was seeking conflict and war with China partly owing to serious economic problems at home (this was when the banking crisis became public knowledge, including Silicon Valley Bank’s collapse). And it was around this time that the international presses started to realize that some very large and important central banks—in China, Russia, Singapore, India—were stockpiling gold, seeking out a tried and true safe haven to manage economic uncertainty, one that also worked as an alternative currency to help reduce reliance on the US dollar. This was around the time I started to be able to see the outline of something new, a ghost of a sketch of a new economic landscape emerging from the ashes of the old one.
I’m not sure when, exactly, during this past year globalization took its last breath. But if I were pressed to give a hard answer, I think it might have been sometime in April 2023. On April 28, 2023, in a post entitled “Goodbye globalization, hello mercantilism”, I noted:
Lately, governments are rushing to implement new kinds of economic policies, ones that involve heavier regulation of global trade and finance and that benefit themselves and their allies at the expense of their rivals and enemies. In the history of global capitalism, this kind of system—called a “mercantilist” global economy—is the rule, not the exception. Over the past 500+ years, there are really only two brief periods economic historians characterize as having mostly free trade and open global markets, from roughly 1840-1880 and again from roughly 1990-2008, as the British and American empires, respectively, cajoled, coerced, and forced global markets open. In other words, the hyper-globalized economy that we’re used to is historically pretty rare, while mercantilism is ‘business as usual’.
The outline of the new economic order that I had flitting around in my head grew more solid in April and May 2023, following the NATO-Ukraine coalition’s brutal defeat in Bakhmut and the efforts of six African nations to convince the US and Europe to make peace with Russia. US-led globalization (a “unipolar” system), was being rapidly replaced by an order in which many countries had more equal power (a “multipolar” system). NATO’s defeat in Ukraine, alongside growing willingness of smaller and poorer nations to defy the US and openly criticize its policies, was a powerful example of this transition. By summer, I saw multipolarity everywhere, including in the rise of barter trade among lower- and middle-income countries seeking to reduce dependence on the dollar, anti-French military coups in resource-rich Niger (in July) and Gabon (in August), and the August BRICS summit that resulted in expanded commitments to economic cooperation and invitations for six new members to join the organization.
Events this fall have mostly reinforced my strong sense that the US is no longer the leader of a globalized economic order, but rather has receded such that it now occupies a more middling and mediocre international position alongside many other countries, some of which are hostile to US interests and some less so. The US is no longer unique or special in the global economy. Like so many other countries today, it is wrestling with unsustainable debts that threaten the power and profits of its financial sector, the legitimacy of its central bank and treasury, and the strength of its currency. The US can no longer afford to support open global markets as it faces increasingly stiff competition from abroad (for example, in semiconductor and rare earths markets) and growing resistance to its historic exploitation of people and countries across the Middle East, Latin America, Africa, and Asia.
News over the past couple of months suggests widening international acceptance of globalization’s passing. The Financial Times produced a film this month entitled “The End of Globalization?” that focuses in part on changes in US trade and investment policy, including the CHIPS Act and Inflation Reduction Act, which intensified US economic warfare with China and fundamentally altered global geographies of manufacturing and trade. In October, the IMF’s Global Economic Outlook report was concerned with “global divergences”, i.e., different regions of the world are experiencing different economic conditions, stemming partly from “increasing geoeconomic fragmentation”, and the World Bank expressed similar concerns about de-globalization back in September, citing worries about the impact on development and poverty alleviation.
This past Friday, Russian state media outlet TASS reported comments from President Putin at the 14th VTB Investment Forum "Russia Calling!", who stated that “The world economic system is currently undergoing a paradigm shift”. The sentiment reminded me of a comment I read in Chinese state media last month: “The disadvantages and problems of the old US-dominated unipolar world order and West-dominated globalization have been exposed.”
Interestingly enough, US international state media outlet Radio Free Europe ran an article this week with a headline that read, “Is The Wind Now At Xi and Putin's Backs?” The article noted, “From deepening cracks in Western unity for Ukraine to questions over resolve to support Taiwan, both Chinese leader Xi Jinping and Russian President Vladimir Putin appear to be feeling that time is on their side.” The image below appeared with the article.
(Image: “Chinese President Xi Jinping and Russian President Vladimir Putin make a toast during a reception at the Kremlin in Moscow on March 21”, Radio Free Europe, 12/13/2023, here).
In probably unrelated news, the next Lunar New Year in China begins on February 10, 2024, commencing the Year of the Wood Dragon. According to the South China Morning Post, “Wood represents vitality and creativity, while the dragon is related to success, intelligence and honor in Chinese culture. This combination makes people born in the Year of the Wood Dragon full of energy and drive. They dream of changing the world and are good at coming up with innovative ideas and implementing them. They are perfectionists and will not give up on their goals easily.”
Things I’m keeping an eye on:
1. Non-dollar oil trading: As I’ve argued before, the US dollar is also dead, or mostly so. The (admittedly suspect) website for the BRICS organization reported this week that the UAE has approached China, Russia, India, and Egypt, among others, to “pay local currencies for oil settlement”: “According to reports, the UAE is in talks with 15 countries and is promoting local currency payments ending reliance on the U.S. dollar. The realigning of bilateral strategic partnerships could lead to a paradigm shift in the financial approach of BRICS countries.” Scattered reports from late November and early December partly confirm that the UAE has officially stopped using the US dollar for oil trading, though the switch has not been widely publicized (e.g., here and here, though I haven’t been able to verify this widely enough to be comfortable saying for sure). I’ll keep you posted; hopefully, more reliable reporting becomes available sometime soon.
2. Wars continue to reduce US power and legitimacy abroad: As noted above, the gradual reduction in international support for US conduct abroad has been evident over the course of the Ukraine war, with many former US allies and supporters calling for an end to hostilities. Repeated votes on UN Security Council resolutions for a ceasefire in Gaza provide another sign that the US has lost significant international support and authority, even among its traditional allies. I covered some of this back in November (here), and the most recent resolution was vetoed by the US last Friday December 8. The resolution was introduced to the Security Council by the UAE (which had the backing of over 90 member states to the UN). Thirteen UNSC members voted to approve, including long-time US allies France and Japan, while the US vetoed and the UK abstained.
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Thank you. Your reports are well thought out, you give historical background to boost your observations and not a lot of jargon. I understand what you are saying. I think, personally, 2024 is going to be rougher than 2023. High prices for basics, open borders, education and health systems are lacking and our current government (both parties) seem to be cashing in on these agreements for funding wars. If you go grocery shopping, just sit in the car and watch people. They are under so much stress and they are just trying to get by, survive. If your observations about the world starting to use other methods of currency this is a death blow to the American financial system. You are the only one sounding the alarm. I don’t think current elected officials understand how bad this effect us short term and long term. Have a good weekend and thank you.