Benefits outweigh risks
The headwinds that globalization has encountered primarily stem from mistakes in domestic economic policies of developed countries
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The end of the Cold War gave rise to economic globalization, fueling rapid growth around the world for three decades. The multilateral trade system has long sustained the development, manufacturing and sales of products, creating a lowcost, efficient and interdependent global value chain. The advancement of globalization has been truly remarkable.
According to the World Trade Organization, in the past 70 years, the world trade volume has soared by 45 times and the world economy has grown by 14 times. Globalization has offered tangible opportunities to the developing countries, whose share of world output rose from 24 percent in the 1980s to over 43 percent in 2020. At the same time, developed economies have enjoyed low inflation, low production costs, high efficiency and affordable consumer goods.
Multinational corporations from developed countries have been the main driving force for globalization and the forming of global value chains.
Operated based on comparative advantages, MNCs have moved capital and industrial chains to wherever production and trade costs are most beneficial to them. This model is supported by the WTO rules which provide a legal framework and institutional guarantees for globalization and global value chains.
Through several rounds of multilateral trade negotiations after World War II, the General Agreement on Tariffs and Trade and subsequently the WTO have greatly promoted trade liberalization and facilitation on a global scale, and reduced the costs of trade and operation for MNCs. The WTO's rules on policy transparency have made trade and investment decisions easier for MNCs. The strong binding power of multilateral trade rules and the dispute settlement system have provided a stable and predictable trade policy environment for globalization to make big strides forward.
There is no doubt that globalization has dramatically pushed up global wealth. It has not only benefited the developed countries but also supported many developing countries, including China, India and the countries from the Association of Southeast Asian Nations to achieve rapid growth and lift millions of people out of poverty.
Today, however, economic globalization is facing strong headwinds.
But we should not reject globalization because of some problems associated with the process. Although globalization will continue to drive growth in the long run, all agree that it is time for its in-depth recalibration. The global financial crisis in 2008 has slammed a brake on both global growth and globalization. Geopolitical conflicts and the resurgence of trade protectionism, compounded by three years of the COVID-19 pandemic, have struck serious blows to the globalization progress. Even with the pandemic seemingly behind us, global growth keeps sliding.
In the World Economic Outlook report released in October by the International Monetary Fund, global growth is projected to slow from 3.5 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024, well below the historical (2000-19) average of 3.8 percent.
The WTO recently cut its forecast for global trade growth this year in half. The volume of world merchandise trade is now expected to grow only by 0.8 percent, less than half the 1.7 percent increase forecast in April.
Amid the international political and economic turbulence, major developed countries are hyping up deglobalization. This is evident not only in the rise of populism and nationalism in their domestic politics, and the isolationist and protectionist tendencies in their international policies, but also in the "reverse" flow of resources, including production capacity and international capital flowing back from developing countries to developed countries.
We should not fall into the trap of trade protectionism. The aforementioned issues in globalization primarily stem from its mistakes in domestic economic policies, especially the unfair distribution of benefits among different social classes in the process of globalization.
It is not appropriate to blame the problems solely on the liberalization of trade and investment, or shirk responsibility to the WTO and its open and nondiscriminatory multilateral trade rules. What should be done is to properly address social injustice.
For example, decades of globalization have brought enormous wealth to the US, but due to flaws in the domestic wealth distribution system, much of the wealth has gone into the pockets of a rich few. Other social classes have failed to benefit but have become victims.
In contrast, Nordic countries such as Denmark, Norway and Sweden have not seen a backlash against globalization, because they have properly and promptly addressed the social injustice that may come along with globalization. Therefore, other developed economies can learn from the Nordic countries how to better manage globalization.
The multilateral rules-based global economic and trade governance order is in danger of collapsing. In the past year or two, some major trading nations have been harboring an agenda to shift the blame for the social contradictions caused by their flawed domestic wealth distribution. They have sought to replace the WTO's non-discrimination principles with so-called value-based trade, replace multilateral cooperation with that among like-minded countries, obscure unilateral trade protection measures with generalized national security exceptions, and coerce the restructuring of the global value chain through administrative means.
Trade restrictions and unilateral economic sanctions violating WTO principles are being enacted under the guise of national security. Even the dispute settlement system, once hailed as the WTO's crown jewel, has been indefinitely paralyzed. The world's economic system is regressing to the law of the jungle, posing threats to the authority and effectiveness of the WTO.
The struggling economic globalization calls for strengthened multilateral cooperation. The future of globalization depends on the interplay between the market economy and geopolitics. The former will continue to promote globalization, while the latter, driven by some politicians, will spare no effort to suppress it.
The world is facing global challenges more daunting than ever before. Stagflation, a combination of high inflation, high debt, high interest rates and low growth, compounded by the Russia-Ukraine and Israel-Palestine conflicts, may trigger a global recession. In addition, humanity is confronted with crises related to global public health, food, energy, debt, refugees, climate change, environment and supply chain decoupling and disruption.
No country, large or small, is immune to these crises or able to respond to them on its own. We need to sit together to work out how to guide economic globalization toward more inclusive, equal and win-win multilateral cooperation, so as to make globalization more resilient.
All countries, especially major ones, should align with the trend of economic globalization, abandon the zero-sum Cold War mentality, shoulder due responsibilities, and adhere to and strengthen the multilateral trade system represented by the WTO.
As a major trading nation, China should steadfastly open up to the outside world and adhere unwaveringly to multilateralism. Through strengthening multilateral cooperation in the G20 and the Bretton Woods system, China has a role to play in reshaping a global economic and trade governance system characterized by collective governance, shared responsibilities and mutual benefits.
The author is former deputy director-general of the World Trade Organization. The author contributed this article to China Watch, a think tank powered by China Daily.
Contact the editor at email@example.com