It has taken almost three decades to go from liberal triumphalism and optimism in the early 1990s to a world retreating into protectionism and major conflict between Europeans, with attendant hardening positions not seen since the Cold War. Russia’s war against the Ukrainian people has caused a renewed solidarity of the Atlantic Community, while tensions between the US and China have reproduced the posturing and language of an era of protectionism. We are back, it would appear, to the era before the functional integration of political economies into a global whole in the late 20th century.
This flirtation with protectionism is couched in the fashionable, if retrogressive, language of “deglobalisation” and “decoupling”. The passage of the explicitly dirigiste Inflation Reduction Act and the Chips & Science Act in Washington in 2022 meant the US and China started 2023 with clear and oppositional industrial policies that are both protectionist in intent.
“All of this has enshrined concepts such as ‘reshoring’, ‘nearshoring’ and ‘friend-shoring’ as part of the new geopolitical toolkit. However deep the scepticism within the corporate world, the consensus for now is to play along, especially when there are generous incentives to move manufacturing bases and to create shorter and less globalised supply chains,” Financial Times Asia Business editor Leo Lewis wrote.
Decreases in trade and the raising of barriers are among the most important signs of a retreat into protectionism. Since the global crisis of 2008, and more recently the war in Ukraine, disruptions have caused great concern among global public policymakers. In June last year IMF chief economist Pierre-Olivier Gourinchas warned about the dangers to openness and integration of a global political economy that is fragmenting into “distinct economic blocs with different ideologies, political systems, technology standards, cross-border payment and trade systems, and reserve currencies”.
The alarm over deglobalisation is not only in trade and manufacturing. Global fund managers consider the fragmentation of regulation, as opposed to harmonisation; the buckling of supply chains as a result of the Covid-19 pandemic; Russia’s war on Ukraine; and increasing tensions between the US and China as factors forcing companies to “look closer to home”, which is in effect reversing decades of global outsourcing. Fiona Frick, CEO of Swiss asset manager Unigestion, is concerned about the threat of deglobalisation — a world, she said late last year, “that is becoming less global [with] more onshoring”.
The Ukraine war has caused shock waves that radiate far and wide, affecting economies around the world. One of the more deleterious consequences is fragmentation, and the threat of unravelling the postwar liberal international economic order created and maintained by the West after the end of World War 2. This order, underpinned by liberal capitalism, has been weakened by the rise of China and its state-led economic model.
Such has been the “threat” to the liberal international order that there has been any number of arguments that the West is in decline. In the long run this decline may well be real, but Russia’s invasion of Ukraine seems to have halted the slide and given rise to a renewed solidarity among countries of the Atlantic Community. The Wall Street Journal, one of the pre-eminent voices of Western liberal capitalism, has expressly stated that the war in Ukraine has “become, to a large extent, the West’s own”, and failure to “thwart Vladimir Putin’s ambitions would ... not only undermine American credibility on the world stage, but also raise difficult questions about the future of the Western alliance”.
Evil is back too. In March 1983 US president Ronald Reagan referred to the enemies of the West (especially the former Soviet Union and “enemies of freedom”) as evil. Today Ukraine, as the front-line boots-on-the-ground in “the West’s own war”, insists that Russia must not “get away with what it has done”. Ukrainian foreign minister Dmytro Kuleba warned a gathering at Harvard’s Kennedy School late in February that if Russia were allowed to “get even more emboldened” it would “embolden the world’s other evil forces”.
In a continuance of the old “East versus West” and “free versus unfree” rhetoric of the Cold War, Kuleba declared that “whatever flaws we have, one thing has always made us fundamentally different from Russia. The core of the Ukrainian project has always been freedom ... freedom is what makes Ukraine part of the West.”
In Western Europe, too, there is a sense, expressed by Sjoerd Sjoerdsma, a Dutch MP, that “we’re all-in, and we’re all-in because the realisation has dawned in Europe that ... it is not only the safety and security of Ukraine that is at stake but also our own”.
Suddenly the war in Europe, and political economy and finance policies between China and the US, seem to have brought the world back to the era we thought came to an end when Soviet communism collapsed and liberal capitalism triumphed. There’s a theory that free trade leads to peace. The evidence is inconclusive either way. There is, also, a canard: that history repeats itself. This seems far more plausible.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
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