The Destructive New Logic That Threatens Globalization

The destructive new logic that
threatens globalization
Rory Murphy January 12, 2023
Since 1945, the world economy has operated according to a system

of rules and norms signed by America. This led to unprecedented
economic integration that boosted growth, lifted hundreds of millions
out of poverty, and helped the West prevail against Soviet Russia in
the Cold War. Today the system is in danger. Countries race to
subsidize green industries, lure manufacturing away from friend and
foe alike, and restrict the flow of goods and capital. Mutual benefit is
out, national benefit is in. An era of zero-sum thinking has begun.
The old system was already under pressure as America’s interest in

maintaining it waned after the global financial crisis of 2007-09. But
President Joe Biden’s departure from free-market rules in favor of
aggressive industrial policies has dealt him a new blow. America has
unlocked a massive $465 billion in subsidies for green energy,
electric cars and semiconductors. These come with requirements
that production should be local. Bureaucrats tasked with scrutinizing
foreign investments to prevent undue foreign influence on the
economy now dominate even sectors that make up 60% of the stock
market. And officials are banning the flow of more and more exports
— particularly high-end chips and chip-making equipment — to
China.
For many in Washington, muscular industrial policies exert a

seductive appeal. It could help seal America’s technological
supremacy over China, which has long attempted to become self-
sufficient in vital sectors through government intervention. Since
carbon pricing is not politically feasible, it could promote
decarbonization. And it reflects the hope that government
intervention could succeed where private enterprise failed,
reindustrializing America’s heartland.
The immediate consequence, however, was that a dangerous spiral

of protectionism was set in motion worldwide. Build a chip factory in
India and the government will pay half the cost; Build one in South
Korea and you can take advantage of generous tax breaks. If seven
other market economies that have announced measures for
“strategic” sectors since 2020 match America’s share of GDP, total
spending would reach $1.1 trillion. Last year, almost a third of the
cross-border deals caught by European officials were subject to in-
depth scrutiny. Countries that have the raw materials needed to
manufacture batteries are eyeing export controls. Indonesia has
banned nickel exports; Argentina, Bolivia and Chile could soon
cooperate OPEC-style in producing their lithium mines.
The economic conflict with China seems increasingly inevitable. As

China became more deeply integrated into the world economy
around the turn of the century, many in the West predicted that it
would become more democratic. The death of that hope —
combined with the migration of a million manufacturing jobs to
Chinese factories — caused America to lose its love of globalization.
Today, Mr Biden’s administration worries about the risk of depending
on China for batteries, just as Europe relied on Russia for gas before
invading Ukraine. Democrats and Republicans alike fear that losing
America’s lead in advanced chip manufacturing to Taiwan will
undermine its ability to develop artificial intelligence – which they
predict future armies will rely on to plan strategy and guide missiles .
Some simply want to prevent China from becoming too rich – as if

impoverishing 1.4 billion people was either moral or likely to ensure
peace. Others are more prudently focused on building America’s
economic resilience and maintaining its military edge.
Reindustrialization of the heartland, they argue, will reignite support
for market capitalism. Meanwhile, as a global hegemon, America can
weather other countries’ grievances.
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This thinking is misguided. If the zero-sum policy were seen as a

success, it would only make it harder to abandon. In reality, even as
they transform American industry, their overall impact is more likely
to do harm by undermining global security, slowing growth and
increasing the cost of the green transition.
One problem is their added economic cost. The economist estimates

that replicating the cumulative investments of companies in the
global technology hardware, green power and battery industries
would cost $3.1 to $4.6 trillion (3.2 to 4.8% of global GDP).
Reindustrialization will raise prices and hit the poor hardest.
:
Duplicating green supply chains will make it more expensive for
America and the world to wean ourselves off carbon. History shows
that huge amounts of public money could be wasted.
Another problem is the anger of friends and potential allies.

America’s genius after World War II was recognizing that its interests
lay in promoting openness in global trade. As a result, it tracked
globalization despite accounting for nearly 40% of global dollar GDP
by 1960.
Today its production share has fallen to 25% and America needs
friends more than ever. His export ban on Chinese chipmakers will
only work if Dutch company ASML and Japan’s Tokyo Electron also
refuse to supply them with equipment. Battery supply chains will also
become safer when the democratic world acts as one bloc. But
America’s protectionism angers allies in Europe and Asia.
integration and differentiation

America also needs to woo emerging markets. By 2050, India and
Indonesia will be the third and fourth largest economies in the world,
according to forecasts by the bank Goldman Sachs. Both are
democracies but not close friends of America. By 2075, Nigeria and
Pakistan will also gain economic importance. When America
demands that other countries freeze China without offering
adequate access to its own markets, it is scorned by rising powers.
A final concern is that the more widespread economic conflicts, the

more difficult it becomes to solve problems that require global
cooperation. Despite the green technology race, countries are at
odds over how to help the poor world decarbonize. Bailouting
troubled countries like Sri Lanka is proving difficult due to the
hindrance of China, a major creditor. If countries cannot work
:
together to address some problems, they will be impossible to solve
and the world will suffer accordingly.
Nobody expects America to go back to the 1990s. It is right to try to

maintain its military supremacy and avoid becoming dangerously
dependent on China for crucial economic inputs. Other forms of
global integration are all the more important. It should strive for the
deepest cooperation between countries that is possible given their
respective values. Nowadays, this will likely require a series of
overlapping forums and ad hoc deals. America, for example, should
join the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership, an Asian trade pact based on an earlier agreement it co-
wrote but then abandoned.
Saving globalization may seem impossible given the protectionist

turn in American politics. But Congress’s aid to Ukraine shows that
voters are not isolated. Polls suggest free trade’s popularity is
recovering. There are signs that the Biden administration is
responding to concerns from its allies about its subsidies.
But saving the world order requires bolder American leadership that
once again rejects the false promise of zero-sum thinking. There is
still time for this before the system collapses completely, damaging
countless livelihoods and endangering the very roots of liberal
democracy and market capitalism. The task is enormous and urgent;
it could hardly be more important. The clock is ticking. ■
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The destructive new logic that

Since 1945, the world economy has operated according to a system

The old system was already under pressure as America’s interest in

For many in Washington, muscular industrial policies exert a

The immediate consequence, however, was that a dangerous spiral

The economic conflict with China seems increasingly inevitable. As

Some simply want to prevent China from becoming too rich – as if

Also read: 'Dry Lightning' Starts California's Most Destructive,

This thinking is misguided. If the zero-sum policy were seen as a

One problem is their added economic cost. The economist estimates

Another problem is the anger of friends and potential allies.

integration and differentiation

A final concern is that the more widespread economic conflicts, the

Nobody expects America to go back to the 1990s. It is right to try to

Saving globalization may seem impossible given the protectionist

Subscribers Only: To see how we’re designing each week’s cover,

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