Globalisation is on the decline: can this be the start of a new trend of its fragmentation?

Containers stacked up at the Yangshan Deep-Water Port in Shanghai, China, in this file photo. Photo: Reuters

Containers stacked up at the Yangshan Deep-Water Port in Shanghai, China, in this file photo. Photo: Reuters

Published Jan 24, 2023

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The relationship of international trade and military power is intertwined and foreign relationship policies determine the terms of trade agreements.

World events such as Covid-19, Russia’s invasion of Ukrainian and the China/Taiwan looming crises are playing a major role in the terms of agreements, such as import tariffs and limitations on imports.

Globalisation is a process of increasing integration and growing economic “interdependence” of countries worldwide. It refers to “the expansion of economic activities across political boundaries of nation states”.

It’s important attribute is its increasing degree of openness of domestic economies. It is associated not only with the increasing cross-border movement of goods and services, capital and technology, information, and people, but also with an organisation of economic activities that straddle national boundaries. Its three broad dimensions are international trade, international investment, and international finance. Thus, globalisation is brought about changes through these three channels that impart dynamism in the economy.

Through liberalisation of tariff and trade, export-oriented industries are required to be developed. However, since the US has slammed duties on imports from China, this has been a game-changer. The UK has exited the European community via Brexit and many other activities are taking place.

The deregulation of the financial sector is required for cross-border mobility of resources to get momentum. In addition trade policy, exchange rate policy, industrial policy, etc all need to be relaxed. As the process of globalisation strengthens, all producers depend on global networks that establish links from the stage of raw materials to the final stage of delivery and marketing.

Liberalisation and the market principles improve the allocative efficiency of resources. Foreign capital is attracted and it augurs the advent of multinational enterprises (MNEs), which bring modern up-to-date technology to less developed countries.

Not only do MNEs bring with them modern technology but also investment funds, organisational structure, managerial culture, distribution network, etc. South Africa and Africa are very dependent on the globalisation process to obtain foreign capital, know-how and efficiencies in processes and goods.

More than 95% of the world’s consumers are outside the US. President Joe Biden is following on former US president Donald Trump’s policy relating to trade and foreign relations. During 2018 the US increased tariffs applying to a $200 billion (R3.4 trillion) tranche of imports from China, including a wide range of industrial inputs such as car parts and circuit boards.

In September, America hit this tranche with 10% tariffs (a further $50bn worth had already been struck by tariffs of 25%). Now that 10% has been raised to 25% too, meaning the rate applies to almost half of Chinese exports of goods.

America’s administration has turned its back on traditional trade agreements that provide for more market access and is pursuing domestic industrial policy focused on reshoring production at the expense of foreign partners. And it is blatantly rejecting the rules-based multilateral trading system that it has spent the past 75 years defending.

Some countries have managed to avoid the imposition of tariffs on national security grounds by agreeing to quota restrictions on steel exports to the US. The Biden administration’s goal of “autarky”, is defined by Merriam-Webster as “national economic self-sufficiency and independence”.

The US Navy’s dominance of the world’s oceans has made it an indispensable foreign policy tool as well as a guarantor of global trade, but a mix of challenges is raising difficult questions about its future.

The US is a maritime superpower because its heavily armed warships can travel thousands of kilometres in a matter of days, and linger around points of interest without imposing on another country’s sovereignty and, if desired, without provoking much attention. It protects seaborne commerce – some 90% of global trade travels by ship – and generally maintains order at sea.

Operations include counter-piracy, drug interdiction, environmental protection, and other law enforcement. With around 290 ships in recent years, the US Navy is not only the largest in the world, but it’s the most powerful. The US has 11 aircraft carriers, the largest military vessels in the world, while China and Russia each have only one.

The SANDF’s Brigadier-General Andries Mahapa has stated that: “As a means to strengthen the already flourishing relations between South Africa, Russia and China, a multinational maritime exercise between these three countries termed ‘Exercise Mosi’ is to take place in the Durban and Richards Bay areas of KwaZulu-Natal from February 17 to 27.”

This year’s Exercise Mosi will see a measly 350 SANDF personnel from various arms of service and divisions participating alongside the Russian and Chinese counterparts with the aim of sharing operational skills and knowledge.

Kobus Marais, the DA’s spokesperson on defence, said “this gives the impression of not being neutral, but being biased to one side. Clearly it can alienate us from other important trade partners in the West”.

It seems that the powers that be do not understand the complexity and danger of this decision. The governing party should not be under the false impression that powerful foreign countries are as easily persuaded as its own electorate.

The new global order has been experiencing increased financial volatility. Financial crises have become more and more threatening and extensive. For the past three years, the world has been living with global economic recession. There has been a strengthened the role of MNEs: under the grab of globalisation, the business community, particularly the MNEs have also mounted powerful efforts for dominating governments.

There are some who believe that globalisation has been a productivity failure, a social disaster and a threat to stability. However, globalisation has been giving birth to a new system of MNE protectionism. For the developing countries, MNEs have been acting as agents of undue control over their economies.

China has seen an exodus of manufacturing to neighbouring countries such as Vietnam to defy import duties. In Germany the expensive oil and gas prizes have seen several companies set up outside Germany where energy is less expensive and scarce. Another development affecting the future of globalisation is the decline in population, especially in Japan. Japan has embarked on a policy of desourcing. A Toyota bought in Brazil will probably have been produced there and the diminishing workforce in Japan will lead to more companies setting up in countries where the demand and the workers are.

Africa and South Africa have a very favourable population distribution of current and future workers and consumers to fill the gap experienced in the developed countries. But we need to step up our skills-levels.

Corrie Kruger is an independent analyst

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