The ringing of bells for globalization has been heard for a long time. The trade war between China and the United States, the coronavirus, the invasion of Ukraine, the problems in the supply chains have increased the voices of those who predict the end of global exchanges as we have known them until now.
However, global trade appears to show unusual resilience. Despite the abrupt slowdown imposed by the confinements, in 2020 it fell by 5.6%, far from the 20% initially expected. 2021 was the year of recovery, with 13% above pre-pandemic levels; also of services, despite the still existing restrictions on travel and international transport. And in 2022, which started with enormous uncertainty, it has once again broken its own record: 32 trillion dollars, 10% more in goods and 15% more in services, according to UNCTAD (the United Nations Conference on Trade and Development). ). Behind it is, in part, the increase in the prices of energy and raw materials, but also the robustness of global demand. The forecasts for 2023 are not good, due to geopolitical tensions and the tightening of financial conditions. We will have to see how the markets respond.
Does this mean that globalization continues its course as if nothing had happened? Not quite. The reality is that there are a series of trends that mark profound changes in global trade that have to do with the principles on which it is based and how it is manifested.
In terms of principles, the increase in protectionism is one of the most striking trends, especially since it comes hand in hand with the traditional champions of free trade. That free trade that has been the mantra of global trade policy, on which the now threatened World Trade Organization (WTO) was born due to the blockade, mainly by the United States. It has been decades of preaching to third countries about the benefits of breaking down trade barriers, despite the fact that authors such as Dani Rodrik have been warning of the inefficiencies and inequalities that it generated, so that now Washington and Brussels introduce sophisticated protectionist regulations. There are many examples, but those that appeal to the fight against climate change are especially significant.
A few months ago, the United States of Joe Biden approved the Inflation Reduction Act, which represents an important advance in the fight to save the planet in a country that has traditionally lagged behind in this field. It contemplates, among other things, subsidies and tax exemptions to promote clean energy, but alas!, only for products made in america. The law has already sparked protests in the European Union, which fears it will lose succulent business opportunities and that European investors will cross the ocean, attracted by better conditions. This climate nationalism adds to the regulations introduced during the presidency of Donald Trump to confront China and protect US industry in strategic sectors such as semiconductors, batteries or pharmaceuticals. Norms that have not been repealed by the Democratic Administration, even though they go against what his country, in theory, promotes. As Paul Krugman, the Nobel Prize winner in Economics, recently said in The New York Times“Biden is slowly changing the foundations of the world economic order.”
The European Union has also been accused of protectionism with its agreement to introduce the so-called “carbon border tax”, which aims to apply the criteria of the European carbon market to Community imports of products such as iron, steel, cement, fertilizers, aluminium, electricity or hydrogen. Importers will have to buy certificates with the calculation of their emissions, with respect to the carbon price in the Union, and those who do not meet these criteria will have to pay the difference. Behind it is the goal of achieving emissions neutrality by 2050. The agreement, reached at the end of 2022 and in the absence of formal approval, is scheduled to enter into force next October. On a theoretical level, it is not the same to play with nationalism when it comes to combating climate change than to try to establish new global standards, even if their impacts on third parties are similar.
While free trade is threatened on several fronts, it is, paradoxically, the pillar on which another of the most interesting trends in global trade and how it manifests itself is based: regionalism. And it is not just about changes in supply chains, what the Anglo-Saxons call the nearshoringor the friendshoring, appealing to geographical proximity and ideological affinities. This is the start-up in recent years of the largest free trade areas in the world.
In our closest neighbourhood, the African Continental Free Trade Area officially launched in January 2021. With 54 Member States —only 44 have ratified it so far—, 1.3 billion people and a combined GDP of about 3, 4 trillion dollars, aims to boost intra-African trade, lift 30 million people out of poverty, increase continental income by 7% by 2035 and improve the competitiveness of African companies through trade liberalization and harmonization and regulatory coordination. The elimination of tariffs and the construction of infrastructures are two of the great challenges ahead. Two years after its entry into force, it is too soon to take stock, given the enormous complexities of the project. But the ambition is great.
Bigger still in terms of population and GDP—2.1 billion consumers, $29.7 trillion, or 31% of world GDP—is the Regional Comprehensive Economic Partnership (RCEP), the free trade between the 10 countries of the Association of Southeast Asian Nations (ASEAN) and its five Asia-Pacific partners (Australia, China, Japan, New Zealand and South Korea), which entered into force in January 2022. For To some observers, it is the most important multilateral trade agreement since the signing of the North American Free Trade Agreement (NAFTA) in the 1990s and the creation of the Single European Market. On the turbulent geopolitical tableau, the RCEP, which includes China, is a new challenge in the region to the leadership of the United States after Trump’s decision not to join the Trans-Pacific Agreement, which includes 11 other Asian and American partners.
So no, the world hasn’t lost its appetite for free trade, even if the United States seems to question it. Nor does the emergence of these and other regional initiatives necessarily imply a negative fragmentation. There the European Union continues to be the main reference. Its single market – which this year celebrates its 30th anniversary – has demonstrated the enormous benefits of regional integration and the free movement of goods, services, capital and people: 8% more GDP on average in the Union as a whole; 31% of world trade, even despite the impact of Brexit. And it has not yet developed its full potential. Faced with the blockade of the WTO, the EU must lead the search for new opportunities in relations between regional blocs, as it has been doing for years, and explore ways to correct the excesses of runaway globalization. The European experience can be decisive in successfully tackling one of the main challenges of the next decade: managing fragmentation.
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