Global Trade Upheaval: Is “Glocalization” Next?
Program Date: July 24, 2022

The perfect storm of COVID, changes in the U.S.-China relationship, export controls, reshoring and climate change are upending global trade arrangements – and journalists should expect more upheaval to come, trade expert Alex Capri told NPF’s international trade fellows in Singapore on July 24. [Transcript | Video ]

5 takeaways:

Hyper-globalization is over.  The pandemic and the U.S.-China rivalry have exposed the vulnerabilities in the very long global supply chains that had become the global norm since the 1990s. Corporations are remaking their sourcing and manufacturing arrangements as they seek to reduce risk, diversify their supply chains and deal with export controls and other geopolitical disruptions, said Alex Capri, a research fellow at the Hinrich Foundation and lecturer in the Business School at Singapore National University. A child of a U.S. diplomat who grew up steeped in the ideology of Pax Americana and a lifelong free trade advocate, Capri now describes himself as “a conflicted guy.”  The vast and complex global value chains that linked China and Southeast Asia with commodity producers all over the world were efficient and profitable. But “hyper globalization, as we’ve known it, is over … It’s not coming back.” Global trade may increase, but global value chains are fragmenting. “They’re Balkanizing, they’re fracturing, they’re localizing, they’re regionalizing,” Capri said.

U.S. and China decoupling is permanent. “Think of this as a really, really complicated divorce with a lot of kids,” Capri advised. The U.S.-driven ascension of China to the World Trade Organization in 1992 and the subsequent liberalization of trade resulted in “the largest, swiftest transfer of wealth in human history,” Capri said. The “divorce” involves decoupling, friend-shoring, weaponization of currency and much more. While trade in non-strategic goods will continue, expect a massive decline in trade in technologies deemed to have national security implications – a category that grows ever larger with dual-use technologies. U.S. export controls against Chinese telecom maker Huawei – and the third parties that have sold to the firm – have begun to bite, resulting in Huawei not being able to bring its 5G phone to market, Capri said. This and other actions have persuaded China that the United States is a risky partner and prompted a Chinese decoupling strategy as well.

Globalizers who favored laissez-faire economics now must contend with the reality of state-centric managed trade and government-spurred technological competition, or techno-nationalism, Capri argued.  “Governments intervene in markets, governments choose favorites. They choose national champions, governments protect favorite companies,” Capri said, and punish dissenting companies. Multinational corporations can easily be caught in the crossfire in conflicts between state and nonstate actors. For example, HSBC Bank cooperated with the U.S. investigation of Huawei and then faced a crackdown from Chinese authorities.  Other companies that have objected to China’s national security law in Hong Kong have had to retract their statements or bow to Beijing – and such pressures are likely to worsen, Capri said.

U.S.-China tensions are playing out in currency markets, the automotive sector, semiconductors and even clean energy.  Fearful of being punished by a “weaponized” dollar-denominated economy, China’s central bank is rushing to introduce its own central bank digital currency (CBDC), also known as the “digital renminbi” or “digital yuan.”  Meanwhile, Beijing’s crackdown on independent technology companies has been “merciless,” Capri said. Now “the whole [electric vehicles] sector is Balkanizing and fragmenting, and that’s actually spilling over into clean tech as well, because a lot of the core technologies are dual use technologies, meaning that they are technologies that could become strategic at any day and they could be used for military purposes.”

Strategic decoupling means higher prices, less efficiency. Companies are already beginning to move and duplicate supply chains, opting for resilience over efficiency, Capri said, and public-private partnerships are forming to secure strategic commodities, such as rare-earth metals. An abandoned rare-earth mine is reopening in Nevada and Japan intends to mine on the Ogasawara islands, southeast of Tokyo, where rare-earths and yttrium have been found. Meanwhile, taxes on carbon emissions are likely and will further drive up prices, he warned.


National Press Foundation’s International Trade Fellowship in Singapore is sponsored by the Hinrich Foundation. NPF is solely responsible for the content.

Alex Capri
Author and Research Fellow, Hinrich Foundation
1
Transcript
Alex Capri on Global Trade Unraveling
Subscribe on YouTube
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Resources
Global Trade Unraveling Resources

The Emerging Technonationalism, Alex Capri Briefing to NPF Fellows

Microchip Shortage as New Arms Race, Alex Capri Briefing to NPF Fellows

U.S. China Techno-Nationalism,” Alex Capri, The Diplomat, September 2020

Strategic U.S.-China Decoupling in the Tech Sector,” Alex Capri, Hinrich Foundation, June 2020

The Geopolitics of Climate Change and Cleantech,” Alex Capri, Hinrich Foundation, January 2022

A Rough Road Ahead: Electric Vehicles and Semiconductors Navigate Geopolitics,” Alex Capri, Hinrich Foundation, November 2021

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