The next phase of globalization is going to be awesome
The party isn't over yet. It's just going to look a little different than before.
The G-20 summit in New Delhi felt like the dawn of a new era in both global economics and geopolitics. It was India’s time to shine; the host country was the darling of developed and developing economies alike. U.S. President Joe Biden announced a new infrastructure investment corridor centered around India, and declared that the U.S. supports India’s bid for a permanent UN Security Council seat. Meanwhile, India released a joint statement with Brazil and South Africa to work together on geopolitics. Basically, the G-20 can be summed up by this photo:
Meanwhile, the summit was just as notable for who wasn’t there — Xi Jinping, whose absence was the first for a Chinese leader in the history of the G-20. His refusal to come might have been a snub to India, or simply to any international organization not dominated by China, or both.
Regardless, it was highly symbolic. The locus of industrial globalization is shifting from China to a bunch of other developing countries. India is at the center of this, along with other countries in South and Southeast Asia. That will open up opportunities for developed countries like the U.S., Japan, South Korea and Europe to invest and to open up new markets. And the new wave of globalization will create opportunities for resource exporters like Brazil and South Africa to sell their materials to someone other than China. But China itself won’t vanish behind an iron curtain; it’ll play its own important role in this wave of globalization, investing in and exporting to the next crop of developing nations.
There’s a narrative going around out there that globalization is over, that decoupling will carve up the world into smaller trading networks, or even into isolated autarkic nations. And there’s another narrative that economic development is over, and that China was basically the last country to industrialize. Both of these narratives are wrong. In fact, globalization is simply changing form, as it has many times in the past. Investors and executives at multinational companies should be getting ready for the next round.
Why the shape of supply chains changed, and why it will change again
In the 1980s and 1990s, “globalization” generally meant that the developed countries — the U.S., Japan, Europe — and a few still-developing Asian countries like South Korea and Taiwan would sell each other complex manufactured products like electronics and cars (and some services), and that the rest of the world would sell them either natural resources, or simple low-value manufactured goods like clothes and fabrics. If you remember the 90s, you’ll remember that this is how people thought about international trade.
Then around the turn of the century China joined the WTO, and everything changed. China became the workshop of the world, offering unbeatable prices in the 00s and unbeatable scale in the 10s (and the tantalizing promise of market access in both decades). Global trading networks that had centered around the U.S., Japan, and Europe now all went through China. Meng, Ye and Xiao (2019) try to visualize this shift, depicting trade links in terms of both gross exports and more complex chains of value-added. Here are just a few of their visualizations, which clearly show how China came to dominate globalization both overall and in the crucial electronics sector:
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