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Why U.S. decline does not mean the end of globalization

Idea that the world as we know it is unraveling is flawed

| East Asia
A container ship leaves Pusan Newport Terminal on July 1: South Korean exports to Japan are nearly three times larger than those to Germany.   © Reuters

William Bratton is author of "China's Rise, Asia's Decline." He was previously head of equity research, Asia-Pacific, at HSBC.

The rapid shift of the global economy toward Asia, especially China, and uncertainty over the U.S.'s longer-term international role after the Afghanistan debacle, have resulted in much angst across the West about the perceived decline of globalization.

The fear is that the world is no longer trending toward greater integration and coordination but is instead fragmenting into distinct and increasingly divergent regional blocs. This, it is claimed, will erode many of the gains made over the last five or so decades, whether economic, financial or political, and will create a more polarized, fractious and volatile world.

This is a powerful argument. The prospect of an Orwellian world of constant strife and tension between the more important economic and political blocs, the U.S., the European Union and China, is hardly appealing to many, especially those with longer memories. But the idea that globalization is in retreat, and that this will unravel the world as we know it with significant negative outcomes, is based on two fundamental but flawed misconceptions.

The first is the idea that most economic and financial activities operate at the global level, when in fact relatively few do. Globalization's proponents, for example, frequently highlight the benefits of greater integration as proven by surging trade which has doubled as a percentage of global gross domestic product over the last five decades.

But this headline trend masks the more mundane fact that trade is inherently more regional in nature than global. Simply put, most countries have far stronger economic relationships with their immediate and closer partners than with more distant countries.

This dynamic is increasingly visible in Asia, with 60% of the region's merchandise exports now going to partners on the same continent. Malaysia currently dispatches twice as many goods by value to China as it does to the whole of Europe, while South Korean exports to Japan are nearly three times larger than those to Germany, its largest European trading partner.

It is not just trade that is essentially regional; so is business activity. Although a number of global companies attract significant attention, they are, in fact, relatively few in number.

Most businesses do not venture beyond their domestic borders and those that do mostly operate within their home region, not worldwide. Even international finance, often seen as the vanguard of globalization, is more regionally structured than globally orientated. This is reflected in the gradual displacement of Western banks from Asia.

Ironically, therefore, much of the data used in defense of globalization actually reflects the persistently regional nature of the international economy. So it is paradoxical to argue that greater regionalization will undo globalization since it is the growth of regional economies, especially in Asia, which have driven the broader trends seen over recent decades.

And unless there is a global schism of Orwellian proportions, there is no reason why goods, technologies, capital and ideas will not continue to flow inter-regionally, albeit primarily between each region's dominant core countries, as has always been the case.

But this relates to the second and perhaps more problematic misconception, which is to assume that globalization's fate is dependent on continued U.S. global hegemony.

In many ways, such a view is understandable. After all, the international economy as it exists today is, to all intents and purposes, a Western construct developed first by the British through their empire and then by the U.S. through its post-World War II leadership.

Both countries were able to use their periods of relative primacy to impose their economic and financial ideologies, which underpin the now-accepted globalization consensus, onto the rest of the world.

But it is wrong to suggest that, without American hegemony, the economic and financial forces pushing all countries toward greater integration will fade. These forces have remained resilient despite the U.S.'s growing detachment from, and an apparent dislike of, the world which it has created.

Nor is the international community necessarily rudderless if American leadership fades, as has been demonstrated by Asia's greater economic integration through the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreements, both of which were delivered without U.S. involvement.

Ministers of the participating nations pose for an official photo before the signing ceremony of the CPTPP in Santiago in March 2018: the trade pact was delivered without U.S. involvement.   © AP

Many of those worrying that the forces of globalization have peaked are, in fact, mourning the passing of U.S. global hegemony. And this is perhaps the greatest contradiction carried by many in the West.

They may advance the need for greater economic and financial integration between countries, but only as long as it preserves the existing world order. When the same ideologies, however, result in structural shifts in the global economy and a decline in relative Western power and influence, they suddenly appear less appealing.

In summary, the global economy has always been fluid but it also follows well-established natural principles. As countries become more prosperous, for example, they become more integrated with others through greater trade and financial flows. That is what many think of when they talk about globalization. But these flows are generally stronger with their immediate neighbors, hence the emergence of regions as economic blocs and the greater importance of the regional over the global.

Asia's growing importance continues this theme and is the result of the very economic and financial ideologies and policies that the West has imposed on the world over multiple decades.

This is globalization in action; it is neither dead nor dying. And although many in the West may not like the outcome, they are, in fact, not mourning the end of globalization but the end of Western or American hegemony. The two should not be confused, however tempting that may be.

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