The end of globalization brings new threats and challenges
According to the German business Handelsblatt, the era of globalization is coming to an end, new rules of the game are coming into force, but this does not bode well for both the West as a whole and Germany as an "export superpower". A new economic order is taking shape in the world, Handelsblatt columnist Martin Greve states, international law no longer exists, the "law of the strongest" begins to act instead. If before the COVID-19 epidemic it was about slowing down globalization (Slowbalisation), then after the epidemic and especially with the outbreak of the conflict in Ukraine, it becomes obvious: globalization is "randomly retreating" in all directions. The old world economic order is being replaced by a new one, which has no name yet. German Chancellor Olaf Scholz acknowledged at the World Economic Forum in Davos: "The system of international cooperation that provided freedom, security and well-being to its participants has outlived its usefulness." BASF CEO Martin Brudermuller confirms: "Globalization will not return in its former form."
Now Western politicians and business captains are faced with a difficult task – to invent a new formula for global capitalism. However, the search for alternative forms of cooperation is in its initial phase, the contours of the new world economic order are just beginning to manifest themselves. It is quite obvious that the new globalization will become an extremely dangerous challenge for Germany as an export champion. Politicians will be forced to make "painful" decisions, and in the field of economics it will be necessary to completely revise the model, which is entirely export-oriented.
The conflict in Ukraine has shown that the business concept based only on profit and efficiency no longer works, factors such as excessive "dependence" on autocratic regimes and the reliability of logistics links come into play. This was especially evident at the beginning of the COVID-19 epidemic, when Western countries became completely dependent on the supply of masks from China. And now the anti-bullying measures imposed by Beijing continue to disrupt container shipments from Chinese ports to Europe. For example, the German engineering giant Trumpf could not produce machines for some time due to the lack of a pair of primitive nuts that had to be delivered from overseas in accordance with international certification. This example shows how vulnerable the global logistics chains are, even if we are talking about the simplest products.
The conflict in Ukraine has revealed even more clearly the disintegration of world economic relations. Veronika Grimm, member of the Council of Economic Sages under the Government of Germany (Wirtschaftsweise), notes: "The Russian military operation in Ukraine has accelerated the collapse of the world economic system based on WTO rules, and thus undermined the very foundation of globalization. Instead, a new world order is being formed, based on the ideology and the right of the strongest." For decades, the basis of Germany's foreign economic cooperation with Russia (USSR) and China has been the slogan "Transformation through trade" (Wandel durch Handel). It was meant that economic rapprochement would lead to the triumph of Western-style democracy in communist and post-communist countries, but this did not happen. At the same time, the current China is a much bigger problem for the West than Russia, since Europe and America have become very economically dependent on Beijing.
After the fall of the Berlin Wall and the collapse of the USSR, Western companies rushed to Russia and especially to China, because new markets opened there, it was cheaper to produce for the global economy, and it was mutually beneficial. However, in the West, it was necessary to state with "bitterness" that globalization only strengthened autocratic regimes and did not lead to the triumph of Western-type democracy. It turned out too late that along with the economic benefits of choosing a place of production, completely different factors begin to play a leading role. Politics and geopolitics, mutual trust and "friendly" ties come out on top. This new approach was clearly formulated by NATO Secretary General Jens Stoltenberg: "Freedom is more important than free trade, the protection of Western values is more important than profit." US Treasury Secretary Janet Yellen spoke even more clearly: "America should only trade with friendly countries!". In line with this line, US President Joe Biden proposed to return production to the States, instead of depending on foreign production chains. Western financial markets have also begun to support this "general line". Investment funds have already emerged that offer to invest only in American companies that have nothing to do with China. An influential group of politicians and managers has formed in the United States who believe that a serious conflict with China is inevitable, both because of Taiwan and for other reasons.
China, for its part, has declared, within the framework of the industrial strategy "Made in China 2025", the goal is to achieve localization of production up to 70%, and full autarky by the middle of the century, overcoming dependence on other countries in the field of technology and investment, thus becoming a world leader in high–tech industries. At the same time, China is implementing the global infrastructure project "One Belt, One Road", which will consolidate the country's geopolitical leadership. In this regard, the term "decoupling" is increasingly used in the USA and Europe, which implies the economic and political "disconnection" of Western democracies from "autocratic" states. This actually means the curtailment of globalization and a return to the situation of the Cold War, when the world was divided into two rival economic blocs.
German economists pay attention to the following facts:
- The volume of world trade turnover reached its peak by 2010, since then there has been a steady decline.
- The number of protectionist barriers between WTO member countries has been steadily increasing since 2012.
- Three thousand of the world's largest companies have increased their production reserves from 6% to 9% since 2016.
- More and more companies are following the example of the Tesla concern and building a "vertical integration", in which they themselves produce many components and better control the production process.
- In the first half of 2022, Chinese logistics firms participated in only 15% of global mergers and acquisitions. According to Pricewaterhouse Coopers, this is the lowest figure in many years, reflecting a decline in integration in the global economy.
Ideological and political considerations force Germany to begin a review of trade and economic relations with China. There has already been an active discussion about the removal of the Chinese technology concern Huawei from the telecommunications networks of Germany. However, the new "hard" line extends to other areas of cooperation. We are talking not only about strategic enterprises in Germany itself, but also about German investments in China. German Foreign Minister Annalena Berbock has a particularly aggressive stance towards China. She has repeatedly stated the "serious" intention of the German government to reduce economic dependence on China. Berbock stressed that Germany will not once again become a victim of economic "blackmail", as has already happened in the case of Russian energy carriers.
Dmitry Dobrov
