The era of post-cold war globalization has been marked by numerous shocks, including the 9/11 attacks, the global financial crisis, Covid lockdowns, and Russia’s invasion of Ukraine. Each of these events sparked fears that global trade would come to a grinding halt, but surprisingly, the system has not only survived but thrived.
Despite these challenges, globalization now faces its biggest threat yet – the great-power rivalry between the US and China. The competition between these two economic giants is intensifying, with both countries using subsidies, tariffs, and export controls to gain an advantage in critical sectors such as semiconductors, clean energy, and telecoms.
Former Australian Prime Minister Kevin Rudd warned in 2019 that reducing economic links between the US and China could undermine global economic growth and lead to a new “iron curtain” between East and West. This warning is particularly relevant today, as policymakers in the US feel pressured to take a hawkish stance and cut economic ties with China.
Ngozi Okonjo-Iweala, director-general of the World Trade Organization, echoes these concerns, stating that “these are troubling times for global trade”. She notes that increased protectionism and geopolitical tensions are causing trade to fragment along geopolitical lines.
However, despite these challenges, global trade has shown remarkable resilience. Studies by the WTO and IMF suggest that while there has been a protectionist shift in the US and tariff wars with China, the evidence of a fundamental fracturing in investment and trade is tentative.
In fact, WTO economists estimate that goods trade has grown by only 4.2% less between US and China-centered geopolitical blocs than within them since Russia’s invasion of Ukraine. IMF studies also find relatively less trade and foreign direct investment between geopolitical blocs than within them, but describe the differences as relatively small.
As the global economy continues to evolve, it remains to be seen whether globalization can withstand the mounting pressures of US-China rivalry. One thing is certain, however – the future of global trade hangs in the balance.
Marex Media