A turning point in economic history as globalisation comes to an end

Nancy Pelosi’s visit to Taiwan could mark a turning point as Western firms swap low costs for resilience, moving away from China to more “friendly” countries.

“Peace is the natural effect of trade,” wrote Montesquieu in 1748. Alas, his faith is proving misplaced, says Guillaume de Calignon in Les Echos. The globalisation of the past few decades has not spread world peace, and global trade seems to be fracturing into “regional blocks”.

US House speaker Nancy Pelosi’s visit to Taiwan sent regional bond and stockmarkets on a rollercoaster ride, says Nathaniel Taplin in The Wall Street Journal. Yet even that turbulence “doesn’t reflect the real import of the event”.

The military drills launched by Beijing in response “look like a trial run for a real blockade” of the island. The persistent threat of cross-strait escalation will “raise the cost of doing business with Taiwan” and shake faith in the security of regional manufacturing supply chains, not least for semiconductor.

We now “stand on the edge of one of those great turning points in economic history”, says Jeremy Warner in The Daily Telegraph. Trade problems during Covid-19 showed that the West has “traded our economic resilience for… cheap prices”. Western firms are not pulling out of China altogether, but they are spreading their bets. CEOs are using a “China-plus-one” strategy that involves shifting some production elsewhere while staying engaged with the world’s second-biggest economy.

Decoupling is hard to do. “Chinese companies cannot yet afford” to be cut off from foreign technology, says Leo Lewis in the Financial Times. Deep Sino-US business ties and investments can’t be unwound overnight. Take electric-vehicle batteries, an industry dominated by China that US politicians hope to “reshore”. Goldman Sachs points out that doing so will take “between four and seven years”. Decoupling is certainly happening, “but not as fast as you think”.

Trading with friends

The death of globalisation has been exaggerated, says Andrés Velasco for Project Syndicate. While trade as a share of global GDP has fallen from 61% in 2008 to 52% in 2020, that is “still very high by historical standards”. Talk that the Biden administration might ease some Trump-era trade tariffs shows that fears of a global spiral into protectionism and quotas were misplaced – voters don’t like higher prices. While supply chains are being re-shaped, that is not the end of globalisation. “Apple recently decided to move some of its assembly operations from China to Vietnam, not to Arkansas or Alabama.”

Instead of reshoring, US officials talk of “friendshoring” – making sure key supply chains are in friendly nations.

Corporate logisticians are already prioritising resilience, says The Economist. Witness “the vast build-up in precautionary inventories”, up from 6% to 9% of world GDP since 2016 at the world’s 3,000 biggest firms. Hopefully the “reasonable pursuit” of more supply-chain security will not “morph into rampant protectionism, jobs schemes and hundreds of billions of dollars of industrial subsidies” that will only worsen inflation. “Governments and firms must remember that resilience comes from diversification, not concentration at home.”

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