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Global Business Environment: The Future Of Globalization

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Abstract

Globalization has been a hot topic since the turn of the millennium due to its impact on companies, governments, and people in general all around the world. This essay considers how the most important political events of recent years, the rising protectionist and nationalist movements, the populist waves and other economic and social factors unleashed a globalization political backlash and how the situation will develop in the future. Is it the end of globalization? The answer, although controversial, seems to be that globalization is not over, it is changing. This new phase is certainly more fragmented and decentralized but its contours are still to be defined and largely depend on the roles of the European Union, China and other emerging economies. In 2016, Barry Eichengreen wrote that despite all the challenges brought by globalization it was not over. Two years have passed. Donald Trump is now the President of the United States, Britain is leaving the European Union and around the world, populist movements keep spreading. The implications of these events are not certain, neither are Eichengreen’s previous conclusions anymore. He now believes that for globalization to continue in a sustainable way certain conditions have to be met and the critical point is United States. Throughout this essay, I take Eichengreen’s views and, based on further research, try to reach my own conclusions on the matter.

So, is globalization going in reverse? What does the future look like?Globalization and Populism“G lobalization can be defined as the process towards a more integrated and interdependent world. ” [3] Throughout the years it has improved the lives of millions of people but it also created new challenges that the world was not ready to solve. In the last decades, technological advances allowed firms to replace labor for machines and to reallocate factories to countries with lower labor costs. These changes were the main cause of the disappearance of jobs in developed countries. The opening of borders to immigration also influenced the labor market and, together with concerns about security, made people in developed economies feel threatened by newcomers. The global financial crisis of 2007/2008 was the critical point when attitudes towards globalization started to change. The crisis created a succession of bankruptcies, increased unemployment, and inequality across the globe, which neither states nor international organizations were able to cope with.Although many people blamed globalization for these developments, some say that they were not a result of globalization but of the actions of governments. The argument is that public policy did not allow for globalization to “lift all boats” and improve living standards for everyone. Countries were defensive about losing sovereignty and authority to global institutions. Hence, these institutions were not able to implement efficient global solutions to face globalization’s challenges. Therefore, the lack of international cooperation aggravated the situation.

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The absence of meaningful state policy to face all these problems and the feeling of abandonment led people around the world to adopt populist views. They demanded their jobs secured and their living standards sustained, Governments’ solution was to adopt protectionist measures. According to Dambisa Moyo in his book “Edge of Chaos: Why democracy is failing to deliver economic growth – and how to fix it. “,(2018) protectionism will only result in a short-term improvement of the situation, leading to lower growth, increased poverty and political tensions in the long run. Furthermore, he says that if countries continue to adopt protectionist measures, fragmentation will make producing in developing countries more costly due to tariffs and other barriers making it easier for firms to start producing closer to the consumers and in smaller dimensions. This, in turn, would result in the return of jobs to advanced countries at the expense of the developing ones but the full set of implications is still unknown. [4]BrexitIn June 2016 Britain voted to leave the European Union. The goals were to recover national sovereignty and to establish more strict rules about immigration.

In the end, Britain was not looking for protectionism (in trade) but the authority to make its own decisions. [6] In his paper “Brexit and the Future of globalization?” (2017, September), John Reenen states that the supporters of Brexit are mainly people who feel left behind economically and socially and who were manipulated into believing that their problems were caused by immigration despite the fact that before 2008, for example, wages were rising and immigration was increasing roughly as much as in the last years. (Graphic 1 and 2) He also adds that “immigrants are globalization made flesh” and proved to be a convenient escape goat although Britain’s problem was that gains from globalization were not shared equally and benefited mostly the upper classes. [7]Once the UK leaves it will certainly have higher trade costs with the EU than it has now. Due to the proximity between Britain and the European Union, the law of distance says that the EU is likely to continue to be the UK’s largest export-import partner. [8] This means Britain still has to choose what kind of Brexit to go with considering the implications that it will have on trade and foreign relations. Experts seem to believe that the best option, the least damaging one, is a “soft Brexit” where the UK still stays in the single market and pays an entry fee, like Norway. [7] This would allow for the UK to transact as usual but would imply that labor still moved freely and that they still followed the rules of the single market. Teresa May has refused to accept this option so far because European courts would still rule in Britain and unrestricted immigration would continue. [9]Another option for Britain would be to choose a “hard Brexit”. Britain would not be part of the single market and would have to trade under WTO rules, paying tariffs and facing higher non-tariff barriers. [7] the UK would also have to forge new trade deals with non-EU countries, which would most likely be bilateral as opposed to multilateral signaling further separation and a step back from globalization. [2]

Although this option affects Britain the most, all European countries would lose economically from Brexit, especially the more closely connected to the UK in terms of trade. [7]Despite all the challenges that Brexit will cause there are still some that believe that the path to globalization will continue and that Brexit will not impact cross-national movements. Others admit that the parties involved need to support globalization and that if trade between UK and the EU sharply decreases it will have catastrophic consequences. [10]I believe that Brexit is certainly a step back from globalization in what regards political integration and its impact in economic integration is still to be defined. Britain will suffer economically whatever path it chooses and, at least in the first years, trade is expected to decline between UK and the rest of the world. One key note is that trade among EU countries will continue and so will trade between the EU and all other countries. So, Brexit will have some impact but unless other countries follow its example, globalization and free trade are not doomed. UK’s GDP accounts for only 4% of the world GDP, so what matters the most is how other countries will react. The future of globalization is on the hands of policymakers around the world [8] and, so far, they are not following Britain’s path.

Donald Trump

Populism movements ended up contributing to the election of Donald Trump as the president of United States in 2016. People wanted something to change, they wanted protection from what they assumed was the enemy, globalization. Donald Trump took advantage of it. In his campaign, he promised to formulate bilateral agreements as opposed to multilateral ones, which would allow US to profit more from trade by protecting its own interests. Apart from this, Trump also implemented protectionist measures creating several tariffs on goods prevenient from China, Canada and the European Union, starting a trade war, especially with China. In addition, he took an aggressive approach to immigration, trying to intensively restrict it, as a way to protect Americans and their living standards. [2] America is backing down from a long period of global leadership achieved by engagement and intervention and turning inwards, to isolation, leaving the world without the leader they always acknowledged. Trump has simultaneously left a number of international organizations including the Paris climate agreement, the UN’s human rights council, the G7 and has attacked North American Free Trade Agreement and the World Trade Organization by saying that they were the worst deals the US ever forged. [5] It is clear that Donald Trump has taken US’s historical reluctance in sharing sovereignty to a whole other level, ultimately disrupting the international order. It is unclear how the situation will develop but it is fair to say that the world should be looking for solutions that do not depend on United States support or cooperation. Some believe that the future of globalization lies on the hands of China and Europe. The Chinese president, Xi Jinping spoke at the World Economic Forum in 2017 and assured that China fully supports a more globalized world since it allows for human evolution and continues to improve the lives of millions of people. More than supporting globalization, Xi Jinping described protectionist as the equivalent to being locked in a dark room, where wind and rain were kept outside but so were light and air, meaning that it is not beneficial neither sustainable and added that no one would win from a trade war.

China

China has become the second largest economy in the world and appears committed to preserving globalization and free trade, pressing forward for a more integrated world. [1] It is not surprising that China has taken this position since it was one of the countries that gained the most from globalization entering a period of accelerated growth and exponential development. Not only has it become part of international organizations it has taken a global leadership role. [2] One example of China’s increasing importance in the international frame is its sponsorship of the Asian Investment Infrastructure bank, which has 57 members and was created despite the opposition from Washington. China appears to be filling the void left by the US although it is not clear if it is large enough to support global growth alone. The solution to the sustainability of globalization and growth may also include India and China working together for a “regional globalization” taking advantage of India’s younger population.

The potential for growth, especially in trade, is humongous. If this partnership develops to include other countries from Asia and Africa and counts with the support of the EU it would translate into one step forward to a more globalized world, now in the hands of emerging economies. [1]This approach may not be able to replace the loss felt by the US and other countries moving in a more protectionist direction, however, globalization has advanced far beyond the political influence of some countries. The world can and will advance without the US and UK. As long as the EU, China and emerging countries are committed to free trade and eager to continue opening borders, globalization will continue. Although, this division between the globalists and populists will more likely result in a less-than-ideal solution when compared to global cooperation. [2] Furthermore, globalization is not just about trade agreements. One of its fundamental drivers is technology which certainly will not stop developing due to the protectionism and isolationism policies of some countries. It is safe to say that technology will continue to enable the world to become more connected. Globalization is not ending, it is not dying or reversing, it is entering a new phase where US is detached and Emerging economies are taking a new role, as they become increasingly important in global trade. Hence, from all the factors analyzed, the current period represents more of a pause in globalization rather than its ending.

Conclusion

The question this essay tries to address is whether globalization is going to unravel. To answer it, I took Eichengreen’s concerns about the populism waves, the Brexit and Donald Trump and considered how each of them will develop in the near future. I have reached the conclusion that although these factors will deeply influence the world economy, they will not translate into the end of globalization since most of the world realizes that there is much to gain from free trade and integration. Needless to say that this research and its conclusions are limited since I do not have expert knowledge on the matter and only considered the papers which I judged more relevant and understandable.

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