On the future of globalization and the liberal order

A Western observer looking ahead in the early 1990s and projecting how the world could look like 25 years later would likely be surprised by the actual unfolding of recent history. After the fall of the Berlin Wall in 1989 and the subsequent collapse of the Soviet Union, the Western liberal model was expected to prevail along with the post-WWII international institutions (WB, IMF, WTO, UN). 

It was a time of optimism and good prospects for a more cooperative world, once the tensions of the Cold War were left behind. China had already adopted the market as a development engine since the end of the 1970s, and the ex-Soviet bloc members were about to do so, including a weakened Russia. Western Europe was ready to give a significant push to its post-WWII integration process, leading to the creation of the EU and the plan to introduce a single currency by the end of the decade. All this happening against the background of a process of increasing economic globalization, which the West had been progressively favoring by pushing for international financial and trade liberalization since the end of the Bretton Woods period in the early 1970s.  

The global financial crisis showed the fault lines of the market system

But the shocks hitting the US at the turn of the century led to domestic policy actions that would drive the country toward an international war against terrorism and would significantly shift its economy toward non-productive debt-driven spending. The former made clear that military power is not sufficient to transform deeply rooted cultures, while the latter set the path for the 2008-09 global financial and economic crisis, generating along the way the first trade frictions with China. The global financial crisis was deep and lasting, showing the fault lines of the market system, with the European impact being compounded by the regional euro crises, which made visible the vulnerabilities of the European integration process. 

The socio-political fragmentation of the West 

Developed countries have been subject to a secular (1980s on) process combining market deregulation, less redistributive tax policies, high-speed globalization, and progressively increasing labor-displacing technology that has undermined the economic position of unskilled & mid-skilled labor. The Great Recession and its long aftermath exacerbated the situation, making increasingly visible the rise of inequality, and finally leading to socio-political fragmentation in the West, a wave of populism typified by Brexit in Europe and the election of Donald Trump as president in the US. 

Trump presidency was highly disruptive, making the world more polarized. It pushed China accusing it of abusing the open international system and imposing targeted tariffs on Chinese exports to the US. With a higher growth record that could have been expected, China was becoming increasingly assertive and responded with the same token, leading to a tit-for-tat uncertain trade dynamic. Transatlantic trade frictions were also growing, as Trump vowed to increase targeted tariffs on European countries that were considering taxing the domestic operations of global digital companies. These incipient trade war tensions were seen as a key threat to world growth prospects in the final run of the 2010s.  

The world after COVID 

The COVID disruption opened the 3rd decade of the century. The Chinese origin of the virus and the lack of transparency of China regarding the initial detection and cases did not help to ease geopolitical tensions. In 2021, China was increasing military activity around Taiwan and tested new space capabilities with hypersonic missiles. On its side, the US reached an agreement with Australia to supply submarine nuclear capabilities. COVID also made visible the increasing interdependence generated by the fragmentation across countries of the world supply chain, and the associated economic impact when the chain is disrupted.  

With the COVID crisis still on, the Russia-Ukraine conflict has brought back war to Europe, and the third serious disruption of the early 21st century. The conflict culminates a process of growing distancing and tensions between resource-rich Russia and the West. After initial attempts to get close to Western allies (via Clinton & Bush), Putin soon felt not being taken seriously, and was resentful as NATO kept expanding to ex-soviet Eastern Europe countries (the second wave completed in 2004, after a first wave in 1999) as well as supporting ‘color revolutions’ in former ex-soviet republics.

COVID made visible the increasing interdependence generated by the fragmentation of the world supply chain  

The application of Ukraine and Georgia in 2008 to join the military bloc was a kind of turning point that led Russia to start deploying its military power (5-day war with Georgia in 2008, Crimean Peninsula in 2014, Syria civil war intervention in 2015, Ukraine invasion in 2022) while facing accusations of cyber-attacks against key Western utility infrastructures like power plants and water processing facilities, and cyberspace intelligence to undermine the Western liberal order (e.g. Trump-Clinton US election campaign). All in parallel to systematic repression of domestic free media & political opposition, including assassination and assassination attempts at home (e.g., anti-corruption activist Alexey Navalny 2020) and abroad (e.g., ex-FSB Alexander Litvinenko 2006).  

What's next for globalization?

All in all, the world of the early 21st century is navigating away from the course of hyper-globalization three decades after the fall of the Berlin Wall, at a time when the liberal order is under pressure coming both from external autocratic poles (led by China & Russia) and from internal populist & nationalistic forces.  

Whether the new course will be toward a better-managed version of globalization, even with some healthy dose of deglobalization, or toward an increasingly polarized world is still an open question. But the odds for the latter course are non-negligible, given the growing emphasis on regional/national security brought by the ongoing domestic political fragmentation in the West since the 2010s, the fragility of the international fragmentation of supply chains highlighted during the COVID-19 pandemic, and the risk of strategic economic dependence on unreliable partners, as made visible by the geopolitical weaponization of energy supplies since the Russian invasion of Ukraine.