Feitao Liu is Director of the Department of Global Governance and International Organizations at the China Institute of International Studies. A veteran researcher of Sino-American relations and global economic governance, he is the author of Founding of American Realpolitik Tradition: Diplomatic and Strategic Thoughts of Alexander Hamilton, Abraham Lincoln, and Theodore Roosevelt (2015).

Economic globalization refers to a historical process in which economies around the world are increasingly integrated through cross-border flows of trade, capital, people (labor), and knowledge (technology), driven by human innovation and technological progress. Economic globalization has roughly gone through three stages since the opening of a western sea route to the Asia-Pacific area.

China’s President Xi Jinping addressing the attendees of the 2019 Belt and Road Summit, a symbol of Chinese contribution to globalization

The first stage is colonial expansion and the formation of the world market. Through colonial expansion, Western countries essentially completed the partition of the world before World War I, involving all regions and nations in the capitalist system.

The second stage is characterized by two parallel world markets. After the end of World War II, several socialist countries emerged, colonial and semi-colonial countries gained independence, and the world formed two camps of socialism and capitalism, with two parallel markets established accordingly.

The third stage is marked by true globalization in breadth and depth. With the end of the Cold War, the confrontation between the two camps ceased to exist, the two parallel markets collapsed, the interdependence of countries greatly increased, and economic globalization developed rapidly. In this third stage, especially from the end of the Cold War to the international financial crisis in 2008, world economic integration reached an unprecedented level in history, a period also known in the West as “hyper-globalization.” However, since the 2008 crisis, globalization has undergone a transformation from a slow one to a rising tide of anti-globalization.

 

The Imbalances of Globalization

The current anti-globalization trend, marked by the rise of populism, as represented by Brexit in 2016 and the election of Donald Trump as President of the United States, has not yet seen a significant decline in momentum. At the multilateral level, due to the obstruction of the Trump Administration and the continued disregard by the Biden Administration, the WTO dispute settlement mechanism has been non-operational since December 2019, and has not yet returned to normal. At the regional level, the United States and its allies are trying to build so-called values-based economic alliances like the Indo-Pacific Economic Framework (IPEF) and the Chip 4 Alliance, which include exclusive arrangements designed to cut rival countries off from the global industrial chain. At the bilateral level, the Biden Administration has used the so-called “overcapacity” argument and further increased tariffs on electric vehicles, lithium batteries, photovoltaic cells, key minerals, semiconductors, steel and aluminum, port cranes, personal protective equipment, and other products imported from China in May 2024. This was done on the basis of the original Section 301 tariffs imposed by the Trump Administration, further expanding the scale of the U.S. tariff war against China. In early July, the European Commission issued a notice deciding to impose temporary countervailing duties on electric vehicle imports from China, indicating that industrial protectionist policies have spread to Europe. What is more worrying is that, with more than one developing country following suit, the trend of industrial protectionism is increasingly spreading globally.

The rise of anti-globalization and protectionism is intrinsically related to the imbalance in the development of globalization. First of all, development is unbalanced among countries. Historically, the process of globalization has been based on a “center-periphery” structure. Developed countries have long been at the center of the world economy due to their capital and technological advantages, while developing countries have been at the periphery. Developing countries, especially less developed ones, usually have weak overall national strength, imperfect market economic systems, little room for maneuver in foreign economic policies, and are vulnerable to external shocks in the process of participating in globalization. As a result, the disparity between the center and the periphery has widened, forming the well-known North-South development gap. Global income inequality has increased for the first time in the past 25 years, with more than two-thirds (69 percent) of global wealth in the hands of developed countries and less than a third in developing countries, according to the latest Oxfam report.

Secondly, the international division of labor is unbalanced. Western developed countries have long occupied the top of the value chain with high added value, high profit margins, and low environmental burden, while developing countries are locked into the low end of the value chain because of the rigid international division of labor system, making it difficult for them to escape the middle-income trap.

Thirdly, there is an imbalance in wealth distribution within countries. Globalization has facilitated global capital flows, resulting in an excessive concentration of wealth to the point where the richest 1 percent of the world’s people own 43 percent of global financial assets. Globalization also promotes technological progress and the development of new industries, while traditional industries using outdated technologies tend to shrink or even disappear, often hurting the interests of the working class, exacerbating social polarization between the rich and poor, and spawning populist trends.

The fourth element pointing to the “unevenness” of globalization is the imbalance between economic development and environmental protection. Rapid economic growth, driven by globalization, has led to more production, consumption, and improved living standards for the global population. However, economic growth and material progress have also placed unsustainable pressures on the global environment, leading to rising levels of greenhouse gas emissions, rapid loss of biodiversity, over-exploitation of natural resources, and widespread air, land, and water pollution. These environmental problems have become a serious challenge to sustainable development on a global level.

 

Non-Economic Factors Behind Anti-Globalization

The rising hostility toward globalization and the ongoing anti-globalization trend in the West in recent years are largely a result of a combination of factors such as great power competition, geopolitical conflicts, and the impact of the COVID-19 pandemic. The United States provokes strategic competition among major powers and becomes a negative force resisting the development of globalization. As a result, globalization is shifting from a process dominated by one pole to one of more balanced development among multiple forces. In particular, against the backdrop of imbalances in mentality and the exacerbation of strategic anxiety caused by the narrowing power gap between China and the United States, Washington has been trying to contain China’s development and maintain its hegemony through anti-globalization measures such as trade protection, technological blockades, and financial sanctions.

The Ukraine crisis has also intensified the negative effects of geopolitics on globalization, while the conflict of values has also become a significant exacerbating factor. Since the Ukraine crisis broke out, Russia has been subjected to comprehensive and non-discriminatory sanctions, including the freezing of overseas assets, the expulsion of most Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), and the divestment of foreign investment from Russia by multinational companies. Multinational enterprises and international investments were trapped in the dilemma of choosing sides, and political correctness has become the primary consideration in their decisionmaking. Ideological differences have become a significant barrier to interaction among countries, enterprises, and people.

The COVID-19 pandemic is the last but not least of factors that have stimulated anti-globalization forces because it has significantly intensified the generalization of the concept of national security, influenced jointly by geopolitics and great power competition. Some Western countries have taken advantage of the situation to encourage nearshore outsourcing and friendshoring. Anti-globalization propositions such as “decoupling” and “de-risking” have continued to rise. The open world economic system is facing the threat of fragmentation, and the bond of trust that promotes globalization has been seriously weakened. This may be one of the key reasons why the World Economic Forum in Davos in 2024 called for “rebuilding trust in the future.”

 

Globalization is Still in Trouble
It is also undeniable that the overall process of globalization has been hindered and now faces strong pressure to undergo transformation. Firstly, global trade growth continues to slow down. According to the World Bank, trade in goods and services grew by only 0.2 percent in 2023, the slowest pace in the past 50 years except for the period of the 2008 Global Recession. Trade growth in 2024 will improve, but it will still be half the average growth rate of the decade before the pandemic, and global trade will record its slowest five-year growth since the 1990s.

Secondly, the global investment outlook is sluggish. Although the global investment stock has not changed much since the international financial crisis, both securities portfolio and direct investment flows have decelerated sharply, with portfolio flows falling from a peak of 7 percent of global GDP to about 3.0-3.5 percent, and the proportion of direct investment in GDP falling by about 2 percent. According to UNCTAD’s World Investment Report 2023, after a sharp decline in 2020 and a strong rebound in 2021, global foreign direct investment fell by 12 percent to $1.3 trillion in 2022. The value of international project finance fell by 25 percent, while cross-border mergers and acquisitions fell by 4 percent.

Thirdly, trade restrictions are still increasing. On the import side, there has been no substantial rollback of the massive import restrictions imposed since 2019, which will affect $2.48 trillion in trade by 2023, or almost one-tenth of the world’s total imports. On the export side, the increase in restrictions is mainly related to the tight supply of food, medicine, and grain due to the COVID-19 outbreak and the Ukraine crisis.

Fourthly, the global flow of information has stalled, mainly as international patent applications continue to strengthen, but the cost of using foreign intellectual property rights and the number of co-authored international scientific research papers have declined.

The transformation of globalization is also an inherent requirement for maintaining an open world economic system. As seen from the contest between the trends of globalization and anti-globalization, the former has not undergone a fundamental reversal due to the impact of anti-globalization. However, the trend of anti-globalization undoubtedly aggravates the stagnation or even partial regression of globalization. The globalization process is under great pressure, and the direct consequence is that the open global economic system is at risk of fragmentation. For starters, the resurgence of populism has weakened or impacted the global multilateral trading system and regional integration processes. Despite the overall positive effects of trade, anti-globalists in the West argue that there is a causal relationship between trade and income inequality within countries, epitomized in some advanced economies by deteriorating returns for low and medium-skilled workers and the loss of manufacturing jobs. The rise of populism in the United States has been the natural result of the anti-globalization sentiment of the working class triggered by the Rust Belt in the Midwest. After Trump took office, he took a series of measures to weaken the multilateral trading system, including abandoning the Trans-Pacific Partnership Agreement (TPP) in 2017 and paralyzing the WTO dispute settlement system by blocking the selection of members of the WTO Appellate Body. 

Another issue is that zero-sum thinking has become rampant. Interdependence has become an important tool for Western powers to contain competitors, and the open world economy is at risk of being torn apart. The Biden Administration continued the Trump Administration’s strategic perception of China, defining China as the “most significant geostrategic challenge” to the United States, while the European Union defined China as a “systemic rival.” The strategic and systemic competition thinking in the United States and Europe—especially in the former—prompted the United States to view the globalization process from a zero-sum perspective. From this angle, China has become a “winner” of globalization whereas the United States has become a “loser,” and “deglobalization” is now a tool for the latter to suppress China. This is reflected in the continuous strengthening of restrictions on the flow of goods, capital, and technology between China and the United States through tariff wars, two-way investment restrictions, export controls, and other measures. Internationally, through the establishment of exclusive technology alliances and economic cooperation arrangements such as the Chip 4 and IPEF, the global industrial chain based on international division of labor and globalization has been forcibly severed.

On the trade front, protectionism continues to surge, and trade unilateralism has replaced multilateral economic and trade cooperation as the guiding principle of U.S. trade policy. The Biden Administration has continued its predecessor’s policy embodied in the Buy American Act and incorporated it into important regulations such as the Infrastructure Investment and Jobs Act, the Chips and Science Act, and the Inflation Reduction Act, protecting the domestic market through strict implementation of localization requirements. There is no denying that the world economic system has been fragmented to a certain extent. The IMF has warned that the fragmentation of the world economy will significantly constrain global economic growth, with even a limited trade fragmentation scenario reducing global output by 0.2 percent, and a severe trade fragmentation scenario reducing global output by nearly 7 percent, roughly equivalent to the combined annual output of Germany and Japan. When combined with technological decoupling, the loss of GDP in some countries could be as high as 12 percent.

 

Rebuilding the Confidence of Globalization

The reason confidence in globalization can be restored is that the underlying logic and driving force of economic globalization have not changed. As far as the inherent law of globalization is concerned, the inevitable trend of world economic integration remains unchanged. Economic globalization is the inevitable result of the effective allocation of resources on a global scale. Economies differ in factor endowment and participate in various stages such as research and development, production, and marketing according to their economic foundation and comparative advantages. While achieving wealth and economic growth, they have promoted the formation of an interdependent global industrial chain with complementary advantages. This open world economy is based on the international division of labor and the market economy. It conforms to the objective law of the development of productive forces and the effective allocation of resources. It is a key driving force for the long-term development of economic globalization.

The second reason is that economic globalization remains a clear priority for achieving economic growth and improving people’s wellbeing. For developed economies, economic globalization allows them to benefit from cheap and high-quality global goods and services, while they occupy the middle and high-end positions in the global value chain, gaining a relatively high share of benefits. For developing economies, participating in economic globalization facilitates faster access to industrial transfer, direct investment, advanced technology, and excellent management experience, thereby enabling rapid economic development. This is why the current wave of anti-globalization is mainly seen in Western developed countries, while the majority of developing countries still aspire to enjoy the dividends of economic globalization and achieve economic growth by integrating into the global value chain.

The third reason is that the new round of scientific and technological revolution and industrial transformation has accelerated the free flow of production factors and the deep integration of global markets. Currently, a new wave of scientific and technological innovation is booming, including next-generation information technologies such as artificial intelligence, big data, cloud computing, quantum information, the Internet of Things, and blockchain; advanced manufacturing technologies such as robotics, digitalization, and new materials; and energy technologies aimed at clean, efficient, and sustainable goals. These scientific and technological innovations have made the global flow of goods, services, information, and capital smoother, faster, and more secure, significantly reducing coordination costs among various links in the global value chain. This, in turn, helps accelerate the deep economic integration of countries and promotes the further development of economic globalization.

Last but not least, the state of globalization is not as gloomy as it may seem. Despite the surging impact of the anti-globalization trend, globalization still shows great resilience, indicating that the general trend has not undergone a fundamental reversal. Firstly, exports as a share of global GDP have remained largely unchanged since 2011, rising from 30.7 percent in 2011 to 31.8 percent in 2022, despite shocks such as the COVID-19 pandemic and the Ukraine crisis. Secondly, the momentum of global trade growth continues to recover. In 2022, despite the impact of the Ukraine crisis, global trade volume still achieved 3 percent growth; in 2023, due to the impact of high energy prices and sticky inflation, global trade growth slowed to 1.2 percent. However, as inflationary pressures ease and household real income growth leads to a rebound in demand, global trade growth is expected to reach 2.6 percent and 3.3 percent in 2024 and 2025, respectively, with the trade growth rate again expected to outpace global real GDP growth. Thirdly, global capital flows have not significantly slowed since the 2008 financial crisis, with the stock of cross-border financial assets reaching $130 trillion in 2020, up nearly 60 percent from 2007 to 153 percent of global GDP, surpassing the peak before the collapse of Lehman Brothers. Fourthly, while COVID-19 had a great impact on people-to-people exchanges, international travel had nearly recovered to pre-pandemic levels by 2023 and is expected to fully recover by the end of 2024. Fifthly, regional integration has continued to progress. In recent years, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership, and the Digital Economy Partnership Agreement have entered into force in the Asia-Pacific region. In Africa, the African Continental Free Trade Area came into effect in January 2021, and the East African Community continued to expand its membership in 2022 and 2023, including the Democratic Republic of Congo and Somalia.

 

Promoting Universally Beneficial Economic Globalization

To sum up, we can conclude that economic globalization still faces significant difficulties, but not to the extent of warranting pessimism. After all, developing countries are increasingly becoming the main support for economic globalization. Whether globalization can overcome its current predicament and embark on a sustainable development path depends on its ability to address inherent imbalances and mitigate serious geopolitical interference. Promoting the transformation of globalization is a common task facing all countries today. China’s proposal to advocate for a universally beneficial and inclusive economic globalization provides a guide for promoting this transformation.

The transformation of globalization should uphold the principle of inclusiveness, which stands in contrast to exclusivity. Inclusive globalization emphasizes that humanity lives in the same global village, faces various risks and challenges, and should work together in times of difficulty. Drawing ideological lines and engaging in bloc politics and confrontational camps will only divide the world and hinder global development and human progress. Human civilization has entered the twenty-first century, and the Cold War mentality is long outdated. For individual countries, the processes of modernization and globalization generally move in the same direction. Inclusive globalization underscores that countries have the right to choose development paths that suit their national conditions. Inclusiveness must, and can only, be achieved through genuine multilateralism, which is incompatible with unilateralism and protectionism that seek self-interest at the expense of others. This approach is also the right way to maintain the stability and smooth operation of global industrial and supply chains, thereby sustaining the vitality and momentum of global economic growth.

The transformation of globalization should also adhere to the principle of universal benefit. Common development and shared prosperity are the key measures of whether globalization is truly beneficial. The prosperity and stability of the world cannot be based on the poor getting poorer while the rich get richer. To pursue a path of globalization that benefits all, countries should not only focus on growing the economic pie but also on sharing it equitably, so that different countries, social strata, and people can participate in and enjoy the fruits of economic and social development. This approach helps to address development imbalances both between and within countries and achieves common development and prosperity. To follow a path of globalization that benefits all, a people-centered development principle must be established. This means countries should ensure and improve people’s livelihoods, protect and promote human rights during the development process, and ensure that development is for the people, by the people, and that the fruits of development are shared by the people. This will constantly enhance people’s sense of happiness, gain, and security, leading to all-round human development.

It will also be important that the transformation of globalization possesses the right value orientation and pursues a path of fairness and win-win outcomes. Fairness here refers to a governance model that emphasizes that all countries, whether big or small, strong or weak, rich or poor, are equal members of the international community and should equally participate in decisionmaking, enjoy rights, and fulfill obligations. Fairness also means making development more balanced, ensuring equal development opportunities, and sharing the fruits of development with all. Win-win outcomes mean that every country has the right to development, but not at the expense of others. As economic globalization deepens, the winner-takes-all approach will become increasingly untenable and lead to a dead end. Universally beneficial economic globalization is the right path for the world.

Finaly, the transformation of globalization should aim to maintain an open world economy. The multilateral trading system, with the WTO as its framework, along with regional integration arrangements aligned with the spirit of multilateralism, and bilateral free trade agreements, jointly provide institutional guarantees for the current globalization process. The future transformation of globalization needs to strengthen, rather than weaken, the world free trade system. Undermining the WTO mechanism should be condemned, not condoned.

 

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