Globalization: Making sense of the backlash
If you’ve searched “deglobalization” or “nearshoring” or “reshoring” lately, you’re not alone. Google queries of all three terms have surged in recent years.
It’s not hard to figure out why. Wars in Ukraine and now Gaza, U.S. tensions with China and Russia, supply chain breakdowns, and rising populism have all raised doubts about the future of globalization — and whether its promise of a more connected and interdependent world can ever be achieved.
Caroline Freund has a message for the naysayers.
“Deglobalization isn’t happening,” said Freund, the former director for trade, investment, and competitiveness at the World Bank who is now the dean of the School of Global Policy and Strategy at the University of California, San Diego. “What’s actually happening is a reshaping [of the world economy].”
Freund’s insight came during the kickoff session of the SIEPR Fall Policy Forum. The event, held annually by the Stanford Institute for Economic Policy Research (SIEPR), focused this year on the future of globalization and how the United States can help shape the world’s shifting landscape. The Oct. 27 forum convened more than 170 attendees and featured perspectives of top experts from government, business, and academia.
The first thing to keep in mind: Globalization has experienced setbacks before.
“The trajectory of globalization has not been linear over the past 150 years,” said Mark Duggan, The Trione Director at SIEPR and The Wayne and Jodi Cooperman Professor of Economics in the School of Humanities and Sciences, in his opening remarks. “Globalization has clearly had its drawbacks, [but] there is indeed good reason for optimism.”
The weaponization of economic policy
At the daylong event, featured speakers and audience members delved into a host of major current events affecting U.S. policy at home and abroad — from China’s economic stumbles and Russia’s growing economy despite record-level western sanctions to the U.S. dollar’s seemingly unstoppable reign as the world’s dominant currency and the private sector’s outsized role in the artificial intelligence revolution.
The consensus: More than ever, there’s a need for coordination. Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and a former chief economist at the International Monetary Fund, spoke of the war between Israel and Hamas that began Oct. 7.
“The tensions in the Mideast are going to roil the global economy and global cooperation in a way that is very hard to predict,” Obstfeld said in his keynote. Factor in common threats posed by climate change, pandemics, cyber breaches, and nuclear proliferation and, he said, it’s clear that “global cooperation is more essential than ever,” he said.
But what does that cooperation look like in practice? Right now, it’s about coalitions — whether it’s the U.S. teaming with Europe or Russia partnering with China — and using economic policy as weapons.
“We live in a world of market power that’s used not for economic reasons, but for geopolitical purposes,” said Oleg Itskhoki, an economics professor at UCLA and a speaker on the panel about trade tensions and a return to industrial policy. “Everything is weaponized.”
U.S. policy: Throw sand in the gears
Take, for example, U.S. restrictions on trade with China — in the form of tariffs on imports and export controls aimed at curbing China’s access to advanced semiconductor chips and the tools for making them. Or, consider the severe sanctions imposed by the U.S. and its western allies against Russia for starting a war in Ukraine.
On China tariffs and Russia sanctions, the results so far have been disappointing.
Chinese imports to the U.S. have fallen since tariffs were first imposed in 2016, but the numbers mask another problem, said Freund during the session on trade. Asian imports to the U.S., which have held steady, include products whose parts can be sourced to Chinese suppliers. “There’s still Chinese content in our imports,” she said. “It’s just now coming in a much less transparent way.”
As for Russia, the pain that the U.S. and its allies hoped to inflict on its economy by boycotting purchases of oil and gas and freezing assets hasn’t worked, said Itskhoki. China, India, and Turkey have stepped up trade with Russia. And European goods are making their way to Russia through third parties.
The lesson, Itskhoki said, is that weaponizing economic policy exacts a hefty toll on everyone.
Fellow panelist Emily Blanchard, the chief economist at the U.S. State Department, acknowledged that efforts by the U.S. and its allies to counter Chinese and Russian aggression through economic measures has had setbacks. But that doesn’t mean the West should stop trying.
“The objective is to throw sand into [Russia and China’s] gears,” said Blanchard, who is also a professor at Dartmouth’s Tuck School of Business. This means making it as expensive as possible for them to sustain their aggression and — in Russia’s case — to also compromise the quality of the tools it’s using to try to defeat Ukraine.
“We’re clearly at a crossroads in the way that we in the United States, and countries around the world, approach their international economic policies [and their] domestic policies too,” she said.
Russia + China: A purely tactical alliance
On the newfound alliance between Russia and China, the speakers suggested it might not be as formidable as it seems. The strongest relationship between the two countries in more than 100 years is rooted in their shared perception that “enemies are everywhere,” said Kathryn Stoner, the Mosbacher Director and senior fellow at Stanford’s Center on Democracy, Development and the Rule of Law during a session on Russia and China.
Both Russian President Vladimir Putin and Chinese President Xi Jinping face a similar challenge, panel speakers agreed: Trouble in their economies could lead to political strife.
For Putin, fallout from the war on Ukraine is exacerbating labor shortages and a steep drop in life expectancy linked to the pandemic, Stoner said. For Xi, the “triple whammy” of pandemic lockdowns, unsustainable government debt, and the lowest rate of direct foreign investment in three decades appears to be fueling internal dissent, said Minxin Pei, a political science professor at Claremont McKenna College.
Like Russia, China must grapple with worrisome demographic challenges. For Russia, according to Stoner, it’s a tight labor market and falling life expectancy from COVID-19 deaths and war casualties. For China, its high levels of unemployed youth, Pei said.
“This is a regime that knows that it does not have a popular mandate to the extent it used to have one, and that’s based on the economy,” he said.
Artificial intelligence: Winners and losers
It was standing room-only for a session on the global race to dominate artificial intelligence (AI) — and its far-reaching implications for worldwide security and wealth inequality.
AI will “superpower all the good, bad, and the ugly,” said Fei-Fei Li, the co-director of Stanford’s Human-Centered AI Institute (HAI) and unofficial “godmother” of AI who spoke on the panel.
Among AI’s potential for good: curing cancer, supercharging education, and tackling climate change.
Another speaker, Erik Brynjolfsson, the director of the Stanford Digital Economy Lab and a SIEPR senior fellow, predicted that AI will enable huge leaps in worker productivity in the coming decade that could be double what the Congressional Budget Office is predicting. “We’re (already) seeing eye-popping improvements in productivity,” he said, including in one study he co-authored earlier this year showing a 35 percent boost for junior-level workers.
Still, the panelists agreed that there will be winners and losers in the AI revolution. The risk that it could exacerbate wealth inequality — and undermine globalization’s promise of shared prosperity — is real.
This concern is one reason why the speakers were critical of the private sector’s lead in driving AI innovation. Universities haven’t been able to keep up with the speed and scale of AI advances. The same goes for the public sector.
“There are simply not enough technologists within government to actually be able to responsibly figure out how to govern this technology,” said Daniel Ho, a SIEPR senior fellow and the William Benjamin Scott and Luna M. Scott Professor of Law at Stanford Law School. Ho also serves on the National AI Advisory Committee.
The speakers’ insights proved timely. Three days later, on Oct. 30, President Biden released a widely anticipated executive order calling for AI safeguards. The following day, the United States and China were part of an international consortium that pledged at a United Nations summit to work together to address the technology's potentially "catastrophic" risks.
*All photos by Ryan Zhang