No, the global economy is not divided into geopolitical blocs


There is a council of doom that has been emerging for a few years and is now reinforced by the war in Ukraine. He argues that the post-Cold War push for globalization that united advanced and developing economies worked well, but the patchwork, increasingly strained by geopolitical rivalries, now breaks down into two or three pieces. .

Specifically, the argument goes, the “splinternet” divides the online world into competing digital spheres, in part through three incompatible models of data processing – privacy-focused EU regulation, corporate-led freedom for all Americans and Chinese state surveillance.

Meanwhile, he continues, the political risk of the US-China strategic conflict is driving companies to relocate or “admiralize” supply chains. Governments, especially since the Russian invasion of Ukraine, are faced with the task of choosing economic and strategic sides: either the advanced economies led by the United States (sometimes with the EU as a pole of alliance whatever little independent), or China.

Nice story, but there’s not much evidence to back it up. Not only are most of the standard measures of globalization – the cross-border movement of goods, services, capital, data and people – doing quite well, but governments are showing that clever multi-pedal maneuvers can keep their feet in more than one side.

Take data protection and the so-called digital domain divide. The EU is convinced that it is setting data rules for the world, exporting the General Data Protection Regulation (GDPR) through the familiar “Brussels effect”, contrasting it explicitly with US laxity. But a country like Japan under the late Shinzo Abe, by carefully crafting safeguards against the misuse of personal information, got Brussels to recognize its data protection regime as adequate for data transfer while enthusiastically signing the pledges. inspired by the United States for the free flow of international data.

The same is true for supply chains of goods. In Brazil, President Jair Bolsonaro values ​​trade with Europe enough to push hard to push through the EU-Mercosur trade deal, trying (not very convincingly) to recognize European environmental values about the Amazon. At the same time, China buys around three quarters of Brazilian soybean exports and Bolsonaro is keen not to offend Beijing.

A diplomatic balancing act saves Brazil from having to choose. Brazil voted for the motion condemning Russia’s invasion of Ukraine at the UN general assembly, but Bolsonaro was keen to signal his concern, then abstained on the subsequent vote to suspend Russia from the UN Human Rights Council. (Brazil also continues to enjoy US support in its ambition to join the OECD, a club of wealthy countries.)

One of the other emerging market heavyweights, India, appears on the face of it to be heading towards the advanced economy camp as its foreign policy relationship with China deteriorates. It recently signed trade deals with Australia and the UK and is negotiating one with the EU, alongside enhanced military cooperation with the US. But these agreements do not have enough substance to lock India into a decisive trade relationship. And good luck stopping Indian Prime Minister Narendra Modi from buying oil from Russia, one of the main strategic goals of the US-led alliance when it comes to Ukraine. Like Bolsonaro, Modi is playing a multipolar diplomatic game and has been successful so far.

Many emerging markets are doing the same. Many East Asian countries aren’t big fans of China, and some, like Vietnam, are reaping good business from multinationals that are diversifying away from the Chinese economy. But Vietnam’s trading economy is still tied to the Asia-Pacific networks in which China is present, bolstered by the Beijing-dominated Regional Comprehensive Economic Partnership.

During the Cold War, developing countries could opt for one side or the other and obtain broad-spectrum alliance benefits: military protection and assistance, political aid, perhaps some useful trade links. Even then, however, there was a large unaligned movement. And none of the current major players offers such a complete offer.

The United States controls the global dollar payment system and the largest military in the world. But Washington’s current phobia of trade deals limits its ability to reward allies with juicy market access, as evidenced by the weak Indo-Pacific economic framework on offer in Asia.

The EU is a better bet for a meaningful trade deal, assuming you don’t mind it being surrounded by increasingly restrictive rules on the environment and labor rights. But it has few unified military capabilities to underpin a strategic alliance.

China is a big commodity export market, the source of key industrial inputs like rare earths, and an infrastructure provider through the Belt and Road Initiative — assuming you consider that a bonus. . But the renminbi is not an internationalized currency and Beijing’s belligerent foreign policy worries the countries of the region.

So far, the fabric of globalization has proven so dense that it has resisted attempts to unravel it. Of course, political divisions between major trading powers, particularly the United States and China, are an ongoing concern. If tensions over Russia – or Taiwan – escalate, this threat will become acute. But so far, none of these powers have proven strong enough to force countries to choose an exclusive bloc. This is not the Cold War. It’s much more interesting than that.

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