How Fragile Is Globalization in 2024?

The open global economy keeps chugging along -- for now.

Photo by Chris Linnett on Unsplash

The hard-working staff here at Drezner’s World has made no secret of strongly supporting most forms of economic globalization. In the grand scheme of things, however, that support does not count for much. In the United States, it’s a post-neoliberal world now, at least in terms of economic narrative. And globally, I have lost count of the number of shocks and crises that have buffeted the global economy over the past half-decade alone.

There comes a point when one has to question the resiliency of globalization as we know it. The question is whether that point is right now. For example, the IMF recently noted that despite widespread perceptions, the current global economy is more globalized than a generation ago: “A global increase in the foreign value-added content of exports from about 19 percent in the mid-1990s to 28 percent in 2022 points to continued deepening of trade integration. Meanwhile, services are able to flow more easily across borders thanks to the rise of digital technology.” On the other hand, Forbes columnists like Mike O’Sullivan have declared that globalization, “mostly likely died with the snuffing out of Hong Kong’s democracy in 2020” and that we are living in some kind of interregnum.

Over the past week I have read two slightly contrasting takes on this question. The Financial Times’ Alan Beattie remains the optimist, arguing that globalization is akin to the Road Runner escaping the protectionist anger of Wile E. Coyote:¹

If, like me, you were brought up on Warner Bros cartoons, you’ll no doubt recall the exploits of Wile E. Coyote and the Road Runner, in which the dastardly desert-dwelling canine attempts through various means (explosives, traps, falling anvils and so on) to capture and eat the heroic flightless bird, and repeatedly fails.

Imagine the roadrunner as the global trading system and the coyote being armed with protectionism, recessions, pandemics and terrorism and you’re pretty much there. As I may have said on one or two thousand occasions, a whole succession of shocks might well have dealt temporary blows to goods trade, but have failed to put it into reverse.

So here comes another one. On top of the partial blockage of Suez Canal trade by attacks from the Houthi militants, the world’s other great artificial waterway, the Panama Canal, has also been suffering. In this case it’s been a drought, most likely related to climate change, which reduced water levels in the canal from last July onwards….

And the net global effect of this major shift in shipping routes was . . . pretty much nil. LNG rates, which had fallen back following the huge spike after Russia’s invasion of Ukraine in 2022, haven’t moved much over the past year. It turns out that even for relatively low-value cargo, a longer sea journey doesn’t actually push the price up very much….

Companies can cope with a lot of change, provided they have the ability to diversify and create new reliable routes. It’s generally not inconvenience that’s the big problem, but uncertainty and reliance on a supply route that can’t be substituted in the short run, as Germany discovered after the Ukraine invasion. And it looks like there’s more substitutability for routes such as Suez and Panama than we feared.

One day, perhaps, Wile E. Coyote will succeed in getting his prey. For the moment, the Road Runner is still leaving him for dust.

For supporters of globalization, this seems like pretty good news!

But the other column that came out on this topic was far more downbeat. Vox’s Joshua Keating acknowledges that the open global economy is still functioning. But his latest suggests that at some point, the global economy can’t keep defying gravity:

In an era of increasing armed conflict and rising superpower tension, some fundamental ideas about the way the global economy works are coming into question. Global trade, rather than bringing countries together as advocates of globalization once hoped, is increasingly being weaponized by states against each other. Sanctions are splitting sectors of the global economy, notably energy markets, in two. The internet, once touted as an open realm where state power would have no sovereignty, is increasingly balkanized along national lines.

When we talk about globalization, we tend to focus on the movement of people, products, money, and information. But none of that is possible without the physical systems that makes those exchanges possible: The container ships that move goods from factories in Asia to stores in America; the flying, steel behemoths that make it possible to have breakfast in Abu Dhabi and dinner in Paris; the undersea cables that make your Zoom calls, Amazon orders, and online gaming sessions possible.

Increasing armed conflict and geopolitical tensions, from the Red Sea to the Arctic Sea, are threatening this infrastructure, putting an unprecedented strain on the global supply chains of goods, people, and data. So far, the physical network we rely on to keep the global economy functioning has held up under the pressure, but the companies and officials tasked with maintaining that network are bracing for what’s to come amid growing concerns that the system may be more fragile than it appears.

So who is right, Beattie or Keating? Actually, that’s not fair, they could both be right. Keating agrees with Beattie that the current global economy seems to be handling geopolitical shock after geopolitical shock with a minimum of fuss. Keating’s question, however, is how long this can persist.

The hard-working staff here at Drezner’s World tends to be more sanguine about globalization persisting despite loud pronouncements that it has come to an end. Great power governments and violent non-state actors have done their darnedest to push the world towards economic segmentation, and it just ain’t happening. Improvements in information and communication technologies have lowered the costs of cross-border flows. Even if states are erecting higher cross-border barriers, that has been counteracted by declining costs more generally. 

In many ways the current period might resemble the global political economy of the late nineteenth century and early twentieth century. Even as countries were raising tariffs, improvements in technology and infrastructure swamped those effects, causing globalization to continue to grow.

Of course, that era ended with the First World War eviscerating the 19th century version of globalization. If history repeats, or even rhymes, a large-scale great power war would bring about an end to globalization as we know it.

Short of that, however, I think analysts have to stop being surprised that global economic flows keep rising despite all the geopolitical shocks. Economic globalization continues to be the Economic Engine that Could.

1. If you think about it, however, old Wile E. Coyote is right to be skeptical of market forces. The Acme Corporation has screwed him over on just about every product, but there appears to be zero competition in the road-runner-catching market sector in his rural area. No wonder he wants to see some industrial policy!