Joe Biden during a video conference call with Xi Jinping in November 2021. Alex Wong (Getty Images)
The pandemic and the invasion of Ukraine have propelled the world into a new era. The characteristics and depth of the change have been the subject of much debate at the World Economic Forum, held this week in Davos, Switzerland. Bruno Le Maire, Minister of Finance of France, offered a definition that is a valid starting point for the analysis: “In the last three years we have entered a new era of globalization. We have gone from being market-driven to being politically driven.”
Indeed, powerful political action is a key driver of this moment of geoeconomic change. It’s an interventionism that injects huge funds to encourage investment in key areas like green and digital; spending enormous sums to mitigate the impact of the polycrisis on citizens; which promotes a reconfiguration of globalization and its supply chains in line with the new, tense state of international relations.
Another major driver of change is the technological revolutions in several areas: digital, green, biotechnology and artificial intelligence, among others. These are tremendous accelerators of change in a variety of ways, from how businesses are organized to the balance of power between states, which of course goes through people’s lifestyles. Jean-Marc Ollagnier, CEO of Accenture Europe, commented to this newspaper in Davos that he believes the next 10 years will represent greater economic change than what has taken place since 1945 until now.
It is difficult to predict where all this will lead, and difficult even to define the present moment of this tremendous transition. Some, minorities, speak of deglobalization. Other, majority, metamorphosis of globalization, a reformulation of the dense web of international connections.
Speaking in Davos, Stanford University historian Niall Ferguson pointed out that the data on the circulation of goods, people, capital, services, ideas and digital data do not point to deglobalization. “It’s a mirage. There is change, but not deglobalization,” he said.
All of this is happening in an increasingly multipolar world. How are the main actors positioned in this metamorphosis? Who sees more opportunities? Who else is risking? Predicting what will happen in the future is a futile endeavor, but one can attempt to shed light on the strengths and weaknesses with which the major blocks are entering this new geoeconomic era.
India
A stroll along the Davoser Promenade, the main street of the Swiss Alpine station, during World Economic Forum week revealed to the most unobservant observer the overwhelming supremacy of the Indian huts. Although the Asian giant had no high-level political representation at the meeting, this portrayal is reminiscent of India’s great power at this stage. Its economy is growing at a rate of 7% per year and there are arguments that it is a winner of the new phase. A recently published report by the World Bank points to the special potential of the country.
Amid the intense geopolitical confrontation, New Delhi enjoys an intermediate position that allows it to count on Russian energy at discount prices that increase its global competitiveness, while at the same time being considered by Washington as a friendly capital, suggesting it to the business community as one favorable place to redirect investment and consolidate new supply chains that are less dependent on China. Furthermore, the huge domestic market of 1.4 billion people largely insulates India from possible global turmoil. S&P Global and Morgan Stanley believe it will be the world’s third largest economy by the end of the decade, ahead of Japan and Germany.
China
The world’s second power enters the new era with the vast assets accumulated over decades of amazing growth, with all the potential of their gargantuan size, but with an environment that is undoubtedly worse than before. The new situation represents a shift in a global economic order from which China has benefited greatly, particularly since joining the WTO two decades ago. In this sense, Beijing is a conservative power, it strives for continuity and its vice president of the government, Liu He, tsar of the economic area, tried to convey in Davos that China is open to foreign investments.
Now both the US and the EU are trying – albeit with varying degrees of intensity – to reduce their dependence on China in manufacturing, strategic commodities and certain technological sectors. In ultra-polarized Washington, there is a consensus that the rise of China must be curbed and the US supremacy maintained by making it more difficult for its rival, including through restrictions on the export of key technologies. There is still no consensus among the 27 in Brussels, but a less radical vision dominates, which, according to EU Commission President Ursula von der Leyen in Davos, aims to reduce risks but not decouple them.
China’s assets and potential are enormous: manufacturing capacity – for example in areas as important as solar panels or wind turbines – very promising technological development in sectors like artificial intelligence, a size that offers great economies of scale. The abandonment of the very restrictive anti-Covid policy improves growth prospects. But the new era is less comfortable for Beijing.
United States of America
The first world power faces the new stage with several comparative advantages. On the one hand, energy resources that make it possible to advance without risk until the renewables already cover all of the demand. On the other hand, an environment of exceptional technological effervescence in private enterprise that puts them in a prominent position in the innovation race that will determine the balance of power.
Washington is also the epicenter of a network of strategic alliances that will no doubt pay off in a new multipolar world where main competitor China doesn’t really have strong ties with other nations. These connections not only have value in the area of pure safety, but also have an impact on the economic dimension. Certainly in the defense industrial sector – see the recent mega contracts to supply F-35s to Germany or nuclear submarines to Australia – but also in a broader logic as a large part of the world GDP lies in allied or friendly territories where, at least the obstacle of absolute distrust is not found.
Of course, all is not rosy on the American horizon. China’s demographic dimension alone supports the hypothesis that the gap will continue to narrow. On the other hand, there are reasons to believe that the intangible but very valuable asset of cultural influence will be diluted in this multipolar scenario, with consequences also in the purely economic sphere. The brutal degree of polarization in politics also raises serious doubts about the future ability of the institutions to accompany economic development with the greatest efficiency.
European Union
The EU has an obvious comparative disadvantage compared to the other giants in the energy sector. The US has large reserves of hydrocarbons, China and India are buying cheap from Russia. Although it has managed to weather the crisis by avoiding supply disruptions and despite the fact that prices have settled down, it is more vulnerable than its peers on the road to a zero-carbon economy.
The bloc also suffers from some lag in digital technologies, which are becoming increasingly crucial, compared to the US of course, but also compared to China in some areas. In addition, it has the record of lack of agility that its pluralistic structure presupposes in a time that requires quick decisions and constant adaptation.
Among the assets, the EU has a position that can offer it opportunities amid tensions between the two muscular giants – the US and China. Christine Lagarde, President of the European Central Bank, recalled in Davos that the EU is the main trading partner of 80 countries in the world; USA, 20. There is exploitable potential there in times of restructuring.
On the other hand, the extreme turbulence of this new era has given the EU the impetus to act with unprecedented determination and speed, and to enter uncharted territory. “Europe has become a supra-political power,” said Le Maire in Davos. From joint debt issuance approved during the pandemic to building a common energy policy, this greater cohesion is an asset in a multipolar world acting without gloves. The plans to stimulate the microchip industry or green technologies illustrate the transformative power of this accentuated coordination in the economic sphere.
Global South
This is a heterogeneous group that lacks sufficient political ties to be considered a unit of action in today’s world. But it’s a concept carried by characteristics shared by a large group of countries. As UN Secretary-General António Guterres said in Davos: “There are no tensions just on the East-West axis. The north-south break deepens. “I’m not sure everyone understands exactly the level of anger and frustration that’s building in the South,” he added.
Clearly, the rise in energy and food prices associated with the Russian invasion of Ukraine is a reality that is particularly damaging to the south. This also applies to the consequences of interest rate hikes by the most important central banks, especially the US Federal Reserve, for their debt. And in parallel, the cost of climate disasters fueled by pollution in rich countries will inflict mounting damage, while compensation will take time to materialize.
Kristalina Georgieva, executive director of the IMF, expressed concerns in Davos about how the green technology race, fueled by rich-country subsidies, could widen the gaps. It was asked whether there will be a transfer of the technologies to be developed and under what conditions.
This does not prevent some countries in this conceptual area, such as Indonesia, from using the new phase of hesitation between the powers to attract investment, and others – for example some Latin Americans – from benefiting from the great demand for certain types of minerals that needed for the development of new technologies.
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