Tug of Trade Wars - Is Globalisation Breaking Down?
- Isabella Neal
- Jan 28
- 9 min read
So Basically...
This policy brief examines the impacts of anti-globalisation on international trade and
investment. Analysing social, political, and economic factors influencing antiglobalisation
sentiments that have fuelled the localisation of trade and movement towards private
investment, and then discussing the implemented policies, possible responses, and trade-offs associated with the trend of antiglobalisation and the resulting less interdependent and liberal international political economy.
The Movement Towards Antiglobalisation
Antiglobalisation impacts international trade and investment, shaping contemporary
political economics and determining the countries with the most influence in global politics.
During this period of continuing anti-globalisation, international relations, political and
economic preferences, and available investment have evolved and impacted all countries
considerably.
Political Tensions
The US-China Rivalry
Increasing tensions between the United States and China made the multilateral
international order increasingly bipolar, emphasising state sovereignty and nationalist and
populist ideologies, primarily in the US (Permal, 2022). This was visible during the 2016 US
Presidential election (Skonieczny and Sherel, 2024) and the Covid-19 pandemic (Permal,
2022). Political figures blamed China for US economic difficulties, attempting to gain
political support by spreading nationalist and populist ideas (Skonieczny and Sherel, 2024),
promoting deglobalisation and state-centric policies.
International Institution Skepticism
This descent into deglobalisation is the collapse of the US-led liberal international
order established after World War II (Ikenberry, 2018), causig a rise of non-Western powers
and decline of Western-centric institutions (Knight et al., 2018). The structural power of the
US has dramatically decreased due to the rise of Brazil, Russia, India, China, and South
Africa (BRICS) holding greater economic power and building alternative institutions to the
Western-centric International Monetary Fund (IMF), and the World Bank (WB) (Stone, 2011)
with the hyper-globalised WTO (Lester and Rodrik, 2011). Many countries, especially
BRICS and Latin America, feel underrepresented and used by MDCs in these institutions
(Vreeland, 2011).
Perceived Downfalls of Globalisation
Unequal Gains from Trade
Antiglobalisation originates from the perception that globalisation benefits developed
countries more (Curran and Eckhardt, 2020). This is due to the international institution scepticism discussed earlier, as countries are underrepresented in the liberalised institutions that resulted from globalisation. Another factor is that globalisation and free capital movement lead to an outflow of workers from less developed (LDCs) to developed countries (MDCs) (Curran and Eckhardt, 2020), resulting in lower gains for LDCs and MDCs gaining skilled workers from LDCs, hindering investment and development, seen in Bangladesh to Malaysia in recent decades (Mannan, 2016).
Weaponised Interdependence
Movement from globalisation is influenced by the current international networks and
countries with influence of specific parts of them, usually MDCs, such as the US, to promote
their political and economic interests. The US influences many global networks, such as the
Internet and the Society for Worldwide Bank Financial Telecommunication (SWIFT). This
allows the US to surveil, include or exclude certain actors, as they did to Iran in 2012 (Farrell
and Newman, 2019), limiting their participation in these networks through panopticon and
chokehold effects. Countries have turned to smaller networks and less multilateral
organisations to limit this source of coercion and gain autonomy over their relations.
Anti-globalisation on International Trade and Investment
Regionalisation of Trade and Investment
Deglobalisation has decreased the relevance of large international organisations, such as the IMF, WB, and WTO. Countries are turning to smaller, localised agreements, such as regional trade agreements (RTAs) and alternative investment sources have significantly increased since the 2000s and continue to do so (Ruta, 2023). RTAs have increased in South Asia due to the rise of BRICS to limit reliance on a small group of countries, as many have been in the multi-lateral order in the past (Donno and Rudra, 2018). This will lead to many, smaller trade networks, encouraging deglobalisation and regional investment and trade. This is also demonstrated by Britain exiting the European Union (Curran and Eckhardt, 2020). Not Many RTAs are discriminatory, leading to more trade barriers worldwide (Ruta, 2023). The Covid-19 pandemic revealed the vulnerability caused by large global supply chains. Many countries’ economies were disrupted due to their inability to support trade and investment. This has led to more regional and localised trade agreements to limit reliance on other countries and reduce their economic vulnerability (Permal, 2022).
Protectionism
States have turned to protectionism for various reasons. The establishment of
discriminatory trade agreements has caused concern countries will be impacted by increased protectionism of other countries and agreements they are not in, encouraging them to protect their own industries and self-reliance by implementing their protectionist policies (World Bank Group, 2023). The US-China rivalry has led to the decoupling of their supply chains, having significant implications for global supply chains, putting countries at risk of disrupted trade, leading to trade barriers and RTAs, including the African Continental Free Trade Area (World Bank Group, 2018), to protect domestic economies (World Bank Group, 2023). The US and China have placed ‘retaliatory tariffs’ on one another, creating a cycle of protectionism that threatens global trade and interdependence as prices and values of imports and exports of become increasingly volatile (Ma et al., 2021). States established protectionist policies to promote domestic industries and reduce reliance on volatile and expensive markets and trade agreements.
Impacts on Developing Countries
Reduced Market Access and Limited Opportunities for Development
Free movement of capital, including knowledge and technology, is essential for
development, as it provides sources for efficiency and the ability to compete in international
markets (Tan, 1979). Increased protectionist policy limits the movement of capital to LDCs,
limiting their ability to improve efficiency and compete with MDCs’ production. Increasing
tariffs and trade barriers limiting LDCs’ market access makes development and economic
prosperity and efficiency more challenging. Participation in RTAs may aid this difficulty, but
depends on the conditions of the agreements, such as the extent of capital flow and market
access, which could be less beneficial with MDC agreements (Stender, 2019).
Labour Rights
Deglobalisation can determine labour rights in developing countries. Deglobalisation
can worsen labour rights in LDCs, because investment opportunities are scarcer, and trade
barriers make competing internationally difficult (Gilbert and Huber, 2023). The deglobalisation trend can worsen labour rights and working conditions LDCs as they attempt
to attract FDI by remaining competitive and low-cost for multinational companies. Demonstrated by Costa Rica (Mosley, 2008). However, FDI can improve labour rights, as
MNCs implement social responsibility programs meet international norms. Free trade’s
impacts on labour rights in LDCs depend on:
The number and extent of trade agreements that provide market access,
The ability of workers to organise and strike,
The level of competitive pressures of the market,
The ideologies of domestic institutions,
The labour market conditions
(Mosley, 2008).
Policies, Trade-offs, and Responses
The True Impact of Sanctions and Retaliatory Tariffs
While many countries have increased the number of trade barriers against other
countries in response to political tensions, conflicts, and antiglobalisation preferences, their
effectiveness may be limited and difficult to measure. Countries are often bound by policy
restrictions and time lags. It can be difficult to distinguish whether a state’s behaviour is in
response to a sanction or one of the many other political, social, or economic factors
influencing it (Peksen, 2019). Sanctions can be challenging to enforce and coordinate among actors, limiting their coercive effect. If implemented effectively, a particular sanction may influence an actor’s behaviour. However, lack of authority or ability to inflict such influence reduces a sanction’s effect (Gudzowska et al., 2022). Additionally, while sanctions can influence an actor's behaviour, they can also negatively impact civilians, having more significant implications than one may have initially expected when imposing the sanction (Gudzowska et al., 2022).
The Trilemma
Economic theory suggests states cannot maintain a fixed exchange rate, monetary
policy autonomy, and free capital flow (Aizenman, 2010). This could explain the movement
towards protectionist policies considering deglobalisation and the various political, social,
and economic events that influenced antiglobalisation preferences in recent years. The US-
China rivalry, global pandemic, and other events led to market volatility, significantly
impacting exchange rates and monetary policy. Therefore, many countries limited the amount
of capital flow to regain control of the other two aspects of the trilemma, leading to
increasing protectionism.
China’s Belt and Road Initiative
China took advantage of the turn towards regionalisation of trade and investment
through its Belt and Road Initiative, in which it aims to assist developing countries through
the provision of aid and foreign direct investment (FDI), to promote development and
improve infrastructure to allow them to participate in international trade and grow their economies (Huang, 2016). Developing countries are likely to receive investment from China,
rather than the more traditional institutions such as the WB or IMF, due to deglobalisation
preferences and the dislike of these organisations by LDCs (Broz et al., 2020). As discussed
earlier, investment allows LDCs to access markets and capital to participate in trade in the
emerging bipolar international order and compete with MDCs. This initiative will benefit China as it forms relations and networks to access freer markets and limit the impacts of deglobalisation and increasing trade barriers (Huang, 2016). This provides China with economic influence and coercive powers, as it can establish trade barriers to those outside of these agreements, such as the US, to limit their economic influence and prosperity.
Conclusions
Many factors have led to a recent increase in antiglobalisation in global politics. These trends
have significant implications for international trade relations, sources of investment, and
development opportunities. The impacts of globalisation vary by state and depend on factors
such as domestic institutions, preferences, and participation in regional trade agreements. To
best address this issue, one must consider these conditions and pursue policies that will
enhance their access to markets and limit the impact of foreign trade barriers while protecting their economies from foreign competition and lower-cost production.
Brief Summary
Recent trends show increased antiglobalisation sentiments due to various economic, social and political factors.
These sentiments, coupled with rising political tensions and weaponised interdependence, have increased regional and protectionist trade policies.
These policies have significant implications for developing countries
They can limit developing countries’ market and capital access and investment opportunities, inhibiting their ability to develop further.
They can impact the labour rights of these countries depending on domestic factors and market conditions.
Knowing the true impact of policies relies on their enforcement and ability to be measured.
These responses to antiglobalisation are likely a result of states attempting to satisfy the economic ‘trilemma’.
China has responded through regional trade agreements and investing in the development and economic prosperity of its cooperating countries.
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