The "free market" thinking behind globalization was broken by China first.
That is, China has been pursuing industrial policy and state-driven investment to the extent that it can be considered a trade barrier. Other Asian countries too have been making such large state driven investments in semiconductors that the US semiconductor industry can demand $50 billion of state subsidization at a time when it is more profitable than ever.
Some of this is not the specifics of China's government and policy but is driven by China's size and the speed at which it integrated in world markets. For instance most of the time trade "lifts all boats" but it turned out that the China shock was so large that it really did hurt workers here.
This is not a matter of some little country Belgium practicing dirigisme, this is a matter of multiple industries that the US is being to be forced out of. For instance China subsidized a large number of aluminum factories that have been producing a huge glut of aluminum that is building up in warehouses, making it impossible for other aluminum producers to do business on a market basis... And furthermore having an impact on upstream and downstream industries.
Free marketeers will say that China will ultimately pay a price for wasteful spending but going down this path we will see the US industrial base hollowed out more and find that the slightest sniffle or sneeze in China will cause supply chain ripples that are harmful to our economy.
Free market is not a religion that everyone has to follow. That was just a set of conventions that people follow if they benefit from it. As soon as China and other free countries [1] realized they can follow other rules that are more beneficial to them, they naturally shifted to that model.
[1] There are countries that do things that are more beneficial to someone else than own interests, but they don't count as free.
Parts of Spain have a history of anarchism and syndicalism, with an explicit recognition that it was a way to fight back against an economic system that was taking advantage of them.[1]
Chile tried to do something similar when they realized a lot of their mines were owned by US companies, they elected a new leader who was going to nationalize the mines, but then the US govt backed a coup to overthrow him and install a dictator.[2]
China only copied the model adopted first by Germany to catchup to Britain pre WW1, then by America, followed more recently Japan, Taiwan and Korea. Friedrich List was the first to really come up with a theory of how nations should act for the benefit of their citizens. You go to China, Japan or Korea and you'll find his works translated and common in libraries and second-hand bookstores.
To be transparent, "free market" was never totally free. It was free in the sense of beneficial to only certain countries/establishments. Even before COVID, US/EU had certain subsidies to support (and keep local industries in safe hands). Not that it is wrong/right but crying foul only on China/others is unfair. Every one strong arms this in negotiation.
Reminds me of a game theory experiment they ran as a competition. Build a bot that gets the most resources in a deal-making market.
The optimal solution is tit-for-tat. And it leads to a stable equilibrium for the market as a whole and everyone is better off.
But if you know everyone else is playing tit-for-tat, then you can exploit that by always taking advantage. Then you win.
But if too many other bots also make that same realization, everything collapses again. The whole market is worse off.
China, in this case, is playing a lot like that one player who noticed everyone else believes in free markets. If you’re the only player with the opposite strategy, it works great … until others start changing. Then everyone is worse off.
Although whether markets were ever free free is a questionable claim at best. Are there economies without subsidies and without tax breaks?
I believe the root of the "not a free market" idea comes from the fact that currently if you are wealthy enough, you can "buy" a politician so that they back up policies that enable subsidies and tax breaks which are convenient for you. Tit-for-tat, like you said.
In a sense, there is actually a free market... but it's the one where you buy and sell politicians. That one conditions the other one, which isn't free. That will happen regardless of who lives in the White House.
The WTO has been in a stalemate since the Seattle riots of 1999 because developed countries insist on subsidizing and protecting farmers of major crops (the odd thing is that there is little dirigisme for healthy foods like broccoli and spinach but a lot for mass carbohydrates such as corn, sugar,...) but developing countries won't further open any other kind of trade unless the developed world opens up in agriculture.
> (the odd thing is that there is little dirigisme for healthy foods like broccoli and spinach but a lot for mass carbohydrates such as corn, sugar,...)
Mass carbs are how you feed people in the kind of emergency that might make having a strong domestic food supply extremely nice. People can always backyard-garden some greens. If you've got enough corn, wheat, rice, and/or potatoes (maybe), the rest will sort itself out. If you're lacking in those, people are gonna die.
> the odd thing is that there is little dirigisme for healthy foods like broccoli and spinach but a lot for mass carbohydrates
You can't run a nation on broccoli and spinach (unless your population consists of Popeye-clones) while you can run it on starchy foods like wheat, corn and potatoes. They may not be the most healthy alternatives but they'll keep you - and your army - alive to live and fight another day. If a nation can not get any broccoli or spinach they'll just get some other green vegetables or do without. If the nation can not get any bulk starch products it is in dire straits. The high status of green vegetables is more of a symptom of overabundance than of their capacity to feed a nation. They certainly make for a healthy addition to a diet but they lack a number of essential things - proteins and fat as well as some vitamins, B-12 being the hardest to find in plant-based foods.
Convincing any country, let alone the USA, to give up national security for policy ideals is going to be tough. Food security as a national interest is an easy argument for the agricultural lobby to make. Now it's starting with semiconductors.
Agricultural protectionism creates political conflict inside the country that practices it.
The Corn Laws were so divisive in the UK because they were good for legacy nobles who owned vast amounts of rural land but bad for city dewellers and the emerging class of factory owners.
... sugarcane in the United States remains nearly twice as expensive per pound
as in other developed countries due to the failure the industry would face
without government subsidies
even if you can say that the last things Americans need is more cheap sugar.
In the case of the US our comparative advantage for producing food is large and we don't improve national security by maximizing our production, we just use more fertilizer and get a bigger dead spot where the Mississippi river enters the ocean.
To be fair to the US, it goes back WAYYYY further than that.
The dirty secret of international fair trade, is that there is no international fair trade. And there never has been.
It's not the fault of the US for ag subsidies. Not even the fault of China if we're being honest. It's just how things have always been since before the Phoenecians even.
All countries have historically had tariffs. So, “broken” would mean a break from this free trade cultism that happened after large economies espoused the Austrian School of economics type free trade.
And US had no reason to break it because until maybe 2005 US was the biggest beneficiary of this system.
Today I learned about Dirigsme https://en.wikipedia.org/wiki/Dirigisme thank you! I was quite familiar with Laissez-faire. Disappointed in myself for not considering alternate viewpoints.
>The "free market" thinking behind globalization was broken by China first.
You're right about PRC operating at PRC scale upsetting balance, but it's more inducting PRC into WTO gave US, historically and currently the worst breaker of free market due to domestic policies and sheer historic economic heft, a taste of being victimized by industrial policy from another large economy. Look up WTO DSS database, US is by far the worst WTO violator, and it's not even close. PRC adjusted of ascension time is closer to a medium sized country such as JP, i.e. relative to her trade volume, PRC is probably one of the top adherents of the WTO system and globalization in general, which makes sense since it has benefitted her so much. Finally there's a reason US is holding WTO dispute settlement body hostage, despite all other parties wanting appellate bodies to presume. Why it lost it's shit at WTO for siding with PRC on steel, and also against Canada and Mexico for NAFTA auto shenanigans, showing that currently, US domestic politics can't even cope with regionalism / friendshoring.
The TLDR is US logic is it no longer benefits from globalisms as much as others, particularly PRC, not that US doesn't still disproportionately benefit relative to most parties. But it would rather crush system for everyone else than enable PRC to keep reeping benefits of globalism which could long term displace US in variety of sectors. Which to be fair, might be in US interest.
PRC excess production capacity, it's ability to over supply after meeding domestic demand, hammers shares from incumbent industrial leaders. Part of it is industrial policy, but part of it is also PRC has the infra, talent in absurd quantities where over supply is almost inevitable. As PRC move up value chain, it's going to systemically take market share from US/western companies, but especially US who leads in many fields. Ergo, within US interest to stall that process (Tech sanctions / WTO drama), and try to fracture market into west/rest to maintain her racket.
> The "free market" thinking behind globalization was broken by China first
That’s cute but not true. Countries like France force their colonies (former) in Africa to supply raw materials (like chocolate or vanilla) for cheap, and make billions every year by processing it and selling finished goods for sometimes 100x. Any attempts by African nations to process the raw materials to finished goods are actively squashed by the French govt by a mix of policies. France is not alone in this. “Free Market” has never existed.
> Countries like France force their colonies (former) in Africa to supply raw materials (like chocolate or vanilla) for cheap, and make billions every year by processing it and selling finished goods
Cute theory, unsupported by facts. Chocolate for instance is a simple supply chain problem: shipping cocoa to Europe is cheaper than shipping milk to Africa and then shipping chocolate back to Europe.
Where possible - nuts for example, transformation increasingly takes place locally. The bottleneck isn't some obscure international conspiracy but investor's willingness to take the country risk and establish trust relationships.
For anyone who doubts the above, have a look into which countries in the world produce the most coffee, and make by far and away the most profit from it.
It's just a little suspect those countries have never grown a single bean, and they're able to buy raw coffee beans from undeveloped countries for a steal.
Why do countries like Ethiopia and Guatemala sell them for so cheap? because the IMF would call in their loans if they didn't, sending their economies back to the stone age overnight.
The free market on a global scale has always been entirely fictitious.
Yawn, it's so easy to disprove, it's not even fun.
Crops produced in Africa like crops produced anywhere else are now traded on the international market. France actually imports very little from its former colonies. A casual glance at the world factbook will show you it's not a major trade partner of any of them.
The idea it makes billions from it is simply preposterous. Just check the composition of France's GDP if you don't believe me. It will probably take less time than it took you to write your original comment.
> China’s attempts to promote specific industries are relatively recent — in the 80s, 90s, and early 00s, China did very little of this. Barry Naughton, probably the premier Western scholar of Chinese industrial policy, explains this in his short book The Rise of China's Industrial Policy, 1978 to 2020, which you can read online for free here. He discusses how from 1978 through 2005, China essentially just focused on liberalizing their economy — if the government targeted specific industries, this was done at the local and provincial level, as in the U.S.
Your last sentence is interesting. You use a future tense when a past tense seems more appropriate, especially regarding the specific example of semiconductors in the last 3 or 4 years.
It's not past or future per se but an ongoing pattern outside of time (on the time scale of decades) that will become more or less intense at various times.
Probably unpopular take: This is a perfect article to discuss in a class about propaganda. It pretends the neo-liberal agenda from the late 80ies to around 2005 has been always the way the economy worked. I assume it's not difficult to prove that 1945 until 1985 worked quite different and while it's not black and white it's cynical to talk about helping poor people when this movement was and is responsible for so much inequality in the world. Privatize profits and socialize losses worked very well in the past 30 years.
An interesting recent book that traces the ideological tinges of neo-liberal, "austerity", politics back to WW1 is The Capital Order by Clara E Mattei [0]. It's a very well written (if also frequently depressing) example of political economy used to make a clear and distinct point about something like "austerity" which we often perceive as a "natural" requirement of the economy.
In neoclassical models growth is just a function of the productivity of capital and the amount of saved capital. It is that simple and that is why especially Austrian economists insist that saving is the source of wealth or something.
But what Keynes realized is that the bottleneck isn't actually on the saving side, people actually save more than enough to grow the economy very quickly but they don't deploy those savings and hence they don't result in the expected growth. So insisting on austerity just adds a bigger pile of savings onto an already over supplied capital market while at the same time decimating consumer demand for the capital seeking investment opportunities. People don't invest because the economic outlook is bad for the next year or the year after. Faced with uncertainty they would rather just keep liquid money in their bank accounts and wait for the economy to recover but how is the economy supposed to recover if everyone is pessimistic about the future?
The Economist has been pushing some of the most ridiculous propaganda of late.
Not really surprising considering it is owned by a few European old-money families, who stand to lose tremendously from an Asia-centric multipolar world order.
Pieces this stupid make me viscerally angry. I disagree with many of the core points, but it's the particularly dumb way those arguments are presented that really gets me. This reads like it was written by some 70-year old retired executive who has no idea what a semiconductor is.
The level of arrogance and stupidity required to witness the (still ongoing) catastrophe in global supply chains from the COVID-19 pandemic and not reassess any of one's opinions on globalization is simply staggering. It's either criminally negligent or deceitful not to even mention COVID-19 in a discussion of globalization in 2023.
> The death of [the hope for a democratic China]—combined with the migration of a million manufacturing jobs to Chinese factories—caused America to fall out of love with globalisation.
Ok, so the author is acknowledging that globalization cost the US a lot of manufacturing jobs (though there's an obvious downplaying of that loss here). Great!
> Reindustrialisation will raise prices, hurting the poor most.
Now the author is arguing the other side of the exact same point! What about the manufacturing jobs the author just said were lost to globalization? Does the author have brain damage?
> Democrats and Republicans alike worry that the loss of America’s lead in advanced chipmaking to Taiwan will undermine its ability to develop artificial intelligence—on which, they predict, armies of the future will rely to plan strategy and guide missiles.
This totally misunderstands the nature of the conflict. TSMC is the biggest fab of the most sophisticated microprocessors in the world, processors which we all rely on every second of every day. The entire global economy needs these chips to function and US companies need the best chips to put in their products so they can be competitive. For simple economic reasons and complicated historical reasons China really wants to reintegrate Taiwan into the PRC. The US can't tolerate that because it would put China in direct control of the world's biggest supply of advanced semiconductors. It has nothing to do with artificial intelligence and everything to do with control of economic resources.
> America must also woo emerging powers. By 2050 India and Indonesia will be the world’s third- and fourth-largest economies, projects Goldman Sachs, a bank.
Minor quibble, but why include this appositive? Does anybody who reads The Economist not know that Goldman Sachs is a bank?
Free trade, comparative advantage, etc are mental models for thinking about trade. They make about as much sense as an ideology as having an ideology of frictionless pulleys or spherical cows.
This piece gets the cart and the horse backwards. The localization of chip manufacturing isn't a "move into protectionism," it's simply a delayed response to the growing recognition that chips are more than just consumer goods. Energy and information have always been the things most valued by states, the only thing new is that solar panels and silicon dominance have moved from being a far fleck on the horizon to being seen as the inevitable future, if not already the present. You may as well call a state "protectionist" for attempting to achieve self-sufficiency in food and water. When barriers to access go from international policy to international supply, you adapt or die.
The hope was that economic integration would lead to less conflict, but the Russian invasion has proved that to be misguided. The West couldn't imagine Russia doing something so self destructive, but it doesn't have the mindset of authoritarians who do not act entirely rationally, or at least convince themselves of nonsense.
What's really killed globalisation is the realization that in the absence of the self-correcting tendencies of democracy you end up arming your adversaries. Russia has absolutely no qualms about using decades of hydrocarbon sales to try to smite the West. China is an even worse danger as they are actively positioning themselves as being essential to the world economy, but not being dependent on it. Their "unlimited friendship" with Russia is part of that given that Russia can provide critical oil and gas that China cannot produce themselves.
The "self correcting tendencies" of democracy didn't stop said democracies from doing the same type of errors not even 2 decades ago in iraq (invading a sovreign nation). I don't know why we would except any better from an authoritarian country, and I honestly don't know if anyone really did?
This entire post has a huge blindspot. The US has been invading countries (does anybody know how many?) for decades and delivering democracy from the barrel of a gun. The US is the leading proponent of this "globalization through democracy" project and yet - does any other nation have more blood on its hands over the last 50 years than the US?
With that said, maybe other nations are starting to think the payoff isn't worth the price?
> The hope was that economic integration would lead to less conflict, but the Russian invasion has proved that to be misguided.
Precisely, it was misguided.
This invasion did not, and will not, ever, benefit anyone. The decision of invasion was not based on a shared interest in peace and integration (!) but on an imperial domination vision.
So you can't blame the rules most countries follow in autonomy, peace and development interests (economic integration, international order), because one particular country decided (violently) not to.
The true enemy is this idea of local/regional exceptionalism, that justifies overreaching, that's growing (that Russia and China, among a few others, nurture carefully).
> The hope was that economic integration would lead to less conflict, but the Russian invasion has proved that to be misguided.
It has absolutely led to less conflict. Just because Russia's insane dictator is hellbent on destroying his country doesn't mean the concept isn't valid.
What is the alternative? If we didn't have globalization, our ONLY option would be war. Instead we took away McDonalds, armed our allies, and we've so far stalled a full scale invasion that previously would have succeeded instantly.
Yes Russia and China are where it didn't really work out. But the EU for example has been very successful in reducing conflict. But I would also argue there are many other quiet successes. We simply dont have a world in which the US after winning WW2 decided to turn inwards and instead of promoting globalisation just decided to leave things be.
"Moving towards subsidies" hasn't the US always done this, thinking of their farms + corn subsidies resulting in stuff like HFCS instead of standard sugar.
Naive article from the Economist. Hostile de-globalisation is necessary for preservation of US supremacy, in exactly the same way hostile globalisation was necessary for extending it in the first place. We should not forget that WW2 was a clear net benefit to the US, whereas all of its pre-war competitors (mainly UK, France) had their wealth and power attrited away by the conflict. Of course millions died during the conflict, but that was no concern to the winners, as they killed millions more in later wars in order preserve the fruits of victory.
Today's Washington consensus - US political elites, along with the national security state and think tank / media amplifiers - embrace conflict and I suspect are confident that the third world war will deliver similar benefits to the second. They are probably right
This piece is just as much the simplistic, black and white thinking it pretends to argue against.
I think what we are seeing now is a re-balancing of priorities due to a significantly changed environment. This is not an extremist position. Pure, unrestrained globalism is.
As a sidenote, why does the West allow China to run social media apps inside its borders whilst China blocks all foreign media inside its own borders? Would this be acceptable in any other trade context?
The author makes the point that by adopting protectionism to subsidize new or ailing domestic industries that politicians and their voters or donors favor, the US is doing what it accused Japan of doing for many years. But he says there is a contrast: Japan was always looking for an economic advantage in its industrial policy, while the US approach is not mainly about creating/saving jobs but about resisting a particular rival and potential enemy, China, and is targeted to that end.
The implication is despite the apparent irony of hypocrisy, the United States is not actually turning its back on free trade, forever or in every context.
Even if we all agree that free trade and free markets lead to the most growth, we still have to deal with the externalities that a free market will always fail to solve for; climate change, extreme poverty, etc. Maximum growth is not the end goal, better lives for people on the planet is the goal. Growth helps, but we have other needs, too.
helped the West prevail over Soviet Russia in the cold war. Today the system is in peril.
Because there's no longer a Soviet Union posing an existential threat to America, so why should we keep underwriting it? Target resources to address the threats of today, like China, rather than the threats of forty years ago.
I like how it’s convenient for economic theorists and political historians to point to anything that existed in the 1980s US and claim that the Cold war was won because of that thing.
Somehow they ignore the fact that those things existed pre-Reagan and the pathetic state they were in economically, socially and politically regardless.
Globalization is a scourge. Good riddance. Bring manufacturing back onshore, lead the clean revolution, stop externalization of pollution and exploitation of labor.
What threatened globalization was when COVID exposed just how fragile all of our supply chains were. Making them more fault tolerant isn't "protectionism" or "zero sum thinking", it's just good sense.
tl;dr as others have pointed out 'globalization' is another term for Bretton Woods , i.e. subsidizing countries to be the USA's friend to defeat USSR, and now that USSR isn't a threat, the subsidies no longer make sense.
> Some simply want to stop China becoming too rich—as if impoverishing 1.4bn people were either moral or likely to ensure peace.
Hard to read past this. I don't want an authoritarian government that's committing genocide today and still lying about and covering up the reality of covid becoming too rich and powerful. That means I want to impoverish billions of people?
Why is China one of the only countries in the world (other I can think of is Israel) where criticizing their government is a racist attack against their entire population?
I really enjoy the Economist overall, but I think one of their serious, long term blind spots has been around this subject:
>But President Joe Biden’s abandonment of free-market rules for an aggressive industrial policy has dealt it a fresh blow.
Free Market is NOT the same as Free Trade. In fact, Free Trade is often in direct opposition. The Free Market is essentially an optimization system for seeking to constantly find local minimums within a given set of constraints. It requires things like information symmetry and cost internalization, as well as maintained competition to avoid falling permanently into a artificially high minimum, and a society can set the constraints to include floors and bounds on what they want in terms of basic human needs. But the sorts of Free Trade the Economist and similar have often pushed undermine all aspects of that. If a factory in Country A has to properly internalize all its costs (such as pollution) but a factory in Country B doesn't, then the output of factory B will be artificially cheaper due to getting to externalize costs. Manufacturing may move from A to B, but it's not because B has figured out how to do things more efficiently and properly won by improving the overall economy, it's because B is stealing from people. That's the opposite of what should happen. Same with other aspects, like competition or property protection. China in particular has made that heavily one way as an aspect of state policy, banning foreign entities from competing domestically on a level playing field. Which sure they can do, but there shouldn't be any coddling of that with equivalent access either.
I agree that subsidies are badly inefficient, and that simple dumb protectionism is a bad idea too, but "Free Trade" should be normalized between borders to match the local Free Market or, well, we'll see exactly what we've seen has indeed happened. The Economist have been rare fools IMO for not beating the drum on that hard, and it's not a modern thing but goes back for decades at least, as long as I've been closely reading it. And the result has been a failure which has rightly angered people and mixed the genuine new wealth (efficiency) generated with artificial wealth made on the backs of others/declining living standards. That there'd be backlash is natural, and that said backlash would be broad stroke and threaten to throw the baby out with the bathwater is unfortunate but also unsurprising because it was ever thus. The Economist of all people should have been well placed to suggest principled solutions to this long ago, so it's too bad that opportunity got missed back when it would have been a lot easier to pull off.
This is my perspective too -- free trade is great between countries with similar values, but it's much trickier to navigate without that. We've totally seen that with Russia this past year. Europe was getting lots of cheap heat by buying Russian gas, but effectively trading for a weapon to turn against themselves and their values.
Trump more politically aligned in a anti globalist and pro protectionist way. It's Biden who aligns more with the "free markets and global economy" position where this article would service to chide rather than encourage.
"This is dangerous for globalism" would be taken as a "keep going!" to a Trump supporter.
That is, China has been pursuing industrial policy and state-driven investment to the extent that it can be considered a trade barrier. Other Asian countries too have been making such large state driven investments in semiconductors that the US semiconductor industry can demand $50 billion of state subsidization at a time when it is more profitable than ever.
Some of this is not the specifics of China's government and policy but is driven by China's size and the speed at which it integrated in world markets. For instance most of the time trade "lifts all boats" but it turned out that the China shock was so large that it really did hurt workers here.
This is not a matter of some little country Belgium practicing dirigisme, this is a matter of multiple industries that the US is being to be forced out of. For instance China subsidized a large number of aluminum factories that have been producing a huge glut of aluminum that is building up in warehouses, making it impossible for other aluminum producers to do business on a market basis... And furthermore having an impact on upstream and downstream industries.
Free marketeers will say that China will ultimately pay a price for wasteful spending but going down this path we will see the US industrial base hollowed out more and find that the slightest sniffle or sneeze in China will cause supply chain ripples that are harmful to our economy.