Peak globalization

Posted By Darren Winters on Oct 14, 2019


Peak globalization

If peak globalization has been reached, then the long term bet on globalism could also be unwinding.

The post World War II era of multilateral free trade agreements is beginning to look jaded and that could also be making the long term bet on globalism a loss-making play going forward.

Economic nationalism has locked swords with globalism which could mean that peak globalization and its subsequent downtrend are likely to be the greatest geopolitical macro trend of the century.

I believe that what is currently in play is more than just a temporary blip in globalization but rather a new long term macro trend which suggests that peak globalization has been reached.

The White House mulling ban on US investment in China in late September is the latest warning flare to investors that peak globalization could be staring at them in their faces

Peak globalization

But could US President Trump accelerate peak globalism by disrupting capital flows?

Surprisingly yes, according to a recent piece in Washington Examiner which states that a US president has broad powers under a 1977 law called the International Emergency Economic Powers Act to restrict trade once a “national emergency” is declared. Moreover, US President Trump has indicated that he may invoke the law in August, reported the Washington Examiner.

So the great US Empire which preaches about the virtues of free-market capitalism is not that free after all, albeit in a national emergency. But since when has US capital outflows to China represented a national emergency?

Perhaps if we view the situation through the optics of a new US/China cold war, an economic war where its a battle for the throne to global hegemony for the 21 first century then it becomes clearer. The Thucydides Trap, which states that when one great power threatens to displace another, war is almost always the result. China’s rise from an agrarian society to an industrial powerhouse in just 35 years is unprecedented. 

Today China is now number one in fintech, number 3 in AI and machine learning, number 2 in wearables, number 2 in virtual reality, number 2 in educational technology, number 2 in autonomous driving. Moreover, with a population of 1.43 billion China has a greater pool of geniuses, for every 100,000 births one genius is born, to spearhead the Fourth Industrial Revolution and AI technology and develop cutting edge weaponry. 

It’s not inconceivable to think that China could soon surpass the US in all fields.

Washington could be deliberately implementing a foreign policy which instigates peak globalization

Globalization has fuelled China’s spectacular rise as an industrial powerhouse. So if globalization is attacked China is then weakened and its consequent threat to US hegemony is diminished. 

This could explain the US-inspired trade war with China and now even the possibility of disrupting capital flows into China. 

This view that peak globalism could be engineered by the existing hegemonic power could also explain why such a disruptive policy to the existing order will be implemented by Washington irrespective of whether it upsets existing allies. 

The world’s largest trading bloc, the European Union (EU) could also come in Washington’s crosshairs

The conclusion of WW II left millions dead, even more, Europeans displaced and almost totally destroyed Europe’s infrastructure, particularly in the then-rival industrial power Germany. The initial intention of the EU, which was secretly funded and supported by the CIA, was to provide the US with a framework for European reconstruction and development aid, known as the Marshall Plan. But the word aid is misleading because the Marshall Plan was not a gift to Europe as countries had to pay these US dollar-denominated loans back. 

The Plan entailed loans and aid in the form of grants amounting to $13 billion in (roughly $132 billion) in Sept 2017 money. The last payment of these loans by the UK government was made in 2006. The last payment from the French occurred in 1962 and the final German loan repayment was made in 1971. 

The EU no longer serves the Empire’s interests

The EU has formed cozy cartels that are counterproductive to US corporate interests. EU foreign policy is now at odds with that of Washington’s. The EU doesn’t see eye to eye with US-inspired trade war with China. Moreover, the EU wants to developed an independent energy policy with Russia and strengthen trade links with Iran. Put simply, the EU, the European continent has been gradually shifting away from Washington and sees its future in the East, along the new silk road. It sees Russia as a potential energy partner and China as a market.

Why then would the EU need NATO? France and Germany are discussing a proposal for a European super army to compliment (replace) NATO. US’s hegemonic grip over its allies in Europe is waning.

By engineering peak globalization through trade protectionist policies the US could also be attempting to reverse the EU’s pivot East

The thinking in Washington could be that a fragmented EU best serves US national interests. Individual European countries doing bilateral trade deals with the US better serves US interests compared with trying to negotiate a trade deal with an EU superstate, which would have greater leverage. Weakening the EU would also strengthen the Atlantic alliance and prevent Europe from pivoting to the East. 

So don’t be surprised to see the US ramping up its sanctions and tariffs in Europe too. 

Peak globalization and the rise of populism, protectionism could give rise to challenges and opportunities for investors

Yesterday’s best-performing assets could become tomorrow’s under-performers as the US spearheads a foreign policy to bring back the industrial supply chains to democratic democracies. But this is not necessarily the beginning of the end for emerging markets, particularly if those countries’ interests are aligned with Washington’s policy that sees the seat of global power, peace, and economic prosperity with US hegemony intact. US Trade with China could dry up, meanwhile trade with Vietnam could also boom. 

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