WEF and Deglobalization
The World Economic Forum (WEF) annual meeting took place in Davos, Swiss from Jan. 16 – 20, 2023. McKinsey & Company, which has monitored this yearly event from up-close, came up with five takeaways from the WEF meeting.
First, the global economic disruption is not weakening and will force businesses to continue building their resilience. Second, there is no region that can grow in a vacuum, and therefore, businesses need diversification. Third, achieving the net-zero emission target calls for a balance between energy transition and energy security. Fourth, global corporations found that businesses that apply inclusivity principles are able to attract new, untouched markets. Fifth, the space economy offers quite a vast potential through innovations.
It surely is interesting if we connect the discussions in Davos with today's global reality. Is the global value chain that the developed countries had taught developing countries still valid as a reference for international trade policies?
Quo Vadis Globalization?
Starting with the trade retaliation between the US and China in July 2018, the world witnessed new developments with worry that the future of the global economy would change.
In Oct. 2018, for example, Beijing launched (again) the zili gengsheng or self-reliance policy to decrease its dependence on the US market. The world also witnessed Britain exiting the European Union (EU) on Jan. 31, 2020. And this shook the economies of both the United Kingdom and the EU. In response to the situation on the other side of the map and the rise of Covid-19 that sparked disruption across the value chain, New Delhi relaunched the atmanirbhar bharat, or self-resilience concept in May 2020.
Meanwhile, the world economy is starting to be fragmented, following the geo-economic policies of major countries. The war between Russia-Ukraine since early 2022 has made countries consider combining geo-economy with geopolitics strategy in determining their trade policies and investment to other countries.
It wouldn’t be a surprise if this year, the WEF establishes ‘Cooperation in a Fragmented World’ as its main theme. However, the 2023 WEF actually left quite a few questions unanswered: is the cooperation between countries amid competition between great economies able to be pushed in this short span of time? Is globalization still the mantra in the multilateral trade system?
After observing the labor market throughout 2022, the UN earlier this year quoted a report by the International Labor Organization (ILO) that in 2023, employment would only grow by 1 percent or half of the previous year’s rate. Another alarming situation is the weakening of the global economy this year will force workers in many parts of the world, including developed countries, to accept low-quality jobs with low wages, coupled with worse occupational safety and social protection.
This forecast will push all countries to mainly focus —at least for a few months ahead— on the provision of employment opportunities in the country. One of the ways is by pushing the growth of the manufacturing sector, agriculture, and services, and in parallel working to limit immigrant workers' movements.
The US started earlier by publishing ‘CHIPS and Science Act 2022’ last August. In the release, the White House affirms that this policy is meant to lower prices, create work fields, strengthen the supply chain, and counterbalance China. Economic development through industrial policies like this places trade more as a determining tool, and not a balancing tool for supply and demand that economic market supporters find will create efficiency and even distribution.
The US’s industrial policy is actually not new since it has been applied by many countries since the 1950s - late 1970s before the innovation in technology pushed the market opening in the early 1980s. If up to this point, the US is one of the trendsetters of economic policy, it is easy to predict that countries will follow the US’s steps to save their economies amidst today’s and years ahead’s uncertainties. In this context, the appeals from the WEF meeting, in the middle of the biting cold weather of Davos, Swiss, it is possible that it will only remain as an appeal.
Continuing the previous tradition, between the series of WEF meetings, the Swiss government held an ‘Informal WTO Ministerial Gathering’ on Jan. 20, 2023. The meeting that ministers and high officials of the 23 WTO member states attended was led by Swiss ‘Federal Councilor’, Guy Parmelin, accompanied by the Director General of WTO, Ngozi Okonjo-Iweala.
In this informal meeting, DG Okonjo-Iweala urged WTO member states to address the world trade fragmentation by strengthening multilateralism and preparing the 13th Ministerial Level Conference in Feb. 2024 in Abu Dhabi, focusing on issues that are realistically able to be solved.
DG Okonjo-Iweala also spoke in several sessions at WEF events. He emphasizes that trade must be a part of the solution in facing the current poly-crisis situation and that there won’t be an economic recovery without trade. In another session, WTO DG emphasizes the importance of global collaboration to encourage re-globalization, end the world economic fragmentation, and avoid ‘friend-shoring’, or only developing trades with only small, political allies.
DG Okonjo Iweala’s hopes stated in Davos will be challenging to realize if ‘Great Economies’ especially the US, India, and the EU still prioritize their self-resilience and self-reliance, as well as geopolitics necessities in the region - or global domination rivalry, and continue to develop a restrictive, high-cost, industrial policy that goes against the global value chains.
Iman Pambagyo is a former Director General of International Trade Negotiation of the Trade Ministry and a former Indonesian Ambassador to the World Trade Organization. The views expressed in this article are those of the author.Tags: