The Decline and Fall of Globalization

If globalization means openness to the free movement of goods, capital, and labor across international borders, then globalization is declining. The forces of protectionism are on the rise and barriers to trade and investment are proliferating. The fundamental cause is structural – the erosion of American hegemony as a result of a shift in the global distribution of power. At the end of the Cold War, the US was the world’s only great power. But the global diffusion of technological innovation has allowed the emergence of challengers. Now, the locus of world power has shifted to Asia. Attempting to preserve American primacy, the US is pursuing nationalist, mercantilist trade policies that undermine the liberal economic order established after WWII. Tariffs, export controls, and restrictions on FDI have replaced the free flow of goods and capital. Adam Smith and David Ricardo have been replaced by Alexander Hamilton and Niccolò Machiavelli. The US is enlisting its allies to reform the rules of the international economic order. It intends to transform the G7 into a steering committee of the free world. Such an action is likely to provoke an equal and opposite reaction, leading to a world of exclusive economic blocs. The resulting fragmentation will spell an end to the liberal multilateral order known as globalization.