The End of Globalization?

Not yet — but here are five big questions about its future

The doomsayers of Davos believe globalization is at the brink.

Global trade, political liberalization and open borders face more challenges than at any time since the Iron Curtain went up. But the risks to globalization are more complex than the binary divides of the Cold War.

This week, the World Economic Forum will gather in Davos to debate Globalization 4.0 — a view that, new rules and new game plans are needed for an increasingly digital world to avoid a throwback to an age of hard divisions. The Forum believes the approaches to previous industrial revolutions — rooted in steam, electricity and digital — won’t cut it for what it calls the fourth industrial revolution, which will be powered by cognitive technologies.

I’m going to Davos with five questions about where this new age of globalization is headed, and whether it could also spell de-globalization for many:

1. Will the de-globalization of goods make smaller countries poorer?

The intensity of trade in goods has declined sharply, meaning a lot less of the world’s production crosses borders. That share is down from 28.1% in 2007 to 22.5% in 2017, according to a McKinsey report released last week. It isn’t a Trump thing; it’s advanced technologies at work. Those shifts have enabled emerging economies to expand their production bases to include intermediate and even advanced goods. That is generally good. But the growth of automation will compound the challenge for low-income countries that don’t have the scale to adapt new technologies, even as they lose their advantage in labour-intensive exports. McKinsey says less than 20% of global trade is now determined by labour costs.

2. Will the de-globalization of politics lead to more conflict?

The long arms of bodies like the International Criminal Court and World Trade Organization, and grand ambition of agreements like the Paris Climate Accord, aren’t what they used to be. And that means rogue actors are getting away with more bad behavior. Any further decline in the postwar order may start to pose serious risks to what’s been a decades-long decline in civil conflict. Without multilateral efforts to police a rules-based world, responsibility will fall to the U.S. It’s the only power that can keep the likes of Iran and North Korea in check. But if the U.S. continues to show inconsistencies in its approach to conflicts and rogue actors, the risks of regional conflict will grow.

3. Will the globalization of knowledge-based sectors lead to new economic powers?

McKinsey found that since 2007, trade in services grew 60% faster than the trade in goods. As a share of trade, investment has doubled in intangible assets such as research and development, intellectual property and brands. Western countries, with their strengths in innovation and services as well as their skilled workforces, have the upper hand in this new kind of value chain, but that advantage can’t be taken for granted. Indeed, emerging innovation players like Singapore may soon have the upper hand, with an ability to retool their education and research systems at the speed of the knowledge-based economy.

4. Will the globalization of data lead to new hegemonies?

As a global data economy takes off — powered by the likes of Amazon and Alibaba — it’s clear that established laws and regulations haven’t kept up. And the challenge will only grow as artificial intelligence does more and more with that data. With so much at stake, the risk grows that the U.S., China and Europe will establish their own data orders to gain an advantage — and force others to pick which hegemon they want to be allied with. Can a single global order be established to replace the growing arms race for data? And who will run it? Not since the colonial powers tried to establish language supremacy has the soft struggle for global influence mattered so much.

5. Will the de-globalization of risk form a financial wall around the world’s poorest countries?

One of the long-term impacts of the financial crisis was the de-financing of a range of countries and regions. They’re seen as too risky for the new regulatory model designed to protect the global system. And so far, fintech alternatives have not cut it, in terms of meeting basic credit needs. As Western markets get closer to normal, with higher interest rates globally, the cost of finance for the world’s poorest countries will be significant. In the postwar order, they could turn to the International Monetary Fund and World Bank. Today, it’s less clear how they will finance their development for a knowledge-based century.

The World Economic Forum outlines other concerns in its “manifesto” for Globalization 4.0, and argues we’ll need new approaches to tax policy, education, digital regulation and governance of artificial intelligence.

This year’s forum will lack for political firepower: Donald Trump, Xi Jinping, Theresa May, Emmanuel Macron and Justin Trudeau are taking a pass. But the paucity of political posturing may be just what Davos needs to tackle some urgent questions.