The World is Curved
“The World is Flat” was a famous book published by the renowned author, Thomas Friedman, in 2005. It was so famous that I had to read it to understand how the world has indeed become flat with the onset of globalization. It was surely a seminal treatise based on the personal experiences of Mr Friedman as he travelled around the world and witnessed the positive impact of globalization.
The globalization message is still true (at least partially) in many aspects. The feverishness with which global MNCs (all Western, global is a euphemism) pursued low cost labour in China specifically is well documented. American jobs started disappearing especially in manufacturing, and so was the case with many Western European nations’ jobs. MNC Capitalists pursued profits relentlessly in search of lower and lower cost of one critical input for manufacturing, which is labour.
China flourished vigorously, its economic output became a wonder for all the other developing nations to adopt. The Western MNCs also profited from the vast internal market of China whose population increasingly became wealthier as a result of Western support.
But after Mr Donald Trump became U.S. President in 2017, things started to change. He made it his consistent habit to attack China on multiple fronts, not the least being the insinuation that China was stealing American jobs; he further went on to castigate China on its control of foreign corporations which did not get a fair playing field in China. Combined with all that, he also accused China of patent infringements, technology stealing, spying, having unfair access to the U.S. market, and so on. He imposed trade sanctions for the very first time on China.
I would daresay that President Trump was then well on his way to “curve” back the world from its earlier “flatness”. Globalization became a dirty word in the Trump Administration. The U.S. started turning inwards, keeping in line with the President’s stated ambition not to get involved in world’s conflict zones any further, to stop behaving as the world’s only policeman, and to bring back manufacturing jobs.
I thought President Biden would start reversing these anti-globalization and pro-isolationist policies of his predecessor, but he didn’t. Contrary to the ideals of his own Democratic Party, he turned inwards on Trade and even on Climate Change (he refused to extend credits to foreign made electric vehicles, for instance). But he did not agree with Trump on one thing – that was to keep involving the U.S. in even unnecessary war zones, and indiscriminately launching missile attacks in the Middle East (which has become the punching bag of the U.S. for all of the past 21 years and even before in the Kuwait conflict with Iraq).
So what does one derive from this rapid decline towards a “curved” world back again?
That geopolitics has again become a big threat to the world’s economic growth and its free trade growth. Products (without tariffs), Capital and People (with limits) used to move freely across borders in the globalizing world. Not any longer. Things have changed. There are of course, some silver linings – new heroes amid these monumental changes.
Who are they?
If we have to look at countries that are benefiting from these changes, who do you think that was best positioned even before 2017?
Vietnam. Yes, Vietnam with its enterprising and young work force has become the recipient of the biggest benefits from the move out of China for global manufacturing operations. It should have been India and Indonesia, but it did not happen (though India is receiving some big investments in semiconductors and mobile phone manufacturing).
But Vietnam seems to be the overall winner. It has embraced American investments eagerly, though it still remains as a Communist party driven nation. I would not be surprised if Vietnam becomes one of the leading manufacturing destinations in the world with a fast rising GDP per capita. Its population is close to 100M, with a GDP of 406B in 2022. Its GDP per capita was USD 4,086 in 2022. I would’t be surprised if it is able to double both numbers by 2030. This example still supports Tom Friedman’s flatness theory and is a much smaller version of what happened in China. It also demonstrates what a determined effort by even a Communist government can achieve for the welfare of its own society. It again proves that the form of government is not relevant as opposed to democracy only for the welfare of citizens – what is critical clearly is achievement of stated economic goals.
Well, with respect to China at least, the world is increasingly appearing to be “curved”. Its economy is in trouble. The vaunted vision of the Communist Party of China when it comes to economic growth now appears to be short sighted, to a certain extent. China is learning that it cannot continue to antagonise its biggest customer (meaning the U.S.).
Does all this mean that what the U.S. under Trump (and now under Biden) did is right?
No, it is not.
For a peaceful and prosperous world, the only direction is to continue to make it flatter, there is no alternative. Prosperity has to percolate to the lower strata of developing countries.
China will grow come what may, and it is set to overtake the U.S. economy in overall GDP size in the next few years. Its continuous rise cannot be stopped.
But its recent troubles have allowed other countries such as Vietnam, Bangladesh and India to benefit, and that would continue. India is all set to overtake Japan and Germany to become the third biggest overall economy in GDP size by 2026.
Geopolitics is now the most important determinant for a nation’s prosperity, at least for the countries in the next tier after the top 5 economies. It cannot be wished away.
“You are either with us, or against us” – the need to be aligned with the U.S. has become a critical success factor for major economies, and that might include even China at some point in time.
Have a good weekend, free of geopolitics, friends!
Cheers,
Vijay Srinivasan
17th February 2024