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  • May 16, 2022

    Does the Russian Invasion Signal the End of Globalization or Merely a Recalibration?

    Undoubtedly, the most significant impact of the Russian invasion remains unquestionably the humanitarian crisis it has created. Although the war seemed to have set in motion deglobalization forces that are disrupting global trade, a full demise of globalization as has been predicted is not likely. Instead, the more likely impact of the ongoing seismic trade shifts is a recalibration of engagement from North America and Western Europe away from Eurasia to other Global South regions such as Africa and Latin America.

    Ngosong Fonkem

    Vladimir Ilyich Ulyanov, better known by his alias “Lenin,” was reputed to have observed that “there are decades where nothing happens; and there are weeks where decades happen.”

    Lenin could have hardly imagined that his words describing the Bolshevik revolution just over 100 years ago could be reflective of the seismic trade winds shifting through the tremoring 2020s that were catalyzed by the Russian Federations’ invasion of Ukraine on Feb, 24, 2022.

    The resulting impact of the invasion, which was followed by significant Western nation sanctions on Russia and a number of Western companies pulling out from or halting their business operations in the country, has disrupted global trade flows.

    The speed and intensity of these events has led many Western intellectuals and business professionals to argue, “the Russian invasion [has] upended the world order that has been in place since the end of the Cold War and put an end to the globalization we have experienced over the last three decades."1

    Although the war seemed to have set in motion deglobalization forces that are disrupting global trade, a full demise of globalization as has been predicted is unlikely in the foreseeable future, due to non-Western countries’ extensive integration into the Western led global supply chain networks, and many Western multinational companies need to maximize and increase their profit margins.

    Instead, the more likely impact of the ongoing seismic trade shifts is a recalibration of engagement from North America and Western Europe away from Eurasia, to other Global South regions, such as Africa and Latin America.

    Ngosong Fonkem Ngosong Fonkem, West Virginia University College of Law 2011 (JD, MBA) and Tulane Law School 2012 (LLM), is an attorney with Page•Fura, P.C., Chicago, where he assists companies of all sizes with business-practical representation on all aspects of customs and international trade law.

    How Did We Get Here?

    To understand the impetus driving this seismic trade shifts require some historical perspectives for context.

    As the Soviet Union collapsed three decades ago, ending the Cold War, globalization seemed not only inevitable but evolutionary. In fact, at that time many Western scholars such as Francis Fukuyama notably declared “the end of history” arguing the future would predictably belong to free-market democracies.2

    That euphoria led many policymakers in the United States to argue that economic engagement with other communist governments would inevitably change their political systems over time.3 That engagement led to China and Russia, the two largest communist countries’ integrating into the Western led global trade system, ending their isolation. China gained entry to the WTO in 2001 and Russia followed in 2012.

    The resulting consequences accelerated global trade flows and many Western multinational companies outsourced their manufacturing operations to China and other regions of the Global South to access a more efficient skilled labor force, thus also significantly increasing their profit margins.

    As the economies of China and India, and countries in the Global South grew due to their integration into Western led global trade system, the drivers of international trade naturally also began to increase, and becoming more diverse.

    For example, the August-September 2021 issue of Fortune magazine contained their updated annual list of the world’s largest publicly owned companies ranked by 2020 revenues (sales). Comparing that data with Fortune magazine’s 1962 and 1994 data, one thing that stands out is the number of non-U.S. and non-Western companies that increasingly were included in the latter lists.

    That changing trade shift has increasingly also been seen in the economic growth data of countries. From a Growth Domestic Product (GDP) and Purchasing Power Parity (PPP) perspectives, for example, prior to the Russian invasion of Ukraine, IMF data published in July 2020 on the world’s largest economies in PPP terms that compared economic growth between 1992 and 2024 showed that by 2024 the largest economies of the world will be those in Asia (2030 in GDP terms).

    Conclusively, these data show a shift in the center of gravity in international trade from trans-Atlantic to trans-Pacific. That trend is not limited to economic growth or annual corporate revenues alone.

    The trend is increasingly also being reflected in other trade indicators such as Foreign Direct Investments flows.

    The growth of multinational corporations from the Global South now allows many of these companies to increasingly set the rules of trade for their respective industries. Similarly with respect to some nations from the Global South, the growth of their economies also provided them with new sense of confidence, allowing them to increasingly assert themselves on the international arena, challenging those norms traditionally set by nations of the Global North.

    That assertiveness has led many policymakers in the United States and Europe to accuse China of manipulating its currency to make its exports less expensive and United States and European imports costlier; unfair subsidies of its industries; and unfair restrictions of Western companies’ access to Chinese markets.

    These tensions were further exacerbated by President Donald Trump, who rode a wave of backlash against globalization to the presidency, and thereafter proceeded to launch a trade war with China.

    As a result of the trade tensions, direct investment between the two countries tumbled, which was a consequence of China’s drive to keep money from leaving the country, tighter U.S. scrutiny of Chinese investments in the United States, and U.S. corporate efforts to move some of their supply chains out of China.

    The tensions were further exacerbated by the outbreak of COVID-19 pandemic that closed Chinese factories and ports, disrupting supply chains, and causing shipping delays and higher prices, forcing U.S. companies to consider bringing their manufacturing operations closer to the United States. Supply chains, already disrupted by the COVID-19 pandemic recession, now face renewed pressure due to significant Western nations’ sanctions on Russia following its invasion of Ukraine.

    Globalization’s End or Recalibration?

    Undoubtedly, the most significant impact of the invasion remains unquestionably the humanitarian crisis it has created.

    However, although the war appears to signal a seismic trade shift, at its core, globalization is essentially an economic phenomenon driven by political interests. While such a distinction is difficult to separate as trade policies are oftentimes intertwined with broader noneconomic policies, the volume of global trade has nonetheless remain largely unaltered despites the stressors on global trade over the past decades.

    Further, despite a steadily worsening political relations between the world’s two largest economies, the United States and China, their trade and business ties continue to remain robust.

    Given these facts, the end of globalization as has been predicted does not appear to be imminent. Instead, the ongoing trade shift likely signals a recalibration and acceleration of globalization from the global north away from Eurasia to other regions of the Global South, such as Africa.

    The drastic shift away from Eurasia to Africa interestingly began during the Trump Administration, with the commencement of preliminary negotiations of a future US-Kenya Free Trade Agreement, the first of its kind between the U.S. and a sub-Saharan African country. The Trump Administration’s stated goal then was to provide a steady framework for strengthening U.S. relationships with economies across the continent.

    Those efforts have continued in the Biden Administration. In fact, on April 29, 2022, the United States Trade Representative (USTR) announced its intention to travel to Kenya with the stated goal to “enhanced trade and investment engagement across a wide range of topics.”

    That visit shall be followed by a United States Department of Agriculture (USDA) trade mission to Kenya and East Africa in October 2022, which is part and parcel of the U.S. government’s efforts to expand and diversify its global market opportunities for U.S. agriculture.

    Further, the USTR has also stated that it is engaging in robust talks with Kenya as part of its drive to resume the stalled negotiations the US-Kenya FTA, which is necessary to expand equitable and inclusive U.S. trade investment on the African continent.4 These activities signal a renewed strategic focus for economic engagement with the African continent.

    A recalibration and acceleration of globalization toward Africa is not only strategically reasonable, given the current geopolitical environment, but also economically justifiable. The African continent’s population is projected to grow by 20 percent over the next eight years, with Africa’s youth making up 40 percent of the total population, based on 2020 data.

    Further, by 2025, almost one-fifth of the world’s population will be living in Africa. This population growth is accompanied by falling dependency ratios and an expanding workforce as the size of Africa’s working-age population is expected to surpass both India’s and China’s by 2034.

    With regard to economic data, Africa is also home to the world’s fastest-growing middle class, based on 2020 data.

    Further, prior to Covid-19 pandemic, six of the world’s 10 fastest-growing economies over the past decade, were in Africa with the Ghanian economy leading the list as the fastest-growing economy in the world in 2011 (at 13%).5

    Thus, the African continent’s economic outlook in the next few decades is forecast to be good.

    Conclusion:

    Undoubtedly, the most significant impact of the Russian invasion remains unquestionably the humanitarian crisis it has created. Although the war seemed to have set in motion deglobalization forces that are disrupting global trade, a full demise of globalization as has been predicted is not likely. Instead, the more likely impact of the ongoing seismic trade shifts is a recalibration of engagement from North America and Western Europe away from Eurasia to other Global South regions such as Africa and Latin America. A recalibration of economic engagement toward Africa is not only strategically reasonable given the current geopolitical environment, but also economically justifiable as the African continent’s economic outlook in the next few decades is forecast to be good.

    The content of this blog reflects the author's views and does not necessarily reflect those of Page•Fura, P.C.

    This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section webpages to learn more about the benefits of section membership.

    Endnotes

    1 Larry Fink, CEO of BlackRock, annual letter to shareholders; Anna Cooban, BlackRock says Russia's war in Ukraine is the end of globalization, CNN Business, March 24, 2022.

    2 Yascha Mounk, “The End of History Revisited,” Journal of Democracy, January 2020.

    3 Public Papers of the Presidents of the United States: William J. Clinton, 1997. “By working with China and expanding areas of cooperation, dealing forthrightly with our differences, we can advance fundamental American interests and values,” President Bill Clinton said in 1997.

    4U.S. engaged in 'robust' talks with Kenya, more to say in coming weeks,” Reuters, Feb. 1, 2022.

    5The world's fastest-growing middle class,” UHY.com.



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