The new global economy

by Muhammad Shahzad
THE US government’s shift towards local manufacturing, as highlighted in Joe Biden’s first address to Congress, marks a new era in the global economy. Joe Biden’s statement about producing wind turbine blades in Pittsburgh instead of Beijing is seen as a significant change, marking a move away from the current global economic system and potentially towards one that was prevalent before the Second World War. The US President’s statement sheds light on the intricacies of the global economy and how it is being reshaped by new risks, threats and rivalries between great powers. After World War II, countries put up trade barriers and high tariffs to protect their domestic industries. The US emerged as the most powerful country and, with its allies, wrote a new playbook for the world economy, making the US dollar the top currency and aiming to lower taxes on products flowing in and out of countries. This led to the opening of borders and the establishment of a global economy that benefited hundreds of millions of people. One of the biggest participants in this economy was China, which opened its coastal cities to foreign businesses and saw millions of rural poor lift themselves out of poverty. However, this global economy led to job losses for many Americans and economic pain for some communities, making it a contentious issue. The optimistic view of free trade in the 1990s, which was seen as the solution to global conflict, poverty and the spread of democracy, has drastically changed. After the fall of the (former) Soviet Union and the perceived success of free trade, Bill Clinton predicted that free trade would bring democracy to China and prevent war between countries. However, as China continued to manufacture goods and send them to the United States, dependency on each other grew. This dependency did not prevent conflict, but instead led to a trade war between the two superpowers. In recent years, governments around the world have started to reject globalization and fight to keep production within their borders. The US, under both Trump and Biden, has shifted its economic policy to turn back some of the free trade, imposing tariffs and subsidies to protect domestic industries. This shift can be attributed to four protections: workers, national security, intellectual property and industries deemed vital to the country’s economy. The government’s involvement in these markets incentivizes companies and consumers to produce and sell products domestically instead of looking to the global market.
The global economy has led to economic insecurities and psychological effects on communities, particularly in the Rust Belt, due to job displacement caused by automation and offshoring. The global economy’s indifference towards climate change has resulted in impending crises and the need for governments to intervene and force market changes. The global economic system, exemplified by complex supply chains, became more fragile during the COVID-19 pandemic. The economic theory that increased economic entanglement would lead to peace between nations is proving to be incorrect, as economic dependencies have transformed into potential weapons of conflict. The emphasis is on the United States’ concerns regarding China’s rise and its control of rare resources that could be used as leverage. The government’s response is to incentivize the return of manufacturing back into the country, creating a trend towards economic nationalism. The current trend of countries erecting trade barriers under the guise of protection draws parallels with the economic crises of the 1930s that ultimately led to the Second World War. However, while observing the current scenarios and trends I do not believe history is repeating itself, but the similarities such as economic crises, populism and rising tensions between great powers show that we are on our way to another world war-like situation. —The writer is Research Officer at CISS-AJK. MPhil-IR, Quaid-i-Azam University Islamabad.

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Center for International Strategic Studies AJK, King Abdullah Campus Chatter kalas Muzaffarabad, Azad Jammu and Kashmir