Deglobalization diminishes interconnection and integration between nation-states.
/Photography by Kim Ji-woo
The word “deglobalization” has frequently been used recently. As we enter the new year of 2023, many media outlets have chosen deglobalization as a keyword that will lead to changes in the world this year. Deglobalization is the opposite concept of globalization, meaning a reduction in the interdependence and unity of the world. The paradigm shift in deglobalization spread throughout the international community. Due to the deglobalization, protectionism and national priority are placed in the new international order, which worsens the global economy. Therefore, the Dongguk Post will look at the causes of the phenomenon of deglobalization, its consequences, and how South Korea should deal with it.
Let us know the causes of deglobalization
Deglobalization is an issue involving several economic interests and technological hegemony. First, many countries, including China, found they relied too much on exports after the Subprime Mortgage Crisis in 2009. Multinationals also concluded that they could no longer make more profits by continuing to expand their supply chains. Starting in 2016, United States’ (U.S.) politicians began turning their backs on their existing position of leading multilateral free trade cooperation.
This movement was noticed in earnest by COVID-19. Before COVID-19, companies relocated factories overseas where wages were low, reduced production costs, and transported products cheaply. This allowed consumers to buy mass- produced goods at low prices. However, after the pandemic broke out, the weakness in highly optimized supply chains became obvious. Factories around the world closed, shipping costs increased ten times, and prices skyrocketed. Moreover, the conflict between Russia and Ukraine has accelerated global inf lation. It has raised the price of gas and other natural sources in recent months. Amidst this situation, the semiconductor technology war in developed countries has begun disrupting free trade without barriers, which was the core value of globalization.
Due to these reasons, reshoring (the process of returning the production and manufacturing of goods back to the company’s original country) appeared. This has led to technological nationalism, which has a great impact on security, the economy, and social stability. It shows various phenomena, such as digital alliances, international technology alliances, and the bloc of new norms. As can be seen from the “CHIPS Act of 2022” (a bill that adds disadvantages to companies that have received support from the U.S. government if they build new facilities in China, Russia, and so on), it is undeniable that deglobalization is rapidly progressing led by G2 (U.S. and China).
Accelerating deglobalization attacks the international economy
So how does deglobalization affect the world that many people are concerned about? The decline in free trade will slow the growth of real income around the world and reduce the growth rate of the global economy. Inflation volatility is also likely to increase as supply chains shrink. Emerging scenarios for deglobalization can be broadly classified into four categories.
First, maybe there could be a positive scenario of a return to past levels of economic cooperation between nations and reconnection of the world. Innovative products and services will spread through the restoration of the supply chain, and technical data and highly skilled human resources can be freely exchanged physically. However, it is problematic because globalization can manifest itself in nationalism, in which each country prioritizes its own economic and social problems. Second, the physical economy, such as commodities and trade, may be opened. In contrast, the virtual economy, where technology and digital exchanges are shared, might become restricted and disconnected. In consideration of the importance of technology, the gap between nations will widen, and the competition for supremacy among the great powers will intensify.
Third, contrary to the previous forecasts, there is also a scenario in which physical trade is reduced while digital and technology-related research is conducted, and virtual economic exchanges continue. War and trade conf licts restrict imports and exports of resources such as food and energy, allowing the government to impose additional tariffs on imported goods and curtail physical trade. Sadly, there is a high risk that the economic disparity between countries with abundant resources and large domestic demand markets and countries with small economies that depend on imports will deepen. Finally, the worst-case scenario is when both physical and digital exchanges are shut down. According to the World Economic Forum (WEF, Davos), one of these four complex scenarios is likely to emerge. They stressed the worst scenario and pointed out the importace of human capital.
Korea must respond preemptively to deglobalization
In summing up such discussions, Korea’s industrial structure should be improved by increasing the weight of source technology and service industries. In the division of labor, each country played its role in making products; however, the process is now rapidly disappearing. Therefore, Korea must actively develop high-value- added fields such as product planning, new product development, marketing, and factory management. Korea can aim for a two-track strategy that participates in both the G2’s supply networks. Advanced human resources, production facilities, and capital strength need to be supported preferentially.
However, for scenarios to be successfully implemented, a diplomatic strategy that takes up national interests without provoking the U.S. and China must also be supported. If the flow of globalization stops, there is a strong possibility that neighboring regions of the world economy will split into smaller economic blocks. If the global economy splits into a U.S.- centered Western camp and a China- centered camp, a new Cold War will arrive. The conflict cannot be resolved in the short term, and Korea is placed in geopolitical, historical, and economic factors that make it difficult to take sides between the U.S. and China.
Most experts expect that deglobalization will affect us negatively. Many argue that it will undermine Korea’s potential growth rate, which has grown through trade in goods and services. Today’s deglobalization seems to be a complex intertwining of political systems, economic interests, and technological hegemony. Experts argue that deglobalization should be seen in the process of forming a new world order that puts technological prowess at the forefront of the conflict of G2. Above all, national technological prowess has emerged as a key variable that determines global hegemony. Therefore, the government should establish a cooperative system and a strategy for calculating deglobalization.
Kim Ji-woo firstname.lastname@example.org