The next wave of globalization:
Asia in the cockpit
WRITTEN BY PARAG KHANNA PHOTOGRAPHY BY CHRISTY AU YEUNG
While many commentators claim we have entered a new era of geopolitics and left an old era of globalized commerce, it is wrong to oppose these two scenarios. Globalization and geopolitics are not antithetical forces, as if rivalry reverses interdependence. Without the imperial ambitions of the Romans, Mongols, Portuguese, Spanish, Dutch, British, and Americans, we would have no globalization.
Geopolitics and globalization are nothing if not two sides of the same coin. It follows that this new period of great power competition hardly conforms to the buzzword ‘de-globalization’, a term trotted out after every crisis that picks a single downward trend and elevates it into the fate of globalization itself. On the contrary, never has the world's power been so geographically distributed, with internal regional integration accelerating – think United States-Mexico-Canada Agreement in North America and Regional Comprehensive Economic Partnership in Asia – while a new generation of intercontinental linkages takes shape. But there is a key difference: while the previous era of globalization was equated with a withering away of state sovereignty, the new era of globalization will be state-driven and centred in the east.
Europeans and Asians, Latin Americans and Africans, practice a shrewd ‘multialignment’ in all directions. This reality betrays today's conventional wisdom that we are heading into a ‘G-2 world’ in which countries must choose between American or Chinese diktats. Globalization will be a vigorous marketplace, in which powers must prove their relevance and quality as providers of capital, technology, energy, military assistance, and other services.
Many countries are using industrial policy to promote innovation and grab a larger share of manufacturing, clean energy, cloud data storage, and other markets, making globalization more competitive than ever as a new layer of infrastructure criss-crosses the planet, trade in digital services rises, and capital markets open.
This remains true even as North America and Europe attempt to onshore and nearshore manufacturing supply chains in electronics, pharmaceuticals, and other sectors. Apple began making MacBooks in Texas at a plant owned by Flex in 2012 – to which it imports displays and memory chips from South Korea and Japan. Apple's new ‘in-house’ ARM-designed M1 chip is made by Taiwan Semiconductor Manufacturing Co. More ‘American’ cars are made in Mexico with parts from Asia than ever before. Europe's imports of Chinese equipment and Vietnamese apparel and coffee have been rising, as well. Debating the volume of globalization is foolish until we update our metrics to capture how deeply embedded globalization has become in almost all aspects of life.
And let's not forget the flip side of industrial policy: promoting exports. The European Union now has free trade agreements with South Korea, Japan, Singapore, and Vietnam – the lattertwo paving the way for an eventual free trade agreement with the Association of Southeast Asian Nations as a whole. The UK, too, managed to complete a free-trade agreement with Japan in 2020. Most EU members have realized that they need to emulate the German model of boosting exports to create jobs and generate growth.
The EU's rush to conclude a Comprehensive Agreement on Investment with China underscores its ambition to expand its edge over the US in access to Asian markets. Not only is the EU more trade-dependent than the US, but its outstanding pension liabilities are far larger and more immediate. Europe, therefore, can't afford to be ideological about its China ties.
Europe's overall trade in goods with Asia – including China, ASEAN, Japan, and India – stands at $1.6tn annually, far larger than even Europe's trade with North America. This is one of the strongest indicators of the irreversible shift in the global economic center of gravity eastward, from trans-Atlantic to Eurasia. It also provides clear guidance to the next US administration: engage with Asia or lose more American companies to Asia.
Within Asia, China-ASEAN trade now exceeds China's trade with both the EU and US and is helping Southeast Asianeconomies recover from the effects of the pandemic in a manner reminiscent of the post-1998 Asian crisis ‘early harvest’ policies that won it favor in the region. In this respect, the ‘Sinodependency’ that many commentators have denounced as a sign of excessive reliance on exports to China doesn't appear to be a bad thing.
Furthermore, the long-standing division of labor between East Asia's main five exporters – China, Taiwan, Hong Kong, Japan, and South Korea – accounts for over $4tn in annual exports, almost the same as the EU and North America combined. Not one country alone, but these dynamic production centers together, is why Asia is the factory floor of the world.
Incremental trade and investment liberalization is what has brought countries such as Vietnam into global manufacturing supply chains, with multinationals from Japan, America, and Europe pouring capital in. No wonder many in Asia joke that the winner of the US-China trade war is Vietnam.
India's manufacturing and tech sectors have also been gaining as supply chains diversify out of China. Apple and Samsung Electronics have led electronics companies investing in plants in India, and Reliance Jio easily raised $20bn in fresh capital, including a 10% stake taken by Facebook. Tata Consultancy Services, which recently overtook Accenture to become the world's most valuable IT services company, is ramping up hiring on the back of demand to build a robust digital backbone for increasingly digital, remote companies. When it comes to money, capital will flow in the direction it should: toward dynamic and high-growth Asia. But after the significant portfolio capital outflows witnessed during the pandemic, emerging Asia will need to undertake a major new privatization wave in order to match the China opportunity. From Pakistan and India through Indonesia, Vietnam, and the Philippines, stateowned conglomerates in energy, transportation, aviation, construction, agriculture, hospitality, and other sectors should float shares and engage more in joint ventures with foreign partners both to raise capital and raise their game.
The 21st century is the first time in human history that every continent or region represents independent poles of power in their own right. This complex global system is far greater than any single power: Within its webs of relationships, no power can impose itself on the world. This new geopolitics portends a new phase of globalization that is more competitive than the last, no matter what the volume of trade or investment at any given time.
What all powers should agree on is that we must seek a progressive globalization rather than more or less for the sake of it – a globalization that raises incomes, reduces inequality, and includes everyone. At the same time, we should celebrate declining oil demand and the accelerated uptake of alternative and renewable energy. Until aviation emissions can be substantially reduced, less intercontinental business travel would be a good thing – even if it means less of one vertical of globalization.
My five Zoom calls per day with five different countries are hardly evidence of de-globalization. Wherever you are, you should worry less about globalization's quantity than its quality, and less about whether it is waxing or waning than whether you are catching its next wave.
*Note: A longer version of this essay originally appeared in the Nikkei Asia. It can be found here.
Parag Khanna
Parag Khanna is a leading global strategy advisor, world traveller, and best-selling author. He is Founder & Managing Partner of FutureMap, a data and scenario based strategic advisory firm. Parag’s most recent book is The Future is Asian: Commerce, Parag Khanna Leading global strategy advisor Conflict & Culture in the 21st Century (2019). Parag was named one of Esquire’s ‘75 Most Influential People of the 21st Century’ and featured in WIRED magazine’s ‘Smart List’. He holds a Ph.D. from the London School of Economics, and degrees from the School of Foreign Service at Georgetown University. He is a Young Global Leader of the World Economic Forum.