From Globalization to Fragmentation: Can China Keep Thriving?


Before getting started with this article, we would strongly recommend reading two of our previous ones. First of all, our article about globalization in general, through which we highlight the pros as well as cons associated with globalization and explain that while there are indeed cons involved, it is difficult to believe that globalization is going away anytime soon and as such, predictions involving “the death of globalization” are greatly exaggerated at best and delusional at worst. That being stated though, we have written another (equally important) article about China’s role in the globalization equation, an article that brought us to a conclusion any intellectually honest observer cannot help but agree with: the fact that China is, without a doubt, one of the proverbial spoiled children of globalization and most likely even the number one beneficiary.

Therefore, as borderline delusional as it may be to believe globalization will disappear completely from the international landscape, it would be borderline ignorant to assume the status quo can persist indefinitely or to put it differently, the idea that globalization will remain unchanged is not exactly something the team agrees with.


Simple game theory.

There is more to life than economics and aspects such as political implications need to therefore be taken into consideration as well so as to reach realistic conclusions. As an extremely eloquent example to that effect, many economists expressed grave concern with respect to the Treaty of Versailles and the stipulations pertaining to the reparations Germany was forced to pay. Thinkers including John Maynard Keynes himself made it clear that despite the fact that things were “watered down” (with a significant part of those 132 billion gold marks being nothing more than let’s call them accounting fabrications) compared to some of the more aggressive expectations among victors, the reparations in question were still devastating enough to essentially bring Germany to its knees and lead to a buildup of anything from frustration to socio-political movements that ultimately disrupted the (vulnerable) European peace status.

However, game theory kicks in and the general public in victorious nations wanted Germany to pay, both literally and figuratively. As such, stipulations perceived as too timid would have come with significant negative political consequences back home and as such, many politicians were essentially “mandated” to be more aggressive than economic common sense would have dictated. Not for economic reasons, not for historical reasons but simply for political ones. As it was, the Treaty was hardly generating enthusiasm in victorious and revenge-seeking countries such as France, with politicians most likely feeling that toning it down even a notch further would have been politically unacceptable.

The same principle is valid in 2020 and beyond.

Once again, any economist worth his salt is most likely more than eager to point out that throwing globalization into the dust bin of history and paving the way for fragmentation or even (for the more utopic of citizens) some form of autarky would be extremely counter-intuitive, to the point of yet again jeopardizing the climate of peace between at least major economic superpowers.

In a nutshell, globalization currently contributes to the “Mutually Assured Economic Destruction” conflict deterrent dimension, just like the “Mutually Assured (Nuclear) Destruction” concept acted as a major direct military conflict deterrent during the Cold War. To be more precise, given the ultra-interconnected nature of worldwide economies in a globalization framework, pretty much any even remotely knowledgeable market participant can and will state that something along the lines of a military confrontation would result in lose-lose situations that are simply unacceptable.

Once again, these are anything but controversial thoughts.

At the same time, however, politics can and will also get in the way, for the simple reason that globalization is certainly not perfect. Therefore, just like there have been (many) winners, there are also losers. For example, a relatively low-skilled United States worker who used to have impressive job security during the let’s say fifties and earned enough to support a large family on just one income now most likely finds himself in a climate he neither understands nor likes. Job security is hardly a given these days and on the contrary, chances are that many such individuals are currently switching from one low-paying service sector job to another in a manner that inevitably leads to a massive build-up of frustration.

“Why have so many jobs left the United States?”

“Why should I suffer just so that multinational corporations can enjoy massive profits?”

“Why should my life be turned upside-down by all this insecurity compared to the days when my father and grandfather worked at the same factory throughout their entire careers?”

These are just three questions that millions upon millions of people in the United States alone are asking themselves, individuals who are anything but happy with the status quo and more than eager to find a third party to blame, with the usual suspect being… you’ve guessed it, China. As mentioned at the very beginning of this post, the idea that China can keep thriving as the proverbial spoiled child of globalization is optimistic at best for political rather than economic reasons… citizens in more developed nations are simply no longer willing to silently tolerate this phenomenon.

This represents yet another reason why China has embraced a “new paradigm” in terms of economic growth, one that revolves around accepting lower and definitely single-digit yearly GDP growth rates on the one hand and on the other hand, one which revolves to a much more significant degree on internal consumption. Fortunately for them, as explained in another article, a stronger and stronger middle class has proven to be ready to take over and the transition to this new system has started quite a while ago, for reasons that revolve around more than simply “globalization fatigue” for lack of a better term.

As a conclusion, no, China cannot keep thriving in a “globalization 1.0” framework and while globalization itself is most definitely not going anywhere, “globalization 2.0” is likely to involve a fair bit more fragmentation than its predecessor.

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