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Copyright © 2005-2024 MTW GROUP All rights reserved
MTW GROUP CORPORATE HEADQUARTERS:
MTW GROUP USA, LLC
Miami Tower - 100 SE 2nd St.
MIAMI, FL 33131
U.S.A.
International Business:
The new scenarios of globalization
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FROM FAST-TRACK TO RESPONSIBLE
AND SUSTAINABLE
by Antonio Acunzo
CEO MTW GROUP USA
Since 2014 our columns of International Business are
published on:
The past 2 years of the covid pandemic, the disruption in supply chain, the Russian invasion of Ukraine have impacted on the globalization as we know it because these factors have strongly contributed to redesigning the map of geopolitical and economic relations at a global level by shifting priorities for international affairs and international trade.
Globalization today
Today globalization is no longer driven only by the economy but a new element showed up: political risk.
"Freedom is more important than free trade", declared Jens Stoltenberg, Secretary General of NATO, and with this principle the new globalization is being reconfigured on the basis of new relations between countries perceived as "friends", safe and secure, and on the basis of new political, economic and military alliances as a consequence of the complex fracture that today opposes the front of the Western countries with the front of the new Russian-Chinese alliance.
Reshoring and Nearshoring
A first reaction to the competing rivalry between the 2 main economic powers, USA and China, was that of Reshoring by American companies in China which have progressively limited or suspended expansion and investments in the middle kingdom and transferred their production capacity back to the USA, more than offsetting the initial costs with the projection of long-term benefits such as reduced lead time, reduction of customs tariffs, better quality of the product made in the USA, more effective distribution logistics.
A second reaction was that of Nearshoring, to diversify production as per the former China+1 model, which envisaged not to concentrate investments only in China but to evaluate alternative solutions in markets where, in the face of reduced production costs, one could count also on the local strong domestic consumer market (as in the case of Vietnam and Malaysia), and to consider a similar model called USA+1 where +1 in this case is represented by 3 markets close to the United States such as Mexico (that along with the USA and Canada is part of the USMCA free trade agreement, a new version of the previous NAFTA), the Dominican Republic and Puerto Rico (which is an unincorporated territory of the United States).
New confrontations, new alliances
Globalization therefore remains an essential function of economic growth now being revised according to a new geography and new development methods. Today’s new global scenario, with the new redesigned pro-Western marketplace, sees an Atlantic alliance led by the USA with the UK and the European Union, strengthened under the NATO military alliance and expanded to include countries considered “friends and pro western” and that agreed to inflict economic sanctions to Russia as a result of the war in Ukraine: Australia, New Zealand, Japan, South Korea, Singapore and Taiwan. Russia is no longer a market of interest for Western companies (trade has been eliminated, over 300 foreign companies have suspended all activities in the country, air links with Russia fully suspended) and besides the pending constraint of energy dependence still in place once these will be gradually removed Russia will no longer be a prime economic partner for the West. And new alliances are being forged between blocks of countries united by common, shared and shareable interests and principles.
US President Biden launched IPEF (Indo-Pacific Economic Framework), in Tokyo on May 23rd, 2022, a strategic partnership between the USA and 13 countries that alltogether represent 40% of world’s GDP (7 from the ASEAN marketplace + Australia, New Zealand , India, Japan, South Korea and Fiji).
The first purpose is the diversification of supply sources, reducing dependence from China, and making use of the resources of the 7 ASEAN countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam), the new manufacturing hub developed after reshoring from mainland China and repositioning the supply chain.
This will also allow to restore efficient manufacturing and logistics according to JIT strategy (Just In Time), dramatically penalized by the disruption of the supply chain in the last 2 years and that will lead to the new BDT model (Best Delivery Time).
Above all, the IPEF agreement aims at redefining the rules of the new global economy of the 21st century, rules based on 4 fundamental themes for the advancement of standards related to jobs and environmental sustainability:
- fair and resilient trade and the proper conduct of trade between member countries
- resilience in the supply chain (the functionality of which implies aspects of national security for countries that need to overcome supply dependencies)
- digital connectivity, infrastructure, renewable energy and decarbonization
- taxation and anti-corruption
Unlike the TPP (Trans Pacific Partnership) that never took off, although strongly promoted by President Obama and then cancelled in 2017 by the Trump presidency, and which evolved autonomously and without the USA in 2018 into the CPTPP free trade agreement (Comprehensive and Progressive Agreement for Trans Pacific Partership) between 11 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam), IPEF does not currently envisage a reduction or liberalization of customs tariffs nor it's intended to become a free trade agreement.
But the differential and qualitative element of this agreement lays the foundations for mainly regulating the security interests of the USA and its allies,, and it is precisely on this basis that it distinguishes itself from RCEP (Regional Comprehensive Economic Partnership), the free trade initiative promoted by China, centralized on the 10 ASEAN countries and extended to Japan, South Korea, Australia and New Zealand, which indeed is just based on free trade only, completely excluding the 4 IPEF themes, and that basically acts as the catchment area for Chinese colonial expansionism.
New devlopments
After IPEF, President Biden launched I2U2, in Jerusalem on July 14th, 2022, the new cooperation of investments and initiatives between India, Israel, UAE and the USA with the aim for the 4 participating countries to collaborate on issues such as investments and initiatives in the field of energy, safety on the supply of food resources, transport, space, health and water conservation.
And with a possible future expansion, I2U2 Plus, to Egypt and Saudi Arabia for the purpose of a balance of power for the maintenance of peace and security in the Middle East and, not secondary, to re-energize and revitalize American alliances mainly with India in obvious and clear purpose of countering the Chinese influence in a country, India, that represents a primary consumer market and which is in open rivalry with China.
IPEF and I2U2 respond to the needs of the new globalization because they finally include rules of conduct, a sense of responsibility, the need to reduce misuse and contain waste, the optimization of energy resources, the stimulus for change towards renewable energies, and the application of a long-term perspective policy in managing trade and business relations between allied and partner countries.
The Free Trade agreements remain in place but are no longer a priority precisely because of this new need for a sense of responsibility and business sustainability.
The end of Fast-Truck globalization
We can call this new phase as Responsible Globalization or Sustainable Globalization, or as defined by the Austrian economist Karl Aiginger: "the end of fast-track globalization". The West must confront the vagaries of a Russia with the ambition of rebuilding the old Soviet Union and the expansionist aims of a China-led economic colonialism that hesitates between the ambitions of the Made in China 2025 plan and the real slowdown of its economic growth.
Hence the sense of urgency for Western economies to redesign the global map of alliances and to weave a structured dialogue mainly with those "friendly" countries, where the Atlantic alliance between the USA, UK and EU is strengthened, where the US focus is oriented towards the Indo-Pacific area, where the ASEAN markets keep growing and developing, where the Emirates and Saudi Arabia design new models of sustainable smart urbanization, and where India plays a strategic and crucial role in balancing the weight of China (even if it has not yet fully understood how to do it effectively).