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The tip of globalization? : Planet Cash: The indicator of Planet Cash: NPR

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The tip of globalization? : Planet Cash: The indicator of Planet Cash: NPR

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STACEY VANEK SMITH, HOST:

From the early 1990s, the world experienced a two-decade globalization boom. The countries became more closely linked in many ways. People and companies traded more goods and services across national borders. They invested more money in each other. And the advent of the internet made it easier for them to share information with the touch of a button.

CARDIFF GARCIA, HOST:

And the promise of globalization was that it would make the world economy more efficient and more successful because it would allow people and businesses within countries to specialize in the things they do best and then act for things who have favourited other countries do best.

VANEK SMITH: But globalization shouldn’t just be about economics. Fans of globalization also hoped that it would make the world a more peaceful place, because when countries are dependent on one another for their economic prosperity, they will not gain that prosperity through political disputes or through an extreme level fighting each other in a war. But as the US trade war with China and a number of other diplomatic disputes recently demonstrated, that assumption about globalization seems increasingly shaky.

I am Stacey Vanek Smith.

GARCIA: And I’m Cardiff Garcia. Today on THE PLANET MONEY INDICATOR we are discussing a new framework for understanding globalization, a framework that says that globalization itself has provided the diplomatic weapons used in these disputes.

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VANEK SMITH: Henry Farrell is Professor of Political Science and International Affairs at George Washington University. He says some of the assumptions people once made about globalization are now being undermined.

HENRY FARRELL: So I see the basic assumption of globalization in the fact that when you start to give the world work, when you start to get involved in all these complex international trade relationships and to produce things in a way that transcends national borders goes beyond the limits that you could do this with a minimum of politics. And I think we are now seeing that politics is getting more and more complicated.

GARCIA: Political disputes between countries, Henry says, are increasingly damaging the close economic ties these countries have enjoyed. That shouldn’t really happen.

A premise of globalization was that the way countries and companies and other actors trade and invest money with one another would largely be based on rules that those countries had already agreed to, and that political disputes between the governments of the same countries would not stand in the way. But now…

FARRELL: And in particular, national security concerns are starting to overshadow some of the ways in which actors have tried to create more efficient ways of building and trading, and really threaten to potentially undermine those kinds of relationships that really help us do the kind of thing build – the kind of products we have relied on.

VANEK SMITH: Right now, the most obvious example of how national security politics intrudes on a trade relationship is the US-China trade war.

GARCIA: Yeah. You see, the trade war started as you’d expect – with tariffs. These are taxes on goods that are sold by a company in one country to people and companies in another country. The US and China have now raised tariffs on each other’s goods by hundreds of billions of dollars.

VANEK SMITH: For a while, those tariffs were part of a negotiation that was mostly about economics. The US wanted to sell more American goods within China, and China wanted the same from the US. The US also wanted China to protect the technology and intellectual property of American companies doing business in China.

GARCIA: But the US and China couldn’t reach an agreement. And now the US and Chinese governments are targeting each other’s economic weaknesses in this larger diplomatic stalemate, which is largely national security. And these are economic weaknesses that exist precisely because the two countries have become such close trading partners in the course of globalization in the last few decades. It’s like spouses know each other’s weaknesses so well precisely because they’ve become so intimate.

VANEK SMITH: That does – and that can make the fighting even more brutal.

GARCIA: Yeah.

VANEK SMITH: Right?

FARRELL: What we are beginning to see and think is that if you go really deep, deep, deep into globalization, so that you rely on, for example, a certain product that is made in another country, then you expose yourself exposed to possible pressure from this other country, which can then use the fact that you are dependent on this product to compel concessions to act against you in ways that you may not like.

GARCIA: When countries do this – when they take advantage of the interdependence of their trading partners and the global trading system, Henry calls it weapons-grade interdependence. He is working on this concept with his colleague Abraham Newman in a new study.

VANEK SMITH: And maybe we should use that term for relationships too.

GARCIA: Oh god.

VANEK SMITH: (Laughter) Interdependence with weapons. In any case, armed interdependence helps explain what the US did to Huawei, a giant Chinese telecommunications company. So Huawei has 188,000 employees. And it operates in more than 170 countries. It sells smartphones all over the world – almost everywhere except the US. And it also sells the equipment that countries can use to build their own wireless networks.

GARCIA: Huawei has a shady past. It is accused of stealing technology from American companies such as Cisco, T-Mobile, and Motorola. Also, the US government believes that Huawei has a close relationship with the Chinese government and that Huawei could help the Chinese government spy on people in other countries by using the telecommunications equipment it sells to those countries, which is one reason that the US has long believed that Huawei poses a national security threat.

VANEK SMITH: So the US government has taken steps to prevent Huawei from buying or licensing the American technology it needs to make its products, like the glass for its smartphones – Huawei is buying it from Corning, the US company – or the microchips Huawei buys from Qualcomm, or the Android operating system Huawei gets from Google. The US is also pushing other countries not to buy Huawei smartphones and devices.

GARCIA: So think about what’s going on here. The U.S. government is suspending trading with Huawei not only because of unfair trading practices, but specifically for national security reasons – to prevent Chinese espionage and surveillance.

And for this the US is even ready to hurt its own companies, which can no longer sell technology to Huawei, and to hinder other countries from buying devices from Huawei altogether. The US is taking advantage of Huawei’s dependence on its trade with the US and with other countries.

VANEK SMITH: And of course that goes both ways. The Chinese government has threatened retaliation in a number of ways, including threatening to cease exports of rare earths to the United States. Rare earths are therefore necessary to make all kinds of electronics and automobiles and other advanced technologies, including military equipment. And of all the rare earths the US imports from the rest of the world, 80% comes from China.

GARCIA: So this is another example of how interdependence between American and Chinese companies is being turned into a weapon, this time by the Chinese government.

VANEK SMITH: Henry Farrell says he’s not surprised. In fact, he suspects that the world is increasingly moving in this direction.

FARRELL: And I think that to some extent this is also a kind of world where things like that escalate pretty quickly, because it could be that if one country starts doing that, another country could do the one before More optimistic portrayals of how globalization works will take revenge. And you can develop these spirals very, very quickly. And I think it’s plausible that we’re seeing that between the United States and China now.

GARCIA: A world in which countries are more and more comfortable taking advantage of other countries’ economic dependencies to get what they want politically. And also a world in which countries therefore try to reduce their own economic dependency so that it cannot be exploited.

VANEK SMITH: And the way countries are becoming less economically dependent on one another is primarily by doing less business with one another – trading less with one another, exchanging less information and investing less money in one another – globalization in reverse, basically – a less connected world.

GARCIA: And in the case of the US and China, the two largest economies in the world that are closely related economically, there is no real precedent for what happens when these two economies begin to separate.

FARRELL: What if these economies get more and more suspicious and fearful? This is a big, big open question and something we need to get started with really quickly because the long-term consequences of failure can be very serious indeed.

(SOUNDBITE OF MUSIC)

GARCIA: In this episode, we have only scratched the surface of weapons-grade interdependence. So if you want to find out more, we link to Henry Farrell’s paper with Abraham Newman at npr.org/money. This podcast was produced by Constanza Gallardo and fact-checked by Emily Lang. THE INDICATOR is a production by NPR.

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