The World's New Business Model

Why is global trade slowing down? Martin Wolf on advanced technologies, left-behind communities, and economic warfare with China. Across the West, there’s been a struggle to make sense of a crashing public faith in established media. In the U.S. alone, recent polling from Gallup has shown the drop in the number of Americans reporting “a great deal” or “quite a lot” of confidence in newspaper journalism has hit 16 percent. It was 51 percent in 1979. Confidence in TV news is down to 11 percent from 46 percent back in ’91. Surveys from the Pew Research Center and the Reuters Institute give similar pictures. There are a lot of good theories about why this has been happening—from expanded coverage of thorny subjects journalists once largely passed over to populist attacks on the news as “fake.” One explanation is that mainstream media has followed elite universities in becoming dominated by a new form of progressive ethics, which has transformed what media does into something that can feel like a kind of propaganda. It’s hard to argue with that one sometimes. Here’s a different idea, though: It isn’t that any of these other views are necessarily wrong. It’s that there’s something else going on—at, you might say, a deeper level of consciousness. The Signal In a world that’s changing faster, getting more complex, and at the same time becoming more connected than ever before—yes, misinformation, disinformation, and, from time to time, actual fake news are issues for all of us. But the more everyday challenge isn’t informational; it’s interpretive. It’s to be able to understand and navigate our changing, complex, connected lives—because we have to. And to do that effectively—whether in business, as citizens, or just as human beings—we need to orient ourselves to realities none of us can possibly grasp on our own. We all need help with it. We need a kind of companionship in current-affairs media. Some find this in brands that present the world through a fixed ideological lens. Which at least superficially solves the trust problem for them. But for many of us, from across the political spectrum, ideological brands make the trust problem worse. We know we’re getting someone else’s narrative, not the realities we have to understand and navigate for ourselves. The stakes of that difference are high. [The Signal]( is something different—a current-affairs brand focused on exploring urgent questions in dialogue with knowledgeable companions around the world. It’s meant to support you, to help you develop your interpretations, not to lecture or direct you. Part of what that means is that we’ll need your help in turn as we develop The Signal over the coming months and years. So please [send us your thoughts](mailto:mail@thesgnl.com)—on what you see here, what you’re looking for in current-affairs coverage, or anything else. We’ll look forward to it. And if you figure we’re on to something, please share this email with your friends. Or if you’re new to The Signal? You can sign up [here](. —[John Jamesen Gould]( Remodeling Globalization Why is international trade slowing down? Martin Wolf on advanced technologies, left-behind communities, and economic warfare with China. William Navarro This week, a U.S. Congressional committee pushed the Biden administration to consider banning American tech companies from working with an AI development firm based in the United Arab Emirates—a firm that has contracts with military and state-owned organizations in China. This move is news, but more fundamentally it’s part of a deeper transition that’s been happening for years now—away from unfettered free trade, through tariffs, domestic subsidies, and, increasingly, national-security policies. From the outset of Ronald Reagan’s and Margaret Thatcher’s era more than 40 years ago, international commerce had been shaped by greater and greater liberalization, deregulation, and globalization. The fall of communism in Central and Eastern Europe in 1989, and then China’s admission into the World Trade Organization in 2001, helped global trade reach a record high in 2007—just before the Great Recession. But things have since started moving the other way. In 2018, referring to himself as “Tariff Man,” Donald Trump provoked a trade war between the United States and China. The United Kingdom’s departure from the European Union, meanwhile, upended Britain’s longstanding commercial ties with the continent. In 2020, the Covid-19 pandemic disrupted supply chains worldwide. And in February 2020, after Russia invaded Ukraine, nearly all European countries broke off trade relations with Moscow. Data shows that the world’s 20 wealthiest countries have dramatically increased barriers to trade, including import quotas and subsidies to domestic industries. What’s going on here? Martin Wolf is the chief economics commentator for the Financial Times and the author of the 2023 book [The Crisis of Democratic Capitalism](. As Wolf sees it, the world has entered a new era—with the U.S. having decided to abandon globalized free trade and America’s economic power impelling the rest of the world to adopt the new model. Washington’s strategy, Wolf says, is driven by a mix of economic and security concerns centered on its great-power competition with Beijing. It’s an approach that looks to move supply chains from China to friendlier countries—and to repair the damage done to U.S. industries by China’s rise and by global trade generally. This shift could lead to a decline in global growth, Wolf says—though developing countries could see gains, as they become alternative production locations to China. Still, we can’t entirely yet say how other countries will respond to the new dynamics of global trade—or, more specifically, how China will react to a system intended to damage its economic standing. Michael Bluhm: It seems a transformation is underway in international trade. How do you see it? Advertisement Martin Wolf: We’ve been living in an era of trade characterized by the immensely rapid growth of globalization. Now, globalization can mean a number of connected but different things—so here, I mean specifically the integration of production across borders. It’s about trade in goods—not so much in commodities or services. And the most important element of that trade in goods is manufacturing. The years from 1980 to 2007 saw the most dynamic growth of world trade in goods in human history. In 2007, it reached an all-time peak. There were two principal drivers: countries’ decisions to liberalize trade and advances in technology. By far, the biggest trade liberalization was in developing countries. The U.S. and Europe were already quite open, and developing countries decided to join the party. China was very much part of that. Altogether, these national liberalizations helped create the World Trade Organization, which sets the rules for trade in goods. Thanks to technological innovation, meanwhile, it was possible for the first time ever to unbundle production processes extensively across frontiers. In the 1950s, when General Motors made a car, it would make almost everything in America. By 2000, car components for GM were made in an array of countries. That’d never happened before, and it allowed manufacturers to put each production process somewhere specifically well-suited to making that component. Since 2007, the percentage of global trade hasn’t increased, partly because there was a backlash against it. But I see the bigger reason being that firms had exhausted the possibilities of unbundling production, given the current technology. There haven’t been signs of big withdrawals from or reductions in global trade—it’s just stopped growing. In the last few years, there’s been an emerging desire to pull back from trade—particularly since Covid. But it really started in the United States with Donald Trump. Trump’s focus was to rectify bilateral trade imbalances, particularly with China. More recently, Joe Biden has wanted to deal with the perceived risks associated with the concentration of certain supply chains and production in certain places, mostly China. The goal is moving production to countries that are friendlier—it’s often called “friend-shoring”—and diversifying sources of supply so as not to be too reliant on one location. Some use the phrase “China plus one” to describe this goal—meaning, keep China in the picture but develop a secondary supply source at the same time. Galen Crout More from Martin Wolf at The Signal: “The new U.S. perspective is that it’s now vulnerable in a way it wasn’t before. There’s a peer competitor—China—which is a superpower on multiple dimensions. It’s the first time Americans have confronted this kind of situation in historical memory; the Soviet Union wasn’t an economic or technological superpower, and the Europeans and Japanese were allies. This is unique.” “The Biden administration say it’s not about ‘decoupling’ the two countries’ economies. Which is true. They’re calling this new approach de-risking, and Treasury Secretary Janet Yellen has used the term friend-shoring. It’s a system to manage the security and economic risks associated with the rise of China. That’s what this new model is really about.” “The main problem will be increased hostility with China, which will have many ramifications. We can’t predict the ultimate consequences of that increased hostility. But they could be significant, because many Chinese officials now think—and have said this to me—that America is dedicated to stopping their growth. That’s an act of warfare by economic means, and that has consequences.” [Members can read the full interview here]( From the archive Tariff Men In July, the U.S. economist Katheryn Russ [explored the Biden administration’s new approach to global trade]( with us, presenting a different side of the global shift that Martin Wolf examines today. Russ, a member of the White House Council of Economic Advisers under President Barack Obama, explores the U.S. administration’s thinking on jobs and the climate behind its break with generations of traditional U.S. trade policy. She also looks at how the administration is putting these ideas into practice, whether with subsidies to American manufacturers or through restructuring global supply chains. To access our full articles, full archive, and to support The Signal as we build a new approach to current affairs, join us as a member. [Join The Signal]( The Signal | 1717 N St. NW, Washington, DC 20011 [Unsubscribe {EMAIL}]( [Constant Contact Data Notice]( Sent by newsletters@thesgnl.email