Re-globalization: Path out of Plight to Revival for Multilateral Mechanisms

After the 2008 global financial crisis， the global governance architecture underwent significant changes， accompanied by transformations in political， economic， diplomatic， and social spheres. What we had learnt since the end of World War II was unable to make sense of the evolution and direction of this architecture. Particularly since 2017， economic nationalism has experienced a resurgence driven by the shift in foreign economic and trade policies from liberalism to protectionism in the United States and other developed countries， combined with the impacts of the COVID-19 pandemic and geopolitical conflicts. Competition in industrial policies and technological races have intensified， and the gap between the North and the South has widened. Faced with unprecedented challenges， multilateral mechanisms have come to a historic turning point. On the one hand， globalization encounters headwinds. Market integration and multilateral mechanisms are held back by bloc division and over-securitization. On the other hand， with the expansion of trade and investment， wider participation in globalization and the rise of emerging economies， it may be easier to solve common issues and strengthen the role of multilateral mechanisms.

Deglobalization and Its Impacts

According to a report by the World Economic Forum in 2023， “slowbalization” that began in 2008 may evolve into “deglobalization”. The organization measured trade openness （or trade dependency） of 17 major economies by the ratio of imports and exports to GDP， and used it as an indicator of the degree of globalization. It found that globalization had been on the rise since the end of World War II， reaching “hyper-globalization” between 1990 and 2008. After peaking at nearly 50%， it began to decline slowly， entering the slowbalization phase. Particularly after the COVID-19 pandemic， countries started considering reducing trade dependency especially on any single country. Since 2022， the word “onshoring” has been used in many companies’ （4%） annual reports， compared to less than 1% in the pre-pandemic era. This is an early sign of deglobalization where multinational corporations scale back their global presence due to geopolitical and economic risks.

On the whole， despite some signs， deglobalization is not yet evident. Actually， it is more of a policy shift in many countries than a hard economic reality. Over the past decade or so， we have seen many policies incompatible with hyper-globalization， such as erecting tariff and non-tariff trade barriers， cutting foreign direct investment， localizing supply chains， nearshoring， and tightening regulations. Currently， the United States and many other developed countries in essence champion trade protectionism and economic nationalism， manifested by their unilateral policies and measures to diminish the role of the market in resource allocation. However， even with substantial input and time， it will be unlikely for these policies and measures to reverse the momentum of globalization.

Meanwhile， deglobalization presents paradoxes and distorting effects. Globalization brings more competitors. For most countries， that means stronger competition and greater risks. In recent years， the risks have been amplified by the COVID-19 pandemic， the Ukraine crisis， the Israeli-Palestinian conflict， and the Red Sea crisis， causing panic in many nations. This has partly contributed to deglobalization. However， efforts toward deglobalization may also bring about negative ramifications.

First， deglobalization attempts may reduce productivity at the cost of consumers. If companies restructure their supply chains to source from geographically closer countries rather than more efficient ones， production costs may increase， and consumers will end up paying more. According to the Peterson Institute for International Economics， the new tariff proposals in Donald Trump’s second term would reduce the income of American middle-income households by more than 4.1% or $2，600. Meanwhile， the top 1% would see their income increase due to tax reduction at home. This would only widen the wealth gap in the United States.

Second， deglobalization policies in the name of supply chain security do not necessarily bring economic security. Ideas like supply chain resilience and diversification have been proposed to address concerns over potential supply chain disruptions or breakdowns. When companies face problems like this， they often increase inventory or seek alternative suppliers. However， when state power is used in supply chain restructuring， the impact is far broader and deeper， and there is no solid evidence that nearshoring or onshoring can make supply chains safer or more resilient. On the contrary， restructuring supply chains brings costs and may lead to far lower efficiency. Just think about it. Is single-sourcing or multiple sourcing safer？ On the face of it， onshoring may seem more controllable. But it turns multiple sourcing into single sourcing. Therefore， the argument that these policies are for supply chain security simply doesn’t hold up.

Third， deglobalization efforts dampen foreign direct investment with far-reaching impacts. Over the past years， investment restrictions have outweighed and outpaced trade restrictions， with countries like the United States putting restrictions on companies’ ability to invest abroad. According to the Global Trade Alert by the International Monetary Fund， new restrictions on goods， services， and investments in 2022 increased by 14% compared to 2021， reaching over 2，600， more than six times the number in 2013. Investment restrictions saw the largest jump， reaching 239 in 2022， more than four times the number in 2021. Reduction in foreign direct investment may lead to fewer job opportunities， and affect financing of small and medium-sized enterprises. In countries where foreign enterprises contribute significantly to exports， reduced foreign direct investment will also weaken foreign trade.

Fourth， in addition to imposing restrictions， deglobalization policies are also characterized by unilateral moves or small alliances which lead to bloc division in the global economy. The World Trade Report 2023 by the World Trade Organization shows signs of trade fragmentation， with trade growth nearly stagnating after 2008， dragging down global economic growth. The International Monetary Fund estimates that global economic output could shrink by 0.2% to 7% due to trade fragmentation. If repercussions of technological decoupling are taken into account， some countries could see their GDP shrink by up to 12%， with emerging economies and developing countries suffering the most.

After decades of development， the global system of division of labor is quite complex and relatively stable where different economies engage and work with each other. Shaking or even overthrowing this system will be difficult. According to United Nations statistics， intermediate goods exports as a share of total global goods exports have been rising， peaking at 58.8% in 2013. Despite a decline in subsequent years， the latest figures （2020-2022） remain at a high level of around 55%. This model of division and cooperation has not undergone substantive changes in spite of the deglobalization efforts. Transfers and relocations may accelerate， but the division of labor will hardly change， and may further expand to more input factors and participants. In this sense， deglobalization policies will not be much of a real obstruction to globalization， though costs and risks may increase in the short term as a result of such policies. In light of this， it is necessary to respond to the unilateral deglobalization policies in a timely manner and further leverage multilateral mechanisms to help the world economy return to the growth track.

The Plight of Multilateral Mechanisms

In the face of a proliferation of deglobalization policies and measures， many believe that multilateral mechanisms are dysfunctional， and multilateralism is “dying.” The United States， the main creator of the Bretton Woods system， has been intentionally weakening and ignoring multilateral mechanisms since 2008. Even the European Union， long seen as a champion of multilateralism， has shown protectionist tendencies in recent years. It has adopted restrictive measures such as green standards， value standards， and social labels in the name of de-risking， undermining the non-discriminatory principle of multilateral mechanisms. All these have put multilateral mechanisms in a plight never seen before.

First， the foundation of multilateral mechanisms is under attack. Founded on multilateralism， multilateral mechanisms uphold the principle of inclusiveness， equality， and cooperation， and aim for a more peaceful， prosperous， and sustainable world. Inclusiveness means that multilateral mechanisms should be open to as many different types of members as possible. Equality means that all members should have voting rights or voices in the multilateral process regardless of size or strength. When there is a consensus that all members stand to benefit from multilateralism， multilateral mechanisms can succeed， as seen during the period of hyper-globalization. However， in absence of such a consensus， the foundation of multilateral mechanisms will be shaken， as major countries prioritize their own interests and exclude others.

Second， the role of multilateral mechanisms is challenged. On the one hand， with excessive emphasis on security， more countries believe that multilateral cooperation and commitment to multilateralism cannot protect their security. According to Boston Consulting Group （BCG）， countries are increasingly imposing national security reviews on proposed foreign direct investments. In OECD countries， the use of foreign direct investment review mechanisms has doubled over the past decade， and the review scope has also significantly expanded. With the adoption of such security reviews and restrictive tools， more countries have established or enhanced their own security mechanisms. A larger number of broadly-defined clauses concerning national security exceptions are added to regional trade agreements.

On the other hand， multilateral mechanisms are slow in solving common problems. Humanity faces many challenges， such as climate change， inflation， economic recession， geopolitical conflicts， post-pandemic recovery， trade barriers， as well as poverty reduction and debt risks in developing countries. Holistic solutions are needed to address these interconnected risks， some of which are already urgent. Multilateral mechanisms should have been effective in addressing common issues through coordination. In reality， however， they have been slow and ineffective， with little real progress.

Third， the appeal of multilateral mechanisms is declining. In the political field， the concept of multi-polarization has been increasingly mentioned in recent years. In a multi-polarized world， many countries and political groups play a role in global governance， different from a unipolar or bipolar world. However， there is disagreement as to whether multi-polarization promotes or undermines multilateralism. In practice， as the multi-polarization process unfolds， bilateral， regional， and small multilateral platforms have received more attention， weakening the appeal of multilateral mechanisms to some extent. As different regional trade governance architectures emerge and mature， they tend to compete with each other. While intra-regional liberalization remains the mainstream， inter-regional discrimination is growing as the result of emphasis on alliance building and supply chain restructuring.

Re-globalization， Path to Revival for Multilateral Mechanisms

UN Secretary-General António Guterres referred to deglobalization as the “most profound crisis of internationalism since 1945”， using apocalyptic symbolism such as “four horsemen” of the Apocalypse in his speech at the United Nations General Assembly in January 2020. He identified four looming threats that endanger the world， namely high global geostrategic tensions， an existential climate crisis， deep and growing global mistrust， and the dark side of the digital world. In a world of major divisions and risks， multilateral mechanisms like the United Nations need to play their role.

The concept of re-globalization was mentioned in the WTO’s World Trade Report 2023， which means integrating more populations， economies， and pressing issues into global trade， and strengthening multilateral cooperation. According to this report， the spillover of national economic policies is growing bigger and stronger than before. Thus， re-globalization is a better choice than fragmentation to make our economies safer， more inclusive and more sustainable， and a more effective solution to global challenges. It is essential that the re-globalization of national trade policies， or returning to the multilateral framework， will promote reform， innovation， and cooperation.

International organizations， enterprises， and scholars are advocating and calling for re-globalization， but some important questions remain unanswered. How should we pursue re-globalization？ How is it different from globalization？ Actually， the discussion about re-globalization centers on the revival of multilateral mechanisms and multilateralism. If the current trend of deglobalization is interpreted as a policy orientation， re-globalization should be seen as joint efforts to reverse deglobalization policies. The key is not how to convince countries of multilateralism， but to find a path of reform and innovation concerning current multilateral mechanisms through reglobalization.

First， this process should benefit more actors. It is widely believed that globalization in the traditional sense is mainly driven by the needs of multinational corporations and trading groups. Thus， most multilateral rules are about trade liberalization and facilitation. Much of the opposition to globalization over the past few decades came from sectors and groups that suffered economic losses. To address this issue， future reform should take concerns over distribution of benefits as the priority. Currently， there are clear provisions about inclusiveness in more than 310 regional trade agreements ranging from human rights to workers’ rights， gender equality， rights of indigenous peoples， and SMEs’ participation in trade. Closer cooperation among international organizations like the WTO， the World Bank and the UN family can help extend the jurisdiction of multilateral mechanisms and improve the public governance system. At the same time， strong measures need to be taken to promote institutional reform within multilateral mechanisms. Despite some common understandings and aligned interests， more need to be done to promote substantive participation of more members and improve the representation of multilateral mechanisms.

Second， the agenda should be properly set. Multilateral mechanisms should have played a predominant role in solving global problems. In reality， the agenda setting is quite conservative and rigid. For instance， many international conferences and forums on AI governance have released relevant manifestos. Nonetheless， as pointed out in the report AI Governance Day -- From Principles to Implementation by the International Telecommunication Union， implementing these principles is challenging and requires more realistic governance solutions. Considering that the global economy involves a wide range of interconnected issues including trade， investment， financing， digital technology， and climate standards， the existing multilateral mechanisms， each with different functions， can hardly play an effective role in governance of frontier issues. Sometimes， they may be less effective than some less established platforms and meetings. Therefore， in terms of the agenda setting， it is necessary to expand the mandate of multilateral mechanisms， starting with amending their clauses.

Third， this process should be advanced in a step-by-step manner. In recent years， the debate on “special and differential treatment” for developing countries has focused on the identification of developing countries and the application of such treatment. This has slowed down the negotiation of many issues， and held back the progress of multilateral mechanisms. Negotiations on plurilateral agreements should be conducted under multilateral mechanisms. A small number of member states may reach consensus on certain issues first， and others can join later. Compared with regional agreements， plurilateral negotiations within the multilateral framework are more open to developing countries and the least developed countries. The reform of multilateral mechanisms should start with improving efficiency. More flexible and asymmetric methods can be used for early or partial harvests. When certain conditions are met， the outcomes of plurilateral negotiations can be added to existing multilateral frameworks. In this way， the efficiency of multilateral mechanisms can gradually catch up with that of regional arrangements.

Fourth， national security exceptions should not be abused. National security exceptions， an important component of most free trade agreements （including WTO agreements）， exempt countries from certain obligations on national security grounds. In theory， to uphold the sanctity of free trade agreements， national security exceptions only apply under extremely strict conditions. The reality tells a different story. In recent years， some countries have frequently imposed tariffs and other unilateral restrictions. Take the United States for example， among the cited reasons for tariffs， trade deficits， exchange rates， intellectual property， and fentanyl have all been taken as national security factors. In response， there have been growing calls for clarifying the boundaries of national security and putting restrictions on conditions applicable to national security exceptions. However， as it touches upon national economic sovereignty， winning state support is difficult. A more feasible solution is the promise of not abusing national security exceptions， and a written consensus on such concepts as national security， damage， causality， abuse， discrimination， competition， exclusion， and coercion.

Fifth， the role of the Global South should be leveraged. According to OECD predictions， by 2060， the combined GDP of China， India， and Indonesia will reach $116.7 trillion， or 49% of global GDP， three times the size of the US economy. As the balance of power and influence is shifting to the Global South， their influence in economic governance is on the rise. These countries， with a keen interest in development， have shown in the past few years what they could do as a balancing force. They have played an important role in promoting the reform of the international order with considerable progress. However， due to the asymmetric strengths of the North and the South， this progress is temporary and limited. Worse still， Global South countries are even absent from some important negotiation processes concerning arms control and disarmament， nuclear safety and non-proliferation， outer space， polar regions， cyberspace， and artificial intelligence due to inadequate resources and other factors. In light of the current reality， Global South countries still have a long way to go in shaping a new international political and economic order that is just and equitable， and a global governance system that features extensive consultation and joint contribution for shared benefits.

Wang Zhongmei is Director and Senior Research Fellow at the Institute for World Economy Studies of Shanghai Institutes for International Studies