S6 Ep47: Will deglobalisation lead to a new Cold War?

Episode Summary

Executive Summary: This podcast episode from Vox Talks Economics examines whether globalization is truly in retreat and if a new Cold War is emerging. Host Tim Phillips interviews economists Beata Javorchik (University of Oxford, EBRD) and Sergei Guriev (Sciences Po, former EBRD chief economist). They argue that while trade statistics show no reversal of globalization, geopolitics now drives trade policy, leading toward fragmentation. A new Cold War differs from the 20th century one due to economic interdependence and China's lack of ideology. Underreported trends include the erosion of dollar dominance and the decline of Western soft power among non-aligned countries.

Main Topics: The State of Globalization (Priority: 5/5): Beata Javorchik argues that while trade in goods has peaked, services trade continues to grow strongly. However, the drivers of trade policy have shifted from commercial considerations to geopolitics, which is suboptimal and could lead to fragmentation. The WTO's dispute resolution mechanism is non-functional, risking a 'free for all' in trade policies. A New Cold War? (Priority: 5/5): Sergei Guriev acknowledges a new Cold War is starting due to bipartisan US consensus on China as a threat. However, it's different from the 20th-century one: China has no expansionist ideology, interdependence remains high, and trade via intermediaries cannot be fully stopped. The label 'Cold War' can be misleading. Erosion of Dollar Dominance (Priority: 4/5): Underreported trend: the use of Chinese yuan for invoicing Russian imports has risen dramatically from under 10% to about two-thirds. Countries like India, UAE, and Turkey are using national currencies for trade with Russia. Sanctions and frozen reserves have incentivized countries to seek alternatives to the dollar. Declining Western Soft Power (Priority: 4/5): Sergei Guriev highlights that the West is losing soft power among non-aligned countries due to failure to deliver on climate aid ($100 billion/year), handling of COVID vaccination, and other commitments. This explains why many countries do not join Western sanctions despite not supporting Russia's invasion. Non-Alignment and Third Countries (Priority: 3/5): Neither fully aligning with China nor the US, many countries (e.g., India, Brazil, South Africa) resist being forced to choose sides. This resembles the 'Third World' of the original Cold War. The formation of BRICS+ (including Iran and Saudi Arabia) illustrates this trend, even though a common BRICS currency is unlikely. Potential for Cooperation on Green Transition (Priority: 3/5): Despite geopolitical tensions, climate change remains a global problem requiring cooperation. China is open to collaboration on green transition. Young people worldwide prioritize this issue, which may help build trust and transcend mutual suspicion. Technology and Trust (Priority: 2/5): Technology is used for both innovation and surveillance/spying, limiting transparency and trust. Cyber attacks and geopolitical technology use are not easily observed, hindering cooperation even when parties want it. This is a real concern in US-China relations.

Key Arguments: Globalization is not in retreat: trade statistics show no reversal, with services trade still growing strongly. However, the driver of trade policy has shifted from commercial to geopolitical considerations, which is suboptimal and risks fragmentation. A new Cold War is starting but is fundamentally different from the 20th-century one: China does not have an expansionist ideology, economic interdependence remains high, and trade cannot be completely severed due to intermediaries and economic incentives. The WTO's dispute resolution mechanism has stopped functioning due to US blocking of judge nominations, undermining global rules and risking a 'free for all' in trade policies. Sanctions and frozen Russian reserves are eroding dollar dominance: the share of Chinese yuan in invoicing Russian imports rose from under 10% to two-thirds, and third countries are using yuan via swap lines. The West is losing soft power among non-aligned countries due to failure to deliver on climate aid ($100 billion/year) and COVID vaccination commitments, leading many to not join Western sanctions despite not supporting Russia. Cooperation on green transition is possible and necessary, as climate change is a global problem recognized by China and prioritized by young people worldwide. BRICS countries are exploring using their currencies for trade, but a common BRICS currency is unlikely in the next 15 years due to internal political differences.

Data Points: Increase in Chinese yuan invoicing for Russian imports: From less than 10% to about two-thirds - Underreported shift in currency usage for bilateral trade between China and Russia Increase in trade costs between blocs: About 20% - Simulation of fragmentation into two or more trading blocks leads to everyone losing Western promised climate aid per year: $100 billion - This promised aid has not been delivered, undermining Western credibility WTO dispute resolution mechanism status: Non-functional - Nominations of judges to the appellate panel have been blocked by the US

Pivotal Quotes: "While before trade policy was driven by commercial considerations, right now it is geopolitics that determines trade policy. And if geopolitics is determining trade policy, this is suboptimal. It's bad news for globalization and the global economy." — Beata Javorchik: Explaining the shift in trade policy drivers and why it is harmful "The world is just too open. It's impossible to stop the trade through intermediaries, and economic incentives will always make sure that people will continue trading between each other." — Sergei Guriev: Arguing that a new Cold War cannot completely sever US-China trade due to economic interdependence "The West is losing soft power... This is something that needs to be talked about more, and that's something that needs to be fixed. If the West wants to have a globalized economic and political system, it needs to convince the other countries that it's good for them to follow the Western model." — Sergei Guriev: Highlighting the underappreciated decline in Western soft power and its implications for global order

Implications: The podcast suggests policymakers must recognize that geopolitical fragmentation harms all economies. The decline of Western soft power and dollar dominance signals a multipolar world requiring renewed commitments (e.g., climate aid) and cooperation on global challenges like green transition. Trade rules need reform to prevent a 'free for all'.