S8 Ep65: The future of globalisation

Episode Summary

Executive Summary: Adam Posen argues that the U.S. retreat from postwar multilateralism is creating a harsher, more power-based global economy marked by self-insurance, regional hubs, and rising costs. Trade is becoming less efficient, but the deeper risks are financial fragmentation, weakened institutions, and poorer outcomes for smaller and low-income countries. He sees climate and health as different cases for cooperation, and expects some rebuilding of trust eventually.

Main Topics: End of U.S.-led multilateral public goods (Priority: 5/5): Posen explains that the U.S. has historically underwritten trade, finance, dispute resolution, and market access, and that its retreat forces governments, firms, and investors to self-insure through hedging, redundancy, and diversification. Rise of a power-based “new economic geography” (Priority: 5/5): Global economic relations are shifting from rules-based multilateralism toward dealmaking shaped by geopolitical power, with allies often treated worse than rivals and smaller states more exposed to coercion. Regional hubs and second-best systems (Priority: 4/5): He expects regional arrangements and hubs such as Europe, ASEAN/CPTPP, and the Gulf to gain importance, but emphasizes they are all second-best substitutes rather than a full replacement for the old order. Industrial policy and export-control arms race (Priority: 4/5): Posen warns that the U.S.-China export-control contest is an arms race, but argues Europe should not imitate it and should instead focus on targeted industrial policy: adjustment support, R&D, infrastructure, and strategic capacity in a limited set of inputs. Financial fragmentation as the biggest macro risk (Priority: 5/5): He identifies fragmentation of the global financial system as even more dangerous than trade fragmentation because it raises capital costs, reduces diversification, and increases financial-crisis risk through regulatory divergence. Multilateralism in health and climate (Priority: 4/5): He distinguishes health, where pandemic spillovers make broad cooperation essential, from climate, where regional leadership can still make meaningful progress even without U.S. participation. Temporary but lasting damage, especially to trust (Priority: 4/5): Posen believes enlightened self-interest will eventually restore parts of the system, but warns that distrust, self-insurance, and institutional damage will persist and require active rebuilding by the U.S.

Key Arguments: U.S. public goods such as naval protection, dispute settlement, liquid Treasuries, and secure market access are no longer assured, so firms and states must self-insure. The world economy is becoming more expensive and less efficient, but not completely broken; globalization is not gone, just reshaped and costlier. The current order is more power-based than rules-based, which disadvantages smaller and lower-income economies while giving large emerging markets more room to maneuver. Europe can still shape outcomes if it stays open and inclusive; copying U.S. or Chinese defensive industrial policy would likely be counterproductive. A limited, strategic industrial policy is preferable to broad subsidy races and ownership stakes in firms, which waste money and create political distortions. A fragmented financial system would reduce capital flows, diversification, and stability, making it a first-order macroeconomic threat. Climate cooperation can be partially regional and still effective; health cooperation cannot, because pandemics cross borders and require near-universal participation. The longer distrust lasts, the more self-fulfilling and durable the fragmentation becomes, even if the U.S. later changes course.

Data Points: Podcast episode number: 65th episode of 2025 - Introductory framing for the final 2025 episode of Voxtalks Economics CEPR annual symposium location: Paris - The interview with Adam Posen was recorded at the CEPR annual symposium in Paris Published article title: The New Economic Geography - Foreign Affairs article by Adam Posen referenced in the interview Publication date of article: September-October 2025 - The article Posen mentioned was published in Foreign Affairs Time horizon for regional hubs: 1 to 5 years - Posen says regional hub dynamics will become clearer over the next one to five years Number of episodes referenced in archive: 64 episodes - The host encourages listeners to revisit the 64 episodes from 2025 Comparative scenario for U.S. return to normalcy: 2 years or 12 years - Posen says he does not know when the U.S. will come back to the multilateral order

Pivotal Quotes: "the post-American world economy has been visible as an emerging danger since the first Trump administration or even the end of the Obama administration, but it hasn't yet congealed or coalesced or solidified" — Adam Posen: On why the new global economic order is still forming and not fully settled "if the US and China are doing this, Europe has to keep up. Whereas, A, just because the US and China do it doesn't mean it's right" — Adam Posen: On Europe copying export controls and broad industrial policy "the fragmentation of the financial system is near the top for me" — Adam Posen: On what he sees as the most dangerous macroeconomic risk

Implications: Listeners should expect a more expensive, fragmented global economy where trust, finance, and institutions matter as much as trade. Europe and other regional players have room to shape a better second-best system, but avoiding financial fragmentation and rebuilding multilateral trust will be crucial.