The Epitaph, Not Of Trump, But Globalization: The Pendulum Is Swinging Right Back

The following graphic was retweeted by Bruco Macaes, who has made a name for himself lately by, among other things, suggesting that Trump’s America has literally been a fantasy.

He deserves to be taken seriously, as he was formerly Foreign Minister for Portugal, and has written several well-received books, for instance, one on China’s Belt and Road Initiative and another on contemporary America.

But I think this graphic is wrong in that it’s not the end of the road for Trump (if he loses the election) that matters. It’s the end of globalisation as we know it. And that may not be such a bad thing.

For a few years, perhaps, since the fall of the Soviet Union, there has been this mad rush to globalise. There was an implicit assumption that “The End of History” had arrived (poor Francis Fukuyama has never been able to live down that unfortunate conceit popularised by his essay).

No, it wasn’t the end of history. Nor was it the beginning of the endless triumph of certain American (or was it ‘Enlightenment’?) memes: democracy, the free-market Washington Consensus, the ‘rule of law’, ‘liberalism’, and other such nice words.

No, it really wasn’t the end of history, and Macaes himself has noted this with the title of his new book on America: “History has Begun”. The only thing that was going on was an American fantasy that its status as sole hyperpower would continue indefinitely into the future.

This idea was really spoiled by Kissinger and Nixon with their outreach to China. The logic was simple:

• Russia is the enemy
• China is another heavyweight in Eurasia
• By bringing (albeit Communist) China over to the American side, the Cold War can be totally won

In fact, totally wrong on points 1 and 3. Russia is not really an enemy to the white, Christian West. And white people can’t ever win by depending on China, because the latter’s imperial world-view is that of an alternative pole, if not the Centre of the Universe. “Middle Kingdom” is not for nothing.

This is an example of how that eternal observation from Computer Science (“Premature optimization is the root of all evil”) is applicable to many other scenarios. And maybe, you can throw in “unintended consequences”, for there always are. If you want another bromide, “Your enemy’s enemy is your friend”.

Is it blasphemy to suggest that Kissinger, alleged mastermind, in fact was fooled?

For short-term gains, America, it turns out, gave a lot away to China, which grabbed it with both hands. It’s hard to believe now, but in 1995, twenty-plus years after Nixon went to China, the latter had not yet pulled away from India.

I unearthed an old Economist Intelligence Unit Business Asia Special Report: China & India from that time, and India was within striking distance of China.

Of course, the ‘lost decade’ of rule by proxy by Sonia Gandhi (2004-2014) pulled India down so much that it’s now 30 years behind China, but in that 1995 report, things were not that bad.

I hesitate to look at the corresponding figures for 2020, as I am sure they are very bad for India.

But tellingly, look at the FDI picture:

It looks bad for India, doesn’t it? But it turns out to have been even more damaging to the US.

Says the report:

The Chinese, of course, have been helped by a mixture of a chauvinist Hong Kong press and smart public relations: multinational CEOs, who are routinely picked up at Beijing airport by limousines and police outriders and feted on national television, have enjoyed the ego massage and stayed.

India does not go in for limousine convoys, and will have to rely more on a Western press sympathetic to democratic legalistic traditions.

Of course, that last bit never happened: the Western press is notoriously patronizing and contemptuous of India. Just read The Economist to see what amounts to foaming-at-the-mouth anti-India views.

China on the other hand has progressively infiltrated Western media as well as academia. Doubtless, money has changed hands too, to go by the breathless coverage, without any inconvenient questions, that they have managed to gain. PR works, but money talks even louder.

The Anglosphere media, especially after it “disappeared” the entire story of the Hunter Biden laptop, has lost any shreds of credibility it once had.

Also, I have a great anecdote about the limousine-outriders treatment. I was working as an expat director for a Silicon Valley MNC in Bangalore. Two folks from HQ were coming to consider one of my pet projects, a software development centre in India. They also visited Dubai and Karachi, among other places, on the same trip to consider alternative locations for the centre.

I picked them up from the Bangalore airport, and they visited Chennai and Hyderabad as well (and finally chose Bangalore for the development centre). Later, after we had become more friendly, they told me that they were rather disappointed when they met me: I had shown up in a pretty basic rental car, a Maruti Omni van.

They had just come from Karachi. The Pakistani Army had met them at the airport in a limousine, and they were escorted to the office complex in a limousine, complete with motorcycle outriders (see, Chinese style already in the late 1990s).

Everything went hunky-dory until it came time for lunch, and their host asked them if they would like theirs pre-tasted, in case it was poisoned! No, I am not making this up.

At that precise moment in time, the Californians said, they started thinking perhaps, Karachi was not the best location for their software development centre! The beat-up Maruti Omni didn’t look that bad, after all.

But seriously, the point is that the Chinese hoodwinked the West by waving this big banner, “Have you thought of a billion Chinese buying your products?”, followed by the siren-song of “We have a far lower cost of manufacturing than you do”.

Western, especially American companies, infamous for short-term thinking, and goaded by management consultants, couldn’t resist the short-term profits they could make by moving manufacturing operations to China. And so they did, in droves. That explains the FDI numbers above.

What they didn’t realise until it was too late was that the Chinese would force technology transfer and reverse-engineer everything until they had no more competitive advantage left.

A particularly telling example was that of high-speed rail, where Siemens of Germany and Kawasaki Heavy Industries of Japan lost their entire intellectual property to their Chinese partner, which is now their biggest competitor worldwide in big HSR projects.

There is another important issue. David Teece of UC Berkeley, in a seminal 1986 paper titled “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, points out that if you lose your manufacturing capability, eventually you lose your R&D capability as well.

The West is now reaching that stage where it is simply unable to keep up in many manufacturing industries, which are key to national security: it is easier to buy from China. This has serious long-term implications, for instance, if there is a war.

The US is critically dependent on imports from China. There are no second sources.

You could say this is what President Trump recognised, to put it charitably. Yes, there are many ways in which Trump has behaved boorishly or clownishly, but in this one arena, he has been far ahead of his sainted predecessor Obama, who stood by and watched China, abetted by greedy MNCs, wipe out his country’s industrial base.

Apart from China’s creeping empire-building in the South China Sea and the Himalayas, and its loud threats to Taiwan and Japan, this major issue has led to pellucid clarity in US foreign affairs: China is the enemy, and it has to be contained by force, if necessary.

India, too, has been contributing to its own destruction by trading with China. Rapacious Chinese exporters have been ‘dumping’ (selling at lower than the cost of production and distribution) their products in India to drive Indian competitors out of the market. And China has an annual trade surplus of $50+ billion with India.

Then there is the Huawei saga: by selling cheap network equipment, that company had managed to drive competitors out of business (eg. Nortel) or hurt them badly (eg. Ericsson and Nokia), not to mention the opportunity to snoop on a large scale, or even do such things as turn off the banking or electric grids in any country.

The massive pushback against Huawei in 5G is one of the best examples of the pendulum swinging against globalisation.

This has just begun. There will even be separate Internets, I fear: an American domain, a European domain, a Chinese domain, and perhaps, an Indian domain. I am not even sure that this is such a bad thing: surely, there will be gateways. But yes, that means large chunks of the world will become walled gardens (which, of course, is the secret behind the success of Panopticon-style Chinese apps like WeChat and AliPay).

It was a good ride for globalisation, but that is coming to an end. And India has to figure out, with its own domestic market and Atmanirbhar, how to thrive in this new era. A couple of thoughts: agriculture and IPR generation. Traditionally, for centuries, India did well at both, and foreigners came to us to obtain the fruits of both.

In tomorrow’s de-globalised world, which will be a reality whether Trump wins or Biden wins, each nation will need to focus on its competitive advantage to be able to survive.

China’s manufacturing prowess may, in the end, turn out to be a white elephant; if so, its BRI investments, which assume both continued large scale exports out of China, as well as rising military capacity, may end up being worthless.

This doesn’t mean that everybody is going to be insular. The very fact of the setting up of the Quad means that all countries will look for partners to advance their own interests, but wholesale globalisation is coming to a screeching halt.

With good reason: one of the main ways in which the Wuhan Coronavirus got its foothold in Europe was because of Chinese investments in Lombardy in Italy, and travel from Wuhan to those parts.

Globalisation, like everything else, has its downsides as well.

Epilogue: Macaes provided a sort-of epiphany as well. In the middle of the post-election confusion in the US, he wrote a new substack titled “What is happening in America? Is American democracy becoming less Western?” with, startlingly, this graphic in it.

His point? American democracy is becoming more like India’s.

It’s an exercise for the reader to figure out

• if that is true,
• if it is, if that’s a bad thing, considering America’s byzantine, chaotic and fundamentally flawed process,
• whether globalisation, contrary to what we thought, actually works both ways.