The political landscape in the West has been shaken by a series of seismic events in the past few months, many of which will have significant ramifications for global supply chains. Underpinning the results and the shift in political power is the rejection of globalisation and free trade and the introduction of a new order based on industrial policies, support and protection.
In Europe, the results of a number of elections gave an indication of the level of voter discontent with the incumbent ruling parties. The success of right wing candidates at the elections for the European Parliament shocked the establishment and even prompted French president, Emmanuel Macron, to call a general election. Only a pact between centrist and far left parties prevented Marine Le Pen’s right wing Rassemblement National from winning out-right. The country is now in limbo until after the Olympics which run until mid-August. In Germany, the European elections were also a massive success for right wing AfD, coming second with 16% of the vote. Leaving the EU and the euro currency is at the core of its economic policies, so-called ‘Dexit’. Given Europe’s dependence on German manufacturing and finances, this would have far more economic and financial repercussions than was the case with Brexit.
In the UK, the result of the General Election led to a widely expected move to the centre-left as the Labour Party won a landslide victory. In terms of actual policy, however, this is probably the least significant result of all. There are unlikely to be any major changes from the previous Conservative administrations although a closer relationship with the EU may be on the table.
On the other side of the Atlantic, the US presidential race has hardly been out of the world’s headlines over the past few weeks. First there was the attempted assassination of Donald Trump at a campaign rally in Butler, Pennsylvania. This was followed soon after by the news that Joe Biden would not be standing for re-election in November. Although not formalised, it is almost certain that Democrats will choose vice president Kamala Harris as the replacement nominee. Whatever the result of the election, it is unlikely that there will be any great changes to the political direction, initiated during President Trump’s first term. Trade related measures and industrial support are likely to remain the cornerstone of economic policy. However, whilst both candidates are likely to continue steps towards a de-coupling from the global economy, there are likely to be differences in the speed and extent at which this is undertaken.
Trump has announced during the campaign that he would be willing to hike tariffs on Chinese goods by 60% as well as impose a ‘universal baseline tariff’ of 10% on imports from other countries. There is even talk that Chinese imports of pharmaceuticals and steel would be completely banned, although it is difficult to see how this could be achieved without huge economic cost. A new Trump administration will also reignite trade disputes which have died down over the past four years, such as those with the EU over steel and aluminium tariffs; subsidies of Airbus and Boeing; and European digital taxes. There has already been talk in Europe of adopting a ‘geo-economic deterrence policy’ – a series of trade countermeasures – as well as accepting that there would be high levels of disruption to trans-Atlantic trade. Trump may even link future economic aid to Ukraine with trade concessions or threaten to withdraw from NATO – leaving Europe militarily exposed. He has already made comments that Taiwan should pay the US for the guarantee of its security in the face of aggression from China and a similar bargaining position with the EU is probable.
Harris, as the continuity candidate, is unlikely to roll back on any of Biden’s trade measures or reduce support for US manufacturing such as that introduced by the Inflation Reduction Act. She is a proponent of “de-risking” the US economy, which means reducing dependence on Chinese goods, as well as ensuring that the USA remains a global rule setter. There is no sign that she will take a softer line on China, not least as she has been a strong critic of its government’s human rights record, sponsoring legislation which allowed sanctions on individuals and entities responsible for abuses against the Uyghur community in Xinjiang.
There is no doubt that a Harris presidency will be more welcome in Europe than the re-election of former President Trump. She is regarded as more rational and less likely to plunge economic and security relations into crisis. That being said, she is certainly not a cheerleader for international trade having formerly opposed or voted against the US-Mexico-Canada (USMCA) deal and the Trans Pacific Partnership. She believes that trade agreements must include provisions which protect workers’ rights or reduce environmental impacts, an approach which is very much in line with present EU thinking.
Whilst politics in Europe and the USA may seem very different, there are remarkable similarities. Electorates in both regions have rejected the economic order which has prevailed for decades despite the benefits it has brought in terms of prosperity and technological developments. Rightly or wrongly, there is the perception that globalisation has left working people and their communities behind as manufacturing jobs have been transplanted to Asia.
In the present environment, no politician in the West will risk standing up for free trade especially given the supply chain fragilities exposed by the Covid pandemic. In summary, globalisation is accused of resulting in the loss of jobs; of Western manufacturing capacity and of the ability to innovate. Instead, Western economies are now highly dependent on suppliers based in adversarial or hostile countries and on trade routes which are increasingly risky. This is combined with environmental concerns over the carbon implications of Global Value Chain models, as intermediate goods criss-cross the world, and ethical concerns over the conditions of workers used by out-sourced suppliers in developing countries.
As Biden’s National Security Advisor, Jake Sullivan, said in a White House briefing, ‘…collectively, these forces [of globalisation] had frayed the socioeconomic foundations on which any strong and resilient democracy rests’. He went on to add, ‘… in a world being transformed by the clean energy transition, by dynamic emerging economies, by a quest for supply chain resilience—by digitization, by artificial intelligence, and by a revolution in biotechnology—the game is not the same.’
He, and a new generation of politicians in the US (including Trump and Harris), as well as in Europe, believe a ‘new international order’ is required, one in which there is a re-balancing of economic, security and environmental factors, better reflecting the needs of workers and communities. The political landscape is changing to take into account these imperatives and globalisation in its present form does not fit into the evolving narrative.
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