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  • Author: Johan Norberg
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: European Centre for International Political Economy (ECIPE)
  • Abstract: During the Covid-19 pandemic, Europe has benefitted strongly from being an open economy that can access goods and services from other parts of the world. Paradoxically, some politicians in Europe think that dependence on foreign supplies reduced the resilience of our economy – and argue that Europe now should wean itself off its dependence on other economies. In this Policy Brief, it is argued that self-sufficiency or less economic openness is a dangerous direction of policy. It would make Europe less resilient and less capable of responding to the next emergency. It is key that people, firms and governments can get supplies from other parts of the world. It is diversification, not concentration of production, that will make Europe more resilient when the next emergency hit. We don’t know where the next crisis will come from. Nature will throw nasty surprises at us, and we will make stupid mistakes, some of which will have devastating consequences. What we do know, though, is that we stand a better chance to fight the next emergency if we get richer and improve our technology. The best policy for resilience is one that encourages specialisation and innovation – and, when the emergency hit, allow for people to improvise in search for solutions. For that to happen, we need openness to goods, services and technology from abroad.
  • Topic: Health, International Political Economy, Innovation, Economic Cooperation, Pandemic, COVID-19
  • Political Geography: Europe, Global Focus
  • Author: David Henig
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: European Centre for International Political Economy (ECIPE)
  • Abstract: In the last 25 years global value chains have come to dominate global trade in a way surprisingly little discussed or understood. To meet the policy challenges of today and the future we need to understand the key characteristics of this new global trade and how they came about. The OECD estimate around 70% of total trade takes place in global value chains. Using their definition as where “the different stages of the production process are located across different countries”, and considering both goods and services inputs, this may be an understatement. The example most commonly used is the automotive sector, with 30,000 parts and associated services like satellite navigation going into one car. However there are many others. Modern primary commodity production is optimised by technology developed in other countries, diverse services and goods are frequently combined to create new product offerings, and most international business to consumer transactions are facilitated by leading global platforms. Positively this new globalization has provided consumers with an unprecedented choice of products at affordable prices. More challengingly it has seen governments struggle with the question of how they can best influence modern trade, amid signs of a backlash and simple demands for ‘more domestic manufacturing’. The popular global narrative that feeds such demands is one that has a traditional view of trade as a set of simple primary or manufactured goods transactions. Policymakers must move on from this narrative, making their choices, and explaining them clearly, on the basis of global value chains.
  • Topic: International Political Economy, International Trade and Finance, Trade, Global Value Chains
  • Political Geography: Global Focus
  • Author: Erik van der Marel
  • Publication Date: 08-2020
  • Content Type: Policy Brief
  • Institution: European Centre for International Political Economy (ECIPE)
  • Abstract: Globalization isn’t in decline; it is simply changing. Although the COVID-19 crisis has seen a dramatic decline in goods trade, investments and the movement of people, a new type of globalization is emerging. This “new globalization” is based on digital services, research and development, data, ideas, and other intangibles. This development has been going on for a while and has evolved more rapidly after the previous global financial crisis (GFC) in 2008-9. For instance, the GFC caused digital services trade to significantly “de-link” from goods-related services trade. This pattern illustrates that the COVID-19 crisis will likely mark another break in trade patterns and that future growth in globalization will depend crucially on digital trade and cross-border exchange in intangibles.
  • Topic: Globalization, International Political Economy, International Trade and Finance, Digital Economy, R&D, Data, COVID-19
  • Political Geography: Global Focus
  • Author: Jean-Jacques Hallaert
  • Publication Date: 07-2020
  • Content Type: Policy Brief
  • Institution: European Centre for International Political Economy (ECIPE)
  • Abstract: China’s rise and the U.S. response to the perceived threat it represents to its predominance jeopardize the world order and affect international institutions. The paralysis of the WTO and the U.S. withdrawal from the WHO are the most visible examples, but not the only ones. This article presents the case of the International Monetary Fund. Quotas are the cornerstone of IMF governance. They determine each member’s contribution to the institution’s resources and their voting power. As the world evolves, the quota distribution needs to be adjusted. Adjustments in quota shares and thus voting powers have always been politically difficult. However, they were possible. In the early 1990s, members agreed to an increase in the representation of Japan. In the 2000s, they agreed to increase substantially the voting power of emerging economies. In contrast, the 15th General Review of Quotas concluded early 2020, failed to increase and realign quotas. The proximate cause for this was the opposition of the United States to a change in quotas. This paper argues that the U.S. decision was in large part motivated to prevent an increased influence of China. The failure to increase and realign voting powers may have long-lasting consequences. In the absence of a quota increase, the IMF will need to continue to rely on borrowed resources to avoid a drop in its lending capacity. This extension of the “temporary” recourse to borrowed resources undermines the governance of the Fund as voting powers (which are not linked to borrowed resources but only to quotas) are disconnected from member’s total contributions to the Fund and to their economic weight. This may trigger a new legitimacy crisis and provide incentives for countries like China to support the development of new and competing institutions which would better represent their interests and economic weight. Such a development would undermine the complex and fragile international financial architecture.
  • Topic: International Organization, International Political Economy, Governance, IMF, WTO
  • Political Geography: United States, China, Global Focus