Globalization 2.0 Is Already Happening, Former WTO DG Says

U.S. Trade Representative Katherine Tai frequently talks about the need for a smarter globalization, which she calls Globalization 2.0, which is more resilient and more environmentally sustainable.

Former World Trade Organization Director-General Pascal Lamy said that shift is already underway. "A new version of globalization is already in the making. Not a deglobalization," he said on a recently broadcast podcast of the American Institute for Contemporary German Studies.

Lamy said this globalization will take into consideration precautions needed to prevent major disruptions and shortages, and therefore will have "less fragile supply chains" and be "less vulnerable to geopolitical growing tensions."

But he thinks these shifts in supply chains away from enemy-shoring, as he termed it, will be primarily focused in the tech sector, as he said the security issues involved in trading with a rival aren't the same when importing cars, shirts or food.

He said the U.S.-China conflict is the "big looming issue for 30 years to come," but Russia's invasion of Ukraine, and therefore the need for Europe to change how it powers its economies, is also a major part of this recalibrating.

When China joined the WTO more than 20 years ago, its political leaders believed state-owned companies would need to shrink for China to develop faster, Lamy said. He said that is no longer the philosophy in China, and country's practices of pouring public money into sectors it wishes to advance is "a huge problem."

Lamy didn't directly address the massive tariffs the U.S. has imposed on Chinese imports -- which started in technology but now cover most trade between the two countries -- but said he has often warned Chinese officials that antidumping and countervailing duties against their exports will continue as long as there is oversubsidization in their economy.

Still, Lamy said he disagrees that China "cheats" in world trade. "The problem is that China is cleverly using the flaws in the system," he said. "And one of the flaws in the WTO rule book is that state aid, subsidizing your economy, is very poorly disciplined."

He said WTO needs to revise weak disciplines on subsidies, address how trade can curb climate change and write more rules on digital trade.

But since China, as a member of the WTO, can veto changes to the rule book, it's not clear how this can be fixed. Lamy said negotiating plurilaterals is a clever way to get around the consensus problem in Geneva.

"The time we thought China would converge is over," Lamy said. "The time now is to organize coexistence rather than convergence."

Still, Lamy said the pendulum has swung too far in Washington. "I diverge from the U.S. position," he said. "Whatever degree of threat you believe China is for us -- and there are areas where China is a threat -- I believe that a deglobalized China is more dangerous than a globalized China. And on this I fundamentally diverge from the consensus in Washington these days."

One tool that could curb China's exports, at least in some metal production where it has overcapacity, is a carbon border adjustment tax. Lamy said that the European CBAM is a necessity, since it will have a much higher price on carbon than some other countries.

Responding to the moderator, Lamy expressed reservations about the U.S.-EU Trade and Technology Council. He worried the U.S. has more leverage, since most digital giants are U.S. firms.

He asked if the TTC's purpose is to create a platform for trade and governance in the technology sector that others can adopt? He said that's what happened with U.S., EU and Japanese collaboration on industrial standards. But could it be that the TTC's intention is "to create a body of rules whose purpose is to isolate China?"