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a sandbox at the beach, oil painting style

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Perfect Beach Scene: 7 Hours of White Sand, Blue Water & Ocean Waves in 4K

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In my life I have been fortunate to have explored fascinating places around the world.  There is one particular city though, that keeps giving me new emotions every day. It is Roma (or Rome).
Its variety of architectures that stands clearly apart from other "megacities", Its unparalleled history legacy and Its intimate and quieter sides make Rome a city that does get into your bloodstream. 

Watch my other works:
Cuba: https://vimeo.com/224883799
Venezia: https://vimeo.com/181612110
Lanzarote: https://vimeo.com/192406523
Reverie of Vietnam: https://vimeo.com/126747807
Moments of Puglia: https://vimeo.com/165102515
Malta: https://vimeo.com/202709486

Rome has been documented in different ways and for different purposes but few videos make you appreciate this city through local's eyes. 

I have dedicated months filming everyday's moment to describe a day in Rome through a roman's eyes. This short film is the result. Let me indulge you for a few minutes.  

Awards:
OFFICIAL SELECTION - 2016 ICFF – Italian Contemporary Film Festival

Locations:
Many filmed locations are unknown to many. Click on the link to see film locations on map: https://goo.gl/AWgM6g

Based on an original idea and directed by Oliver Astrologo - FB: http://fb.com/oliver.astrologo
Additional footage: Nils Astrologo

Original Score: 
Max LL - http://maxll.ca

The original soundtrack of ROMA has been produced by talented composer Max LL. All music and sounds effects rights are reserved. 

SteadyCam (Gimbal) support
Aerea Visus - Uniclamp : http://goo.gl/KMDqbs

Thanks:
Marco Baroni di Fonderia, Simone Sampò, Alice Celia, Federico Chericoni and everyone who helped me create this video.

Appearances:
Maurizio & Satia Martinoli, Alessia Scognamiglio, Andrea di Curcio, Stefano Silvani, Valeria D’Ovidio, Tommaso Cassinis. The mask: Jacopo Sabar Giacchino.

Flickr album: https://flic.kr/s/aHskitMuGV

Geek Stuff
I have received so many messages asking for details on how I produce my videos. 
I put down this short piece: http://oliverastrologo.com/videotips this explains few techniques I have been using and includes a list of equipment. Don't hesitate to write to me if you need further details or have any recommendation.

Gear (Find a comprensive list of my equipment here: http://oliverastrologo.com/gear)
Sony A7ii @ 1080 50p PP7 (Exposed in S-Log2)
Sony A7s @ 1080 50p PP7 (Exposed in S-Log2)

Video Stabilization: Area Visus AV-ST-01

Lens used:
Zeiss 35mm 2.8
Zeiss 55mm 1.8
Canon 24-15mm 4.0 IS

Color Correction
ImpulZ LUTs with some tweaks. 

Riprese aeree (in italiano):
La questione delle riprese aeree effettuate con Droni è spesso soggetta a controversie, è importante ricordare che possono essere (e spesso sono) utilizzati in modo responsabile. Le riprese aeree di questo video sono state realizzate prima del 30 Aprile 2014 data antecedente alle nuove restrizioni sui voli, tutte le immagini sono state acquisite rispettando le seguenti modalità:

- Evitare le zone sensibili o qualsiasi cosa che può essere frainteso senza previa autorizzazione.
- Evitare i periodi più affollati, le ore di punta, eventi speciali, ecc.
- Evitare le folle. In caso di zone ove erano presenti delle persone con osservatori di terra e ricetrasmittenti.
- Rispettare le aree residenziali di tranquillità e diritto alla privacy.
- Eliminare qualsiasi materiale che rivela inavvertitamente persone o che possa compromettere la privacy.

Per domande riguardanti le riprese aeree, vi prego di contattarmi via e-mail.

** Important **
All video, music and sounds effects are rights reserved.
Please only use and share this embed code of the original video.
Third party downloads and distribution is not permitted.

If you are interested in buying footage or any inquiry please contact: info@oliverastrologo.com
******************************************************
Instagram: https://instagram.com/oliverhl
Twitter https://twitter.com/oliverastrologo
Facebook https://fb.com/oliver.astrologo
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Globalization: the pros and cons, & the future of an interconnected (or disconnected) world - Lokalise Blog

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A guide to globalization, the pros and cons, and what the future holds. Discover globalization examples, from brand to digital.

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Investopedia is the world's leading source of financial content on the web, ranging from market news to retirement strategies, investing education to insights from advisors.

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Globalization has led to increases in standards of living around the world, but not all of its effects are positive for everyone.

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Globalization has led to increases in standards of living around the world, but not all of its effects are positive for everyone.

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What is globalization?

Globalization is the process by which ideas, knowledge, information, goods and services spread around the world. In business, the term is used in an economic context to describe integrated economies marked by free trade, the free flow of capital among countries and easy access to foreign resources, including labor markets, to maximize returns and benefit for the common good.

Globalization is driven by the convergence of cultural and economic systems. This convergence promotes -- and in some cases necessitates -- increased interaction, integration and interdependence among nations. The more countries and regions of the world become intertwined politically, culturally and economically, the more globalized the world becomes.

How globalization works

In a globalized economy, countries specialize in the products and services they have a competitive advantage in. This generally means what they can produce and provide most efficiently, with the least amount of resources, at a lower cost than competing nations. If all countries were specializing in what they do best, production should be more efficient worldwide, prices lower, economic growth widespread and all countries benefiting -- in theory.

Policies that promote free trade, open borders and international cooperation drive economic globalization. They enable international businesses to access lower priced raw materials and parts, take advantage of lower cost labor markets, and access larger and growing markets around the world in which to sell their goods and services.

Money, products, materials, information and people flow more swiftly across national boundaries than ever. Advances in technology enable and accelerate this flow and the resulting international interactions and dependencies. These technological advances have been especially pronounced in transportation and telecommunications.

Among the recent technological changes that have played a role in globalization are the following:

Internet and internet communication. The internet has increased the sharing and flow of information and knowledge, access to ideas and exchange of culture among people of different countries. It has contributed to closing the digital divide between more and less advanced countries.

Communication technology. The introduction of 4G and 5G technologies has dramatically increased the speed and responsiveness of mobile and wireless networks.

Increased speed and bandwidth are among the benefits of 5G technology.

Internet of things and artificial intelligence. IoT and AI technologies are enabling the tracking of assets in transit and as they move across borders, making cross-border product management more efficient.

Blockchain. This technology provides a transparent ledger that centrally records and vets transactions in a way that prevents corruption and breaches. It facilitates the secure access to data required in industries such as healthcare and banking. It has also enabled the development of decentralized databases and storage that support the tracking of materials in the supply chain.

There are at least 10 known benefits of blockchain technology.

Transportation. Advances in air transport and fast rail technology have facilitated the movement of people and products. Changes in shipping logistics technology have made it possible to move raw materials, parts and finished products around the globe more efficiently.

Manufacturing. Advances in manufacturing, such as automation and 3D printing, have reduced geographic constraints in manufacturing. 3D printing enables digital designs to be sent anywhere and physically printed, making distributed, smaller-scale production near the point of consumption easier. Automation speeds up processes and supply chains, giving workforces more flexibility and improving output.

Why is globalization important?

Globalization changes the way nations, businesses and people interact. Specifically, it changes the nature of international economic activity, expanding trade, opening global supply chains and providing access to natural resources and labor markets.

Changing the way trade and financial exchange and interaction occur among nations also promotes the cultural exchange of ideas. It removes the barriers caused by geographic constraints, political boundaries and political economies.

For example, globalization enables businesses in one nation to access another nation's resources. More open access changes the way products are developed, supply chains are managed and organizations communicate. Businesses find cheaper raw materials and parts, less expensive or more skilled labor and more efficient ways to develop products.

With fewer restrictions on trade, globalization creates opportunities to expand. Increased trade promotes international competition. This, in turn, spurs innovation and, in some cases, the exchange of ideas and know-how. In addition, people coming from other nations to do business and work bring with them their own cultures, which influence and mix with other cultures.

The many types of exchange that globalization facilitates can have positive and negative effects. For instance, the exchange of people and goods across borders can bring fresh ideas and help business. However, this movement can also increase the spread of disease and promote ideas that might destabilize political economies.

For example, increased international trade and travel in the late 1990s led to West Nile Virus being introduced to North America, likely as a result of infected species being transported or people traveling there.

History of globalization

Although many people consider globalization a twentieth-century phenomenon, the process has been happening for millennia. Examples include the following:

The Roman Empire. Going back to 600 B.C., the Roman Empire spread its economic and governing systems through significant portions of the ancient world for centuries.

Silk Road trade. These trade routes, which date from 130 B.C. to 1453 A.D., represented another wave of globalization. They brought merchants, goods and travelers from China, through Central Asia and the Middle East, to Europe.

Pre-World War I. European countries made significant investments overseas in the decades before World War I. The period from 1870 to 1914 is called the golden age of globalization.

Post-World War II. The United States led the effort to create a global economic system with a set of broadly accepted international rules. Multinational institutions were established such as the United Nations, International Monetary Fund, World Bank and World Trade Organization to promote international cooperation and free trade.

The term globalization as it's used today came to prominence in the 1980s, reflecting several technological advancements that increased international interactions. IBM's introduction of the personal computer in 1981 and the subsequent evolution of the modern internet are two examples of technology that helped drive international communication, commerce and globalization.

Globalization has ebbed and flowed throughout history, with periods of expansion and retrenchment. The 21st century has witnessed both. Global stock markets plummeted after the Sept. 11, 2001, terrorist attacks in the United States, but rebounded in subsequent years.

More recently, nationalist political movements have slowed immigration, closed borders and increased trade protectionism. The pandemic had similar effects on borders and immigration, and it also disrupted supply chains. However, overall, the early 21st century has seen a dramatic increase in the pace of global integration. Rapid advances in technology and telecommunications are responsible for much of this change, according to economists.

What is the G20?

The G20, or Group of Twenty, is an international forum that aims to foster international cooperation by addressing global economic issues, such as financial stability and climate change. The G20 is made up of 19 countries and the European Union, including most of the world's largest economies.

The nations involved account for 80% of the planet's population, 75% of global exports and 85% of world GDP. It was founded in 1999, following the 1997 financial crisis, and has met every year since then.

Since 2008, the G20 has held an annual summit that brings together heads of state to discuss important economic issues. The G20's president is selected annually on a rotating basis, and that person's home country hosts the summit.

In 2021, the summit was held in Rome, Italy, and it addressed issues such as climate change, vaccines, taxes, the global economy and development aid. The 2022 summit was held in Bali, Indonesia. The main themes addressed were energy, governance, health, industrial development, economics and investment, as well as countering Russian aggression in Ukraine. The 2023 summit was held in New Delhi, India, with a focus on similar issues as well as an agreement to dramatically expand sustainable energy.

The members of G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, Japan, India, Indonesia, Italy, Mexico, Russia, South Africa, Saudi Arabia, South Korea, Turkey, the United Kingdom, the United States, the European Union and the African Union. Spain is a permanent guest of the organization.

Types of globalization: Economic, political, cultural

There are three types of globalization.

Economic globalization. This type of globalization focuses on the integration of international financial markets and the coordination of financial exchange. Free trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership, are examples of economic globalization. Multinational corporations, which operate in two or more countries, play a large role in economic globalization.

Political globalization. This type covers the national policies that bring countries together politically, economically and culturally. International organizations such as NATO and the United Nations are part of the political globalization effort.

Cultural globalization. This aspect of globalization focuses in large part on the technological and societal factors that are causing cultures to converge. These include increased ease of communication, the pervasiveness of social media and access to faster and better transportation.

These three types of globalization influence one another. For example, liberalized national trade policies drive economic globalization. Political policies also affect cultural globalization, enabling people to communicate and move around the globe more freely. Economic globalization also affects cultural globalization through the import of goods and services that expose people to other cultures.

Effects of globalization

The effects of globalization can be felt locally and globally, touching the lives of individuals as well as the broader society in the following ways:

Individuals. A variety of international influences affect ordinary people. Globalization can make it easier for people to access raw materials, products and services. It can also lower the prices they pay and their ability to travel to other countries.

Communities. Globalization also changes how local and regional organizations, businesses and economies function and interact. It affects who lives in communities, where they work, who they work for, their ability to move out of their community and into one in another area, etc. Globalization also changes the way local cultures develop within communities.

Institutions. Multinational corporations, national governments and other organizations such as colleges and universities are all affected by their country's approach to and acceptance of globalization. Globalization affects the ability of a company to grow and expand, a university's ability to diversify and grow its student body and a government's ability to pursue specific economic policies.

While the effects of globalization can be observed, analyzing the net impact is more complex. Proponents often see specific results as positive, and critics of globalization view the same results as negative or somewhat ineffective. A relationship that benefits one entity may damage another, and whether globalization benefits the world at large remains a point of contention.

Internationalization and localization are both product strategies used in globalizing industries.

Examples of globalization

Multinational corporations are a tangible example of globalization. Some examples include the following:

McDonald's had more than 40,000 fast-food restaurants in 118 countries and territories in 2022.

Ford Motor Company works with about 1,400 tier 1 suppliers around the globe.

Amazon has expanded in recent years and now has nearly 10 million sellers globally and employs approximately 1.5 million employees.

Multinational corporations influence the social and economic development of the countries that host them. They also embody the contradictions of globalization. They bring jobs, skills and wealth to the region they're investing or doing business in. But they also can destroy local businesses, exploit cheap labor and threaten indigenous cultures. The benefits they offer are often unsustainable because the loyalty of multinationals is to their investors and bottom lines and not to the local people, economies and cultures where they're doing business.

Another example of globalization is the response to the COVID-19 pandemic. Because the world was able to communicate across boundaries, some nations worked together to quickly produce vaccines for the virus. In addition, doctors traveled where they were needed. For example, Cuba sent doctors to Italy at the beginning of the pandemic to assist with the crisis as it developed there.

However, countries also enacted strict travel restrictions, and many closed their borders to cut down on the free movement of people and spread of the virus.

Benefits of globalization

Globalization enables countries to access less expensive natural resources and lower cost labor. As a result, they can produce lower cost goods that can be sold globally. Proponents of globalization argue that a global economy improves the state of the world in many ways, such as the following:

Solving economic problems. Globalization moves jobs and capital to places that need these resources. It gives more developed countries access to lower cost resources and labor, and less developed countries access to jobs and the investment funds they need for development.

Promoting free trade. Globalization puts pressure on nations to reduce tariffs, subsidies and other barriers to free trade. This promotes economic growth, creates jobs, makes companies more competitive and lowers prices for consumers.

Spurring economic development. Globalization can give developing countries access to foreign capital and technology they wouldn't otherwise have, thus bridging the digital divide. Foreign investment can result in an improved standard of living for the citizens of those nations.

Encouraging positive trends in human rights and the environment. Advocates of globalization point to improved attention to human rights on a global scale and a shared understanding of the impact of people and production on the environment.

Promoting shared cultural understanding. Advocates view the increased ability to travel and experience new cultures as a positive part of globalization that can contribute to international cooperation and peace.

Negative consequences of globalization

Many proponents view globalization as a way to solve systemic problems in the world economy, but critics see it as increasing global income inequality. Among the critiques of globalization are the following issues:

Destabilizes markets. Critics of globalization blame the elimination of trade barriers and the freer movement of people for undermining national policies and local cultures. Labor markets in particular are affected when people move across borders in search of higher paying jobs and companies outsource work and jobs to lower cost labor markets.

Damages the environment. The transport of goods and people among nations generates greenhouse gases and all the negative effects it has on the environment. Global travel and trade also can introduce, sometimes inadvertently, invasive species to foreign ecosystems. Industries such as fishing and logging tend to go where business is most lucrative or the regulatory environment is less restrictive, which has resulted in overfishing and deforestation in some parts of the world.

Lowers living standards. When companies move operations overseas to minimize costs, such moves can eliminate jobs, increasing unemployment in sectors of the home country.

Facilitates global recessions. Tightly integrated global markets carry a greater risk of global recessions. The 2007-2009 financial crisis and Great Recession is a good example of how intertwined global markets are and how financial problems in one country or region can quickly affect other parts of the world. Globalization reduces the ability of individual nations to use monetary and fiscal policies to control the national economy.

Damages cultural identities. Critics of globalization decry the decimation of unique cultural identities and languages that comes with the international movement of businesses and people. At the same time, the internet and social media are driving this trend even without the movement of people and commerce.

Increases the likelihood of pandemics. Increased travel has the potential to increase the risk of pandemics. The H1N1 swine flu outbreak of 2009 and coronavirus in 2020 and 2021 are two examples of serious diseases that spread to multiple nations quickly.

Examples of deglobalization

Globalization critics promote deglobalization, where nations are skeptical of global integration. Independence, particularly economic independence, is viewed as more beneficial than interdependence on other nations.

For example, the COVID-19 pandemic's effect on global supply chains caused bottlenecks and shortages of many goods, straining various nations' economies. To proponents of deglobalization, a shift toward locally sourced raw materials and products made sense.

However, it's not just countries that are becoming deglobalized. Companies are disengaging from certain countries, as well. Many companies closed their offices in Russia and suspended service in light of the Russia-Ukraine war. Others have partially ceased operations there, as Sketchers did in suspending shipments to Russia but not online sales.

In recent decades, companies in certain sectors -- particularly manufacturing -- have outsourced operations to other countries to take advantage of lower labor costs. More recently, there have been targeted efforts to reduce reliance on countries like China and reshore U.S. manufacturing so that products can be sourced in the U.S. For example, Intel is building two semiconductor plants in central Ohio, and Hyundai is building an electric vehicle and battery manufacturing plant in Georgia.

Future of globalization

Technological advances, particularly in blockchain, mobile communication and banking, are fueling economic globalization.

Nonetheless, rising levels of protectionism and antiglobalization sentiment could slow or even reverse the rapid pace of globalization. Nationalism and increasing trends toward conservative economic policies are driving these antiglobalization efforts.

Global trade is also made more difficult by rising threats from other factors, such as the following:

Climate change.

Decaying infrastructure.

Cyber attacks.

Human rights abuses.

The takeaway

Globalization is a longstanding trend that's in the process of changing and possibly slowing. There are advantages to the open border and free trade that globalization promotes, especially with technological advancements that facilitate international trade, in terms of both imports and exports. There are also negative consequences.

In the post-pandemic world, individuals, businesses and countries must consider both sides of the globalization issue. The fact that there are pros and cons to consider is shaping how companies are rethinking global supply chains to avoid disruption while still reaping some benefits of globalization.
Globalized supply chains can slow down due to component supply issues or shrinking demand. Find out how the recent decline in global smartphone shipments exemplifies this.

Continue Reading About globalization

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What is Globalization: Pros, Cons, and History | Definition from TechTarget

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Globalization is the movement of goods, knowledge, information and services across the world. Learn how it works, its benefits, drawbacks and likely future.

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6 Pros and Cons of Globalization in Business to Consider

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Globalization lies at the heart of what makes modern life and business possible. Here, we discuss the pros and cons of globalization in business.

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Globalization has become a familiar enough word, the meaning of which has been discussed by others before me during this conference. Let me nonetheless outline briefly what I understand by the term. I shall then go on to consider what has caused it. The bulk of my paper is devoted to discussing what we know, and what we do not know, about its consequences. I will conclude by considering what policy reactions seem to be called for.

The Concept

It is the world economy which we think of as being globalized. We mean that the whole of the world is increasingly behaving as though it were a part of a single market, with interdependent production, consuming similar goods, and responding to the same impulses. Globalization is manifested in the growth of world trade as a proportion of output (the ratio of world imports to gross world product, GWP, has grown from some 7% in 1938 to about 10% in 1970 to over 18% in 1996). It is reflected in the explosion of foreign direct investment (FDI): FDI in developing countries has increased from $2.2 billion in 1970 to $154 billion in 1997. It has resulted also in national capital markets becoming increasingly integrated, to the point where some $1.3 trillion per day crosses the foreign exchange markets of the world, of which less than 2% is directly attributable to trade transactions.

While they cannot be measured with the same ease, some other features of globalization are perhaps even more interesting. An increasing share of consumption consists of goods that are available from the same companies almost anywhere in the world. The technology that is used to produce these goods is increasingly standardized and invariant to the location of production. Above all, ideas have increasingly become the common property of the whole of humanity.

This was brought home to me vividly by a conference that I attended four years ago, where we discussed the evolution of economic thought around the world during the half-century since World War Two (Coats 1997). We debated whether the increasing degree of convergence in economic thinking and technique, and the disappearance of national schools of economic thought, could more aptly be described as the internationalization, the homogenization, or the Americanization of economics. My own bottom line was that economics had indeed been largely internationalized, that it had been substantially homogenized, but only to a limited extent Americanized, for non-American economists continue to make central contributions to economic thought, as the Nobel Committee recognized by its award to Amartya Sen a few weeks before this conference took place. Incidentally, the nicest summary of the change in economic thinking over the period was offered by the Indian participant in that conference, who remarked that his graduate students used to return from Cambridge, England focusing on the inadequacies of the Invisible Hand, while now they return from Cambridge Mass. focusing on the inadequacies of the Visible Hand! In the same vein, one of the more telling criticisms of my phrase "the Washington Consensus" was that the (substantial though certainly incomplete) consensus on economic policy extends far beyond Washington.

However, there are areas where globalization is incomplete, even in the economic sphere. In particular, migration is very far from being free. Highly skilled professionals have a relatively high degree of mobility, but those without skills often face obstacles in migrating to higher-wage countries. Despite the difficulties, substantial proportions of the labour forces of some countries are in fact working abroad: for example, around 10% of the Sri Lankan labour force is now abroad.

Moreover, globalization is much less of a reality in other fields than it is in the economic one. Culture still displays strong national, and even regional and local, variations. While English is clearly in the process of emerging to be a common world language, at least as a second language, minority languages are making something of a comeback, at least in developed countries. Sport is still very different around the world: the Americans have still not learnt to play cricket, and most of the rest of us have still not learned to understand what they see in baseball. Although the nation state is far less dominant than it used to be, with significant powers being devolved both downwards to regional and local authorities and upwards to international and in Europe to supranational institutions (and although "interfering in the internal affairs of another state" is less frowned on than formerly), politics is still organized primarily on the basis of nation-states.

Causes

What explains this globalization? It is certainly not attributable to conquest, the source of most previous historical episodes where a single economic system has held sway over a vast geographical terrain. The source lies instead in the development of technology. The costs of transport, of travel, and above all the costs of communicating information have fallen dramatically in the postwar period, almost entirely because of the progress of technology. A 3-minute telephone call from the USA to Britain cost $12 in 1946, whereas today it can cost as little as 48 cents, despite the fact that consumer prices have multiplied by over eight times in the intervening period. The first computers were lumbering away with piles of punched cards in the early postwar years, and telegrams provided the only rapid means of written communication. There was no fax or internet or e-mail or world-wide web, no PCs or satellites or cell-phones. Today we witness phenomena that no futurist dreamed of half a century ago, such as Indians with medical degrees residing in Bangalore who earn a living by acting as secretaries to American doctors by transcribing their tapes overnight.

It is clearly the availability of cheap, rapid and reliable communications that permits such phenomena, just as this is the key to the integration of the international capital market. I presume the same factor is important in nurturing the growth of multinational corporations, since it is this which enables them to exploit their intellectual property efficiently in a variety of locations without losing the ability to maintain control from head office. But in this context I would surmise that other factors are also at work, such as the spread of consumer knowledge about what is available that comes from travel and from advertising, itself encouraged by the communications revolution and its children like CNN. The reduction in transport costs is also a key factor underlying the growth in trade.

Of course, it needed a reasonably peaceful world to induce economic agents to exploit the opportunities for globalization presented by technological progress. But the technological basis for the phenomenon of globalization implies that, barring an end to the "Pax Americana" or else extremely vigorous conscious actions to reverse the process, globalization is here to stay.

Consequences

Globalization certainly permits an increase in the level of global output. Whether as a result of the old Heckscher-Ohlin theory of the basis of comparative advantage as lying in different factor abundance in different countries, or as a result of the new trade theories that explain trade by increasing returns to scale, trade will increase world output.[2] Likewise FDI brings the best technology, and other forms of intellectual capital, to countries that would otherwise have to make do without it, or else invest substantial resources in reinventing the wheel for themselves. It may also bring products that would otherwise be unavailable to the countries where the investment occurs, which presumably increases the quality, and therefore the value, of world output. And international capital flows can transfer savings from countries where the marginal product of capital is low to those where it is high, which again increases world output.

Globalization must be expected to influence the distribution of income as well as its level. So far as the distribution of income between countries is concerned, standard theory would lead one to expect that all countries will benefit. Economists have long preached that trade is mutually beneficial, and most of us believe that the experience of widespread growth alongside rapidly growing trade in the postwar period serves to substantiate that. Similarly most FDI goes where a multinational has intellectual capital that can contribute something to the local economy, and is therefore likely to be mutually beneficial to investor and recipient. And a flow of capital that finances a real investment is again likely to benefit both parties, since the yield on the investment is expected to be higher than the rate of interest the borrower has to pay, while that rate of interest is also likely to be higher than the lender could expect at home since otherwise there would have been no incentive to send it abroad. Loose talk about free trade making the rich countries richer and poor countries poorer finds no support in economic analysis. Nor is there any reason for supposing that the North benefits itself at the expense of the South by imposing import restrictions like non-tariff barriers or agricultural subsidies: standard theory says that, while this does indeed impoverish the South, the public in the North also suffers, and it loses more than the producers gain. This suggests that a promising strategy for eliminating such barriers is to seek a coalition with Northern consumers, rather than to engage in North-bashing which will simply alienate potential Northern allies.[3]

The effects on domestic income distribution are less clear. Standard theory says that trade will tend to hurt unskilled labour in rich countries and to help it in poor ones, since the poor countries will be able to export-labour-intensive goods like garments to rich countries, thus increasing the demand for unskilled labour in the poor countries and decreasing it in the rich ones. That is, within rich countries, there is a good analytical reason for arguing that trade will tend to make the rich richer and the poor poorer. There has in recent years been a lively debate among economists in the developed countries as to whether the increase in imports of labour-intensive goods has been a major factor in causing the fall in the relative (and sometimes absolute) wages of the unskilled in these countries: the majority of economists seem to have concluded that it is a contributory factor, but that the major part of the explanation lies instead in the skill-intensive form of technological progress (Cline 1997).

It seems more difficult to doubt that exports of labour-intensive goods have been a factor that has done something to increase the demand for unskilled labour, and therefore to equalize the income distribution, in the exporting countries like Sri Lanka. Hence I find it betrays a sad lack of concern with the prospects of the poor to hear, as I have during this conference, garment exports being denigrated as likely in some unexplained way to bring negative impacts. On the other hand, some of the effects of the communications revolution must surely have had a disequalizing effect on income distribution in these countries: think of the Indian doctors who are acting as secretaries to American doctors rather than treating Indian patients, thereby earning more for themselves and also tending to pull up the pay of other doctors in India, who are relatively affluent by Indian standards. Similarly, differential mobility of skilled versus unskilled labour tends to pull up the salaries of the skilled in developing countries toward world levels, thereby leaving less for the immobile poor. The same result will occur if the owners of highly-mobile capital are able to evade taxes by investing abroad, and also if governments are induced to avoid imposing high tax rates on internationally mobile capital, or on those who might be prompted to emigrate, in the hope of keeping these factors at home. Thus the net effect of globalization on income distribution within developing countries seems to me distinctly ambiguous.

What impact is globalization likely to have on the long-term possibilities of economic growth in developing countries? My vision of the growth process is that it takes off when the elite in a developing country comes to understand the opportunities of applying world-class technologies within their country, and introduces institutional arrangements that permit individual pursuit of self-interest to serve, in general, the social good. Once that happens the country is able to grow at a rapid rate, unless some political accident obstructs the process, until it catches up with best-practice technology, and therefore attains the living standards of the developed countries. Globalization is tending to make the technologies and the knowledge for this process to occur more readily available, and therefore to enable the process to be telescoped in time. (Singapore may be a small country, but there is no previous case in history of any country that did not enjoy massive resource discoveries going from stark poverty to affluence in under 30 years.)

But it is surely also true that globalization is bringing new dangers. The virulence of the East Asian crisis was primarily a result of countries exposing themselves to the full force of the international capital market before they had built up an unquestioned reputation for being able as well as willing to service their debts come what may, which meant that when investors became concerned about their potential vulnerability as a result of the Thai crisis there were no other investors willing to step in and provide stabilizing speculation even after exchange rates and interest rates had clearly overshot. Of course, one can argue that this increased vulnerability to external shocks has to be weighed against a decreased vulnerability to internal shocks: think how much more Bangladesh would have suffered this year (1998) if the international community had not provided aid to partially offset the cost of the floods, let alone how much more hunger, or even starvation, there would have been had Bangladesh been unable to import additional rice. But this does not justify dismissing the increased dangers from external shocks. Moreover, I might note that Professor Indraratna offered you a much longer and more imaginative list of dangers than I have here identified, which looks beyond narrow economic questions and considers the role of globalization in spreading such unsavoury phenomena as drugs, the sex trade, crime, and terrorism.

Policy Issues

If I am right in arguing that globalization stems from technological developments rather than policy choices, trying to reverse it would be rather like playing at King Canute. It would be more productive to seek to maximize the benefits it offers and minimize the risks it creates. Let me discuss what I see that involving, while restricting myself to the narrow economic questions.

It will be clear from what was said above that I see little reason to doubt that the citizens of a developing country can expect to benefit from being open to trade and FDI. This gives them the advantages of being able to make relatively good use of their abundant unskilled labour and being able to access world-level technology. However, if they rely simply on exploiting unskilled labour, they will never be able to advance far beyond the living standards of their poorest competitors, who will be exporting similar goods. In order to raise living standards progressively over time, it is at least as important to raise educational standards as it is in a relatively closed economy. To a first approximation, one may summarize the policy advice of how to prosper in a global economy as: give one's citizens a relevant set of skills through education, and then let them get on with the job of producing whatever is useful to the world economy.

However, a second approximation requires one to recognize also the increased risks of full exposure to the world economy. Are there ways of reducing those risks? I am convinced that there is at least one important dimension in which prudence suggests that developing countries are well-advised to limit their integration in the world economy, and that concerns the liberalization of short-term capital flows. If one asks what distinguishes those countries that suffered contagion from the East Asian crisis from those that escaped it, the answer seems to me very clear: that the victims were those that had built up a substantial stock of short-term dollar-denominated debt as a result of having established capital account convertibility, while those who escaped catastrophe were those that had been cautious in liberalizing their capital accounts at the short end. Since there is no persuasive analytical reason or empirical evidence (Rodrik 1998) for believing that freedom of short-term capital flows is a significant factor in contributing to economic growth, let alone distributional equity, I conclude that prudence suggests seeking to postpone rather than accelerate this particular bit of liberalization.

Furthermore, one needs to ask whether there are mechanisms that can protect individuals when risks to the economy actually materialize. The recent experience in East Asia is again instructive: the World Bank has put a lot of effort into a crash course in developing social safety nets in the countries that fell victim to the crisis in the past year. I am sure that many of you will recall that in the past the Bank has been critical of Sri Lanka for having put too many resources into too wide a safety net, but I do not see any contradiction: the Bank was concerned that Sri Lanka was trying to provide a safety net more expensive than the economy could afford, and so indiscriminate that it eroded incentives. Those considerations need to be taken into account, but at the same time, as Dani Rodrik's (1997) work has emphasized, an open economy has a particularly compelling need for an adequate social safety net. I hope that you will find some reassurance that the Bank is not unmindful of the concerns that motivated your generous welfare policies by the fact that we have recently been so active in promoting the cause of social safety nets in East Asia.

Is there any way of ameliorating the potential negative effect on income distribution through increased possibilities of tax evasion and a consequential incentive to limit taxes on mobile factors that I discussed above? One can certainly envisage such measures, although they will require extensive international agreements, in the form of tax-information sharing and potential withholding of taxes on income earned by foreigners. It is my hope that such issues will become a part of the future agenda for international negotiation. A globalized world is going to have to deal with a broader policy agenda than simply liberalization if the outcome is to be reasonably equitable.

Concluding Remarks

I have argued that globalization has a technological base and is therefore here to stay. Sensible policy involves asking how one can get the most out of it while limiting the risks that it brings. The answers on the economic level, I have suggested, involve educating citizens with relevant skills and opening up to trade and FDI while maintaining controls on short-term capital flows, constructing an appropriate social safety net, and seeking international actions to reverse erosion of the tax base.

References

Cline, William R. (1997), Trade and Income Distribution (Washington: Institute for International Economics).

Coats, A.W. (1997), The Post-1945 Internationalization of Economics (Durham, N.C. and London: Duke University Press).

Rodrik, Dani (1997), Has Globalization Gone Too Far? (Washington: Institute for International Economics).

____ (1998), "Who Needs Capital Account Convertibility?", in Essays in International Finance no. 207 (Princeton: International Finance Section).

Notes

1. The author is indebted to Bhaskar Kalimili for research assistance and to Marcus Miller for comments on a previous draft, and to a number of the participants in the conference.

2. Let me register my disagreement with Sir Alan Walters' contention that unilateral free trade is in general to be preferred to the achievement of regional free trade. What his analysis overlooks is that, when trade barriers are already fairly low, something like 80% of the gains from freeing trade come from better access to export markets, and only a relatively small part from undistorted access to imports. This suggests that, if Sri Lanka can gain unimpeded and guaranteed free access to the Indian market through SAARC (or, indeed, through a bilateral free trade arrangement), then it is not only possible, but quite likely, that the regional strategy will dominate unilateral free trade from a Sri Lankan standpoint.

3. There is a much stronger case for arguing that the intellectual property rights provisions of the WTO that were agreed in the Uruguay Round involved an enrichment of the North at the South's expense.

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Globalization: The Concept, Causes, and Consequences

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Globalization has become a familiar enough word, the meaning of which has been discussed by others before me during this conference. Let me nonetheless outline briefly what I understand by the term. I shall then go on to consider what has caused it.

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Globalization, Technology, Immigration And Politics In Canada - Abacus Data

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Table of Contents

The unitary globalized economy no longer exists. Driven in significant part by security considerations, a new and more diverse globalization is both required and being built. The transition is ongoing, and its final form is yet to be determined. Many of the causal factors for this very significant change revolve around China and the consequent responses to its actions by the United States, other democracies of the transatlantic alliance, and the advanced democratic economies of the Indo-Pacific. There are other important factors generating this new globalization including the impact of the Russia-Ukraine war both on energy markets and on trade and investment with Russia generally, as well as the global requirements for mitigating and adapting to climate change. However, China has been a critical element in what might be described as the "maximum trade-centered globalization," which has dominated trade and investment policy in the three decades since the end of the Cold War.

This issue brief describes the still-developing new globalization focusing on the issues surrounding China. A fundamental challenge that China presents arises because its actions have generated significant security and economic challenges, yet it nonetheless is a massive trade and investment partner for the "advanced democratic economies" (ADEs),The ADEs are liberal democracies with advanced economies. which for purposes of this analysis include the Group of Seven (G7) countries,The members are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. plus Australia, Norway, the Republic of Korea, and the European Union. Adapting to a new globalization requires establishing a strategic approach that resolves the inherent contradictions between those conflicting considerations.

The brief begins by setting forth the ongoing changes in China that have significantly affected global geopolitical and geoeconomic environments including the increased emphasis by the Chinese Communist Party (CCP) on the role of the state and on economic self-reliance. China is an ever more ideological environment generating a higher degree of economic and security risks including over Taiwan.

The brief then discusses the advanced democratic economies, first focusing on the United States including the US emphasis on national security concerns, and then reviewing the policies of other advanced democratic economies, especially issues regarding economic dependencies. The United States has put in place significant limitations on trade and investment with China and, at the same time, expanded its security and economic cooperation with Taiwan. The other ADEs have established frameworks or taken other economic and security measures affecting their relations with China, though, for the most part, not with the degree of restrictions undertaken by the United States.

Undertaking selective decoupling from China as particularly relevant to each ADE's national security requirements; advanced and emerging technologies; and critical infrastructure resilience.

Establishing resilient supply chains outside China including in and among the United States and other advanced democratic economies and through "friendshoring,""Remarks by Secretary of the Treasury Janet L. Yellen at Microsoft in New Delhi, India," Department of the Treasury, Secretary Statement and Remarks, November 11, 2022,https://home.treasury.gov/news/press-releases/jy1096. i.e., with reliable partners in the Global South; utilizing incentives including tax credits, subsidies, and concessional financing in order to reduce dependencies on China; and developing a critical minerals financing initiative focused on enhancing the transition to clean energy and providing alternatives for other sectors such as defense.

Expanding the G7 to a "G10-plus" of the advanced democratic nations, which would coordinate intelligence and economic and security interactions with China among the ADEs including through the establishment of a multinational staff.

Successfully undertaking selective decoupling and establishing resilient supply chains as the substantive cornerstones of the new globalization will require a multiyear effort that should be undertaken in prompt coordinated fashion through the G10-plus so as to accomplish the requisite security and economic objectives of the ADEs.

I. China's ongoing transition: The state and self-reliance

The ongoing changes in China's approach to economics and security under Xi Jinping are having the consequence of making the country less central to and posing greater risks for the global economy than has been the case for many years. China's changed policies, as underscored by the recent Chinese Communist Party congress and the revised CCP constitution, now include a substantially increased role of the state, a focus on self-reliance, and a willingness to put economic development behind other interests. Those factors have coupled with concerns of the United States-shared at least in part by the transatlantic allies and others with advanced democratic economies (ADEs)-arising from issues of security, unfair competition, strategic dependencies, and human rights. Security considerations, in particular, are much heightened and the prospect of conflict over Taiwan now looms larger. In combination, this multiplicity of concerns has affected economic interactions with China. To be sure, China is still-and will remain-an important participant in the global economy. For the ADEs, however, five overlapping factors have combined to require that economic interactions with China receive more thoughtful analysis and an appropriate degree of circumspection.

First, China's economic policy has now been well described as "politics in command":Dexter Tiff Roberts, "Xi Jinping's Politics in Command Economy," Issue Brief, Atlantic Council, July 2021, 1,
https://www.atlanticcouncil.org/wp-content/uploads/2021/07/Xi-Jinpings-politics-in-command-economy.pdf. the state and particularly the CCP are in control, and China consequently is less oriented to being a market-driven economy. As Dexter Tiff Roberts has written:

Findings from the recent China Pathfinder Annual Scorecard underscore these points:

As a result, China's state-owned enterprises can be expected to maintain their very significant role:

It is accurate to say that in recent weeks there has been a change in tone by the government with language of a more business-friendly approach. But that does not alter the systemic control that the state maintains. As reported by the New York Times:

Second, China is seeking a much greater degree of "self-reliance"Adam Segal, "China's Move to Greater Self Reliance," China Leadership Monitor, December 1, 2021, ChinaPower Project, "Will the Dual Circulation Strategy Enable China to Compete in a Post-Pandemic World?," CSIS, December 15, 2021, https://www.prcleader.org/segal. through its "dual circulation" strategy. Initially described by Xi in May 2020, the dual circulation strategy was "incorporated into China's central economic blueprint, the 14th Five Year Plan in March 2021, cementing its high-level status." https://chinapower.csis.org/china-covid-dual-circulation-economic-strategy/. The strategy seeks to put significantly heavier reliance on China's domestic market as compared to its long-standing export-driven approach.As the ChinaPower analysis describes: "The DCS comprises two main components: the internal (domestic) circulation and external (international) circulation. The overarching goal of the DCS is to enable the internal and external markets to reinforce and sustain the other, with a focus on establishing the domestic market as the primary driver of economic development." See ChinaProject, "Will the Dual Circulation Strategy Enable China." Key elements include reducing "external demand as a driver of economic growth by boosting domestic consumption," attaining "higher levels of self-sufficiency in key areas by enhancing innovation," ensuring "access to critical inputs by diversifying supply chains," and positioning China as a "global manufacturing powerhouse in high value-added products."ChinaProject, "Will the Dual Circulation Strategy Enable China."

Two critical elements of this approach are the focus on advanced and emerging technologies as exemplified by the Made in China 2025 plan and the very substantial subsidies that China provides to its companies:

Made in China is focused on "leapfrogging into emerging technologies . . . reducing reliance on foreign firms . . . [with] breakthroughs in 10 sectors [and for ] China . . . to lead at each point in the value chain," according to a Congressional Research Service report.Karen M. Sutter, "'Made in China 2025' Industrial Policies: Issues for Congress," Congressional Research Service, InFocus Brief IF10964, updated August 11, 2020, 1, https://crsreports.congress.gov/product/pdf/IF/IF10964/6.

China's state-provided subsidies are far in excess of any such actions by the advanced democratic economies, according to Gerard DiPippo et al.:

As a matter of fact, these party activities appear to be prevalent in larger enterprises but may not be so substantial in smaller ones.An analysis by Neil Thomas in 2020 stated: "Party organizations are more pervasive in big companies, present in 92.4% of China's top 500 private enterprises, according to ACFIC's 2019 'Top 500' annual report . . . This coverage has held steady at 92-93%, but could increase further now that Beijing has made these committees mandatory for listed companies." By contrast, a 2022 analysis by Colin S. C. Hawes states that "if we calculate the percentage of CPC branches within Chinese private firms as a whole (rather than merely in large firms), it is currently only around 7%." See Thomas, "Party Committees in the Private Sector: Rising Presence, Moderate Prevalence," Commentary, MacroPolo (Paulson Institute think tank), December 16, 2020, https://macropolo.org/party-committees-private-sector-china/?rp=e; and Hawes, "Has the Communist Party of China (CPC) Increased Its Control Over Private Corporations?, fifteen eightyfour (blog), Cambridge University Press, August 23, 2022, https://www.cambridgeblog.org/2022/08/has-the-communist-party-of-china-cpc-increased-its-control-over-private-corporations/. However, since as a general proposition, it is larger firms from the ADEs that undertake the most significant activities in China, there should be an expectation of CCP involvement. That, however, is hardly conducive to the normal business approach taken by the private sector in the ADEs. As an analysis from an investment advisory firm stated:

A related development to enhance state control is the acquisition of "golden shares" in Chinese private companies by the government or SOEs that provide "board seats and/or veto rights for key business decisions.""China Takes Stakes in Private Data Companies," Asia Financial (website), Fintech (vertical), December 16, 2021,ANI Asia, "China: Govt Buying Stakes in Tech Firms to Increase Its Influence," Business Standard, March 26, 2022,Ryan McMorrow, Qianer Liu and Cheng Leng, "China moves to take 'golden shares' in Alibaba and Tencent units," Financial Times, January 12 2023,

https://www.ft.com/content/65e60815-c5a0-4c4a-bcec-4af0f76462de As one person knowledgeable about the Tencent transaction stated, "The state is not going away, this is the trend for the future." https://www.business-standard.com/article/international/china-govt-buying-stakes-in-tech-firms-to-increase-its-influence-122032600263_1.html#:~:text='Golden%20shares'%20are%20types%20of,of%20the%20company's%20ordinary%20shares. As of this writing, the state is taking golden shares in Alibaba and Tencent, two of China's largest technology companies, and has previously acquired such shares in ByteDance (TikTok's parent company)and Weibo (social media), "usually involving a 1 per cent share of internet groups' key [subsidiary] entities." https://www.asiafinancial.com/china-takes-stakes-in-private-data-companies. Chinese regulators including the Cyberspace Administration and state-owned firms are seeking golden shares in data-rich Internet and technology firms, especially those organizing, structuring, and labeling content; these shares "give special powers to the shareholder like veto power over changes to the company's charter, and even the ability to block other shareholders from holding more than a particular ratio of the company's ordinary shares."Id.

Mariah Thornton, "China's20th Party Congress Escalates Cross-Strait Tensions," "The amendment against Taiwanese independence . . . demonstrates a significant escalation in cross-strait relations in two ways. First, the Chinese leadership is establishing a stronger legal basis from which it will likely pursue harsher, more punitive action toward any perceived expressions of Taiwanese independence or external support for Taiwanese independence. . . . Second, the amendment signals Xi's intention to cement fierce opposition to Taiwanese independence as part of the fundamental position of any successive regimes."Diplomat, October 27, 2022, https://thediplomat.com/2022/10/chinas-20th-party-congress-escalates-cross-strait-tensions/.

In sum, China has taken a number of consequential actions that have changed the nature of its relationships with the advanced democratic economies.

II. The changing ADEs

In the past several years, the advanced democratic economies have significantly changed their approaches to globalization in important part because of the changes by China described above.

A. United States

The global engagement of the United States has been importantly affected by a combination of factors. National security considerations have taken on increased importance, the relationship between economics and security has received heightened attention, concern over dependencies has received added scrutiny, and significant efforts are being taken to support the US domestic economy. The results for this new globalization have been substantial.

It is worth underscoring the military aspects of the challenge. The US Department of Defense describes China as the "pacing challenge" inasmuch as the "PRC is also investing in a military that is rapidly modernizing, increasingly capable in the Indo-Pacific, and growing in strength and reach globally-all while seeking to erode U.S. alliances in the region and around the world."White House, National Security Strategy, 23-24. Moreover, the United States has reached the clear conclusion that the risks of military confrontation over Taiwan are growing. Secretary of State Antony Blinken has stated that China has made "a fundamental decision that the status quo was no longer acceptable and that Beijing was determined to pursue reunification on a much faster timeline."Ellen Francis, "China Plans to Seize Taiwan on 'Much Faster Timeline,' Blinken Says," Washington Post, October 18, 2022, https://www.washingtonpost.com/world/2022/10/18/china-seize-taiwan-plan-blinken/.

Most notable perhaps of the changed policies are the tariffs-initially imposed by the Trump administration and generally kept in place by the Biden administration-which have substantially affected certain trade flows. A recent Peterson Institute for International Economics blog observes:

The impact of the tariffs has been across multiple sectors:

Tariffs are, however, hardly the only the instrument of change. Beginning in the Trump administration and significantly increasing in the Biden administration are regulatory limitations on trade and investment, as noted in a Foreign Policy article. Thus:

Congress has been fully supportive of this approach and has enacted relevant restrictive legislation during both the Trump and Biden administrations including adding human rights as an additional rationale for limitations:

The Biden administration not only has largely maintained the restrictions imposed by the Trump administration but has added significant restrictions of its own. Most notably it recently has established export controls barring the transfer to China of "advanced computing and semiconductor manufacturing . . . items and capabilities."Bureau of Industry and Security, "Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People's Republic of China (PRC)," Department of Commerce, October 7, 2022, 2, According to US rules relating to commerce and foreign trade, "foreign-produced items located outside the United States are subject to the EAR [Export Administration Regulations] when they are a 'direct product' of specified 'technology' or 'software,' or are produced by a plant or 'major component' of a plant that itself is a 'direct product' of specified 'technology' or 'software.' " See 15 C.F.R. § 734.9 (as amended December 8, 2022), https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file. These new controls cover not only items manufactured in the United States but also those produced outside the United States through the application of the "Foreign-Direct Product Rules." https://www.ecfr.gov/current/title-15/subtitle-B/chapter-VII/subchapter-C/part-734/section-734.9. The national security rationale for the controls is clear, as underscored in a Department of Commerce statement:

Experts noted the strong posture of the US government, with one referring to it as an aggressive approach intended to undercut China's capacity to develop its own technologies in critical areas.Ana Swanson, "Biden Administration Clamps Down on China's Access to Chip Technology," New York Times, October 7, 2022, The biotechnology restrictions focused "principally on the Chinese Academy of Military Medical Sciences and its research institutes in response to their use of 'biotechnology processes to support Chinese military end uses and end users'. . . [Control of] certain life sciences technology . . . include[d] certain software (and related technology) designed for nucleic acid assemblers and synthesizers . . . capable of designing and building functional genetic elements from digital sequence data given . . . possible use in biological weapons programs." Jeffrey L. Kessler et al., "United States Adopts Wide-ranging China Restrictions," WilmerHale, December 29, 2021, The Entity List contains the names of "foreign persons-including businesses, research institutions, government and private organizations, individuals, and other types of legal persons-that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items." See Bureau of Industry and Security, "Entity List," Department of Commerce (website), accessed November 10, 2022, 1, Exec. Order No. 14032, 86 Fed. Reg. 30145 (2021), https://www.nytimes.com/2022/10/07/business/economy/biden-chip-technology.html?campaign_id=60&emc=edit_na_20221007&instance_id=0&nl=breaking-news&ref=cta&regi_id=169223421&segment_id=109292&user_id=d2bcc4d73398823c64e17b75c053c05e. According to the article, Emily Kilcrease, a senior fellow at the Center for a New American Security, said: "It is an aggressive approach by the U.S. government to start to really impair the capability of China to indigenously develop certain of these critical technologies." The new controls were not the first restrictive actions on exports to China taken by the Biden administration. Previously, it had imposed limitations on biotechnology/life sciences https://www.wilmerhale.com/en/insights/client-alerts/20211229-united-states-adopts-wide-ranging-china-restrictions. and quantum computing capabilitiesThe earlier quantum computing restrictions added "27 Chinese and third-country entities to the Entity List for their role in support of Chinese 'quantum computing efforts that support military applications, such as counterstealth and countersubmarine applications, and the ability to break encryption or develop unbreakable encryption,' among other activities." Kessler et al., "United States Adopts." by adding multiple companies to the Department of Commerce's Entity List, thereby essentially preventing exports to them, https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list. Though requests for export licenses are reviewed on a case-by-case basis, there often is a presumption of denial associated with a listing. See, for example, Bureau of Industry and Security, "Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People's Republic of China (PRC)," Department of Commerce, October 7, 2022, , https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file. as well as expanding the prohibition of investments to Chinese companies providing "Chinese surveillance technology outside the PRC . . . to facilitate repression or serious human rights abuses." https://home.treasury.gov/system/files/126/14032.pdf.
Bown, "Four Years into the Trade War."

The results of these multiple restrictions have been consequential in the arenas where they have been applied. However, it is also important to note that there are other areas in which US-China trade remains quite substantial and, in fact, overall US-China bilateral trade has actually increased. As one recent analysis summarized:

As the trade numbers above imply, there is an important differential in the analysis of risks undertaken by private-sector enterprises and by the government. Governments will review societal risks including external diseconomies and security while enterprises generally will take a narrower view focused on the firm and sector. This is not to suggest that enterprises are unaware of societal risks, as may be relevant to the enterprise. By way of example, an annual economic analysis published in 2022 found:

In general, however, it is the government's role to take account of the wider risk environment.

B. The ADEs

The ADEs have adopted security and economic strategies that, at least rhetorically, highlight certain issues in a fashion comparable to the strategic approach of the United States. On the security side, while none of the ADEs has a statutory mandate comparable to the Taiwan Relations Act, there have been changes in policy and posture-some significant and some early days-including working more closely with the United States in key geographic and technological arenas. Economically, there has been substantial focus on the issue of dependencies, though the scope of any actual changes is yet to be determined.

In the security arena, three significant changes include the Australia-United Kingdom-United States (AUKUS) agreement; Japan's focus on the need for peace and stability in the Taiwan Strait; and NATO's inclusion of China as a challenge in its new Strategic Concept.

The AUKUS agreement involves very substantial technological interactions among the three countries. The agreement has two main components:

Providing Australia "with a conventionally armed, nuclear powered submarine capability" with decisions on the way forward planned to be made by March 2023.

Developing and providing "joint advanced military capabilities" with efforts in eight areas including autonomous underwater vehicles; generation-after-next quantum capabilities; artificial intelligence; advanced cyber; hypersonic and counterhypersonic capabilities; electronic warfare; innovation including ways to integrate commercial technologies more rapidly; and information sharing.White House, "Fact Sheet: Implementation of the Australia-United Kingdom-United States Partnership, (AUKUS), White House Briefing Room, April 5, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/05/fact-sheet-implementation-of-the-australia-united-kingdom-united-states-partnership-aukus/.

Economically, the ADEs have highlighted the issue of dependencies (as further described below), but economic interactions with China have not significantly changed, with trade flows continuing at high levels in:

Nikkei staff writers, "China Passes US as Top Japanese Export Buyer, Topping 20%," Nikkei Asia, January 22, 2021, "Japan-China Relations (Basic Data)," Ministry of Foreign Affairs (website), February 24, 2022, Japan: While the impact of the pandemic (including China's zero-COVID policy) affected trade, nonetheless "China consumed more than 20 percent of Japanese exports for the first time [in 2020] . . . leapfrogging the [United States] to become Japan's leading destination for exports for the first time in two years. . . . China and the U.S. have repeatedly alternated as Japan's leading trading partner since the late 2000s. Last year [2020], China accounted for 22% of all exports, while the U.S. trailed at 18.4%," Nikkei reported.https://asia.nikkei.com/Economy/Trade/China-passes-US-as-top-Japanese-export-buyer-topping-20. The high level of Japan's trade with China continued in 2021, with exports to China increasing from $146 billion to $206 billion.https://www.mofa.go.jp/region/asia-paci/china/data.html.

WITS, Australia data, World Bank (website), accessed November 10, 2022, Swati Pandey, "China to Remain a Key Trade Partner for Australia, Official Says," Bloomberg, October 19, 2022, Australia: Overall, Australia-China trade during the period of 2016-2021 was approximately $160 billion-more than twice the combined total of its second-largest partners in imports (Japan) and exports (United States).https://wits.worldbank.org/CountrySnapshot/en/AUS. At an Asia Society panel discussion in Melbourne, a senior Australian official described China as "such an enormous economy," and was quoted by Bloomberg as saying that "it will be almost unimaginable to think that that importance will decrease significantly." The official, Elizabeth Bowes from the Department of Foreign Affairs and Trade, highlighted that Australia's exports to China are higher than a year earlier, following record two-way trade totaling A$282 billion ($178 billion) in 2021.https://www.bloomberg.com/news/articles/2022-10-19/china-to-remain-a-key-trade-partner-for-australia-official-says.

As noted above, the data underscore the importance for ADE enterprises to engage in the China market. However, while trade flows have not been affected, the issue of dependencies has received increased attention by the governments of the ADEs.

Japan has been a leader in generating a degree of movement of Japanese companies from China. As the pandemic began to disrupt supply chains in 2020, the Japanese government saw an opportunity to diversify supply chains and in April established a multibillion yen fund to support company transfers to Japan or Southeast Asia.In dollar terms, that's at least $5 billion. See Pascal Delloue, "Why Is Japan Incentivizing Companies to Leave China," Kusu (company website), July 21, 2022, Francesca Regalado, "Japan Chip Suppliers Reap Benefits of 'China Exit' Subsidy," Nikkei Asia, January 25, 2021, Japanese Companies Try to Reduce Their Reliance on Chinese Manufacturing," Economist, September 18, 2021, https://www.kusucorp.com/blog/why-is-japan-incentivizing-its-companies-to-leave-china-and-why-it-matters. In the first year of the fund's existence, more than two hundred companies received funding to subsidize their moves, https://asia.nikkei.com/Economy/Trade/Japan-chip-suppliers-reap-benefits-of-China-exit-subsidy; and Delloue, "Why Is Japan Incentivizing Companies." and Japanese companies began to increasingly focus their new investments elsewhere." https://www.economist.com/business/2021/09/18/japanese-companies-try-to-reduce-their-reliance-on-chinese-manufacturing.

Europe has not undertaken concrete steps similar to those of Japan, but the issue of dependencies has received high-level attention. European Commission President Ursula von der Leyen's recent State of the Union Address reflects that concern, mentioning that China controls the global processing industry for strategic minerals, and referencing its dominance in rare earth materials (nearing 90 percent of the market) and in lithium processing (at 60 percent)."2022 State of the Union Address by President von der Leyen," European Commission (website), September 14, 2022, Olaf Scholz, "We Don't Want to Decouple from China, but Can't Be Overreliant," Politico, November 3, 2022, https://ec.europa.eu/commission/presscorner/detail/en/speech_22_5493. Similarly, just prior to his recent trip to China, German Chancellor Olaf Scholz wrote that Germany seeks to "dismantle one-sided dependencies in the interest of smart diversification"; and is putting "supply chains on a broader footing . . . for example with new raw material partnerships." He added that where China bars reciprocity, "it cannot be without consequences." https://www.politico.eu/article/olaf-scholz-we-dont-want-to-decouple-from-china-but-cant-be-overreliant/.

The report further quotes Breton as stating that "the European market is open, (but) with conditions."Fischer, "Market Commissioner Breton Warns Governments." According to the report, Breton also warned European businesses that they are expanding their investments in China at their own risk, as the country is becoming more "autocratic."Fischer, "Market Commissioner Breton Warns Governments."

It would be inaccurate to say that European efforts have only been rhetorical. There have been at least three significant sets of actions involving human rights, cybersecurity, and cooperation to promote investment:

Network and Information Systems (NIS) Cooperation Group, "Cybersecurity of 5G networks: EU Toolbox of Risk Mitigating Measures," European Commission, January 2020, UK Department for Digital, Culture, Media and Sport, National Cyber Security Centre, and the Right Honourable Oliver Dowden CBE MP, "Huawei to Be Removed from UK 5G Networks by 2027," Government of the United Kingdom, Press Release, July 14,2020, According to The Economist, "Australia, Canada, New Zealand and Sweden have followed America in banning Huawei gear outright. New rules in Britain force carriers to remove all Huawei technology from public 5G systems by 2027. France has asked operators to rip out Huawei gear from many parts of their networks. Other countries, such as Japan, have not barred Huawei but signaled that it is unwelcome. The constant risk of fresh restrictions has led many customers in places without bans to steer clear of Huawei. This has already happened in Italy and Portugal." See "Can Huawei Thrive despite American Sanctions?," Economist, October 25, 2022, Cybersecurity: A key set of issues related to whether the Chinese telecommunications company Huawei Technologies Co. Ltd. would be allowed to provide 5G networks for European countries. The EU adopted a "cyber toolbox" for dealing with the risks raised,https://digital-strategy.ec.europa.eu/en/library/cybersecurity-5g-networks-eu-toolbox-risk-mitigating-measures. and the United Kingdom undertook its own review.https://www.gov.uk/government/news/huawei-to-be-removed-from-uk-5g-networks-by-2027. Partly as a consequence-and in combination with limits on Huawei and vigorous diplomacy by the United States-a number of EU member states and the United Kingdom decided not to utilize Huawei.https://www.economist.com/business/2022/10/25/ren-zhengfei-has-big-plans-for-huawei-in-spite-of-american-sanctions.

In December 2021, the European Union announced that it will place extra tariffs on aluminum foil coming from China after the European Commission found that producers in China benefited from excessive and unfair subsidies."EU to Impose Extra Tariffs on China Aluminium Foil over Subsidies," Reuters, December 22, 2021, https://www.reuters.com/markets/commodities/eu-impose-extra-tariffs-china-aluminium-foil-over-subsidies-2021-12-22/.

In March 2022, the EU imposed anti-subsidy duties on imports of stainless-steel cold-rolled flat products originating in Indonesia and India to counter subsidies on raw materials and transnational subsidies from China."EU Counters Steel Subsidies Resulting from Export Restrictions on Raw Materials and Transnational Subsidies from China," European Commission Press Corner, March 16, 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1774; and Max Hall, "EU Adds Anti-subsidy Duty to Existing Trade Measures on Indian and Indonesian Steel," pv magazine, March 21, 2022, https://www.pv-magazine.com/2022/03/21/eu-adds-anti-subsidy-duty-to-existing-trade-measures-on-indian-and-indonesian-steel/.

In 2022 and 2020, the EU imposed duties on glass fiber fabrics and products from Chinese companies or joint venture on products arriving via Morocco and Egypt."EU Acts to Stop Chinese Glass Fibre Fabrics Circumventing EU Tariffs via Morocco," Directorate-General for Trade, European Commission (website), February 25, 2022, https://policy.trade.ec.europa.eu/news/eu-acts-stop-chinese-glass-fibre-fabrics-circumventing-eu-tariffs-morocco-2022-02-25_en.

In support of Lithuania, the European Parliament has passed resolutions calling "on the PRC to revoke its unjustified sanctions against Lithuanian officials" and condemning "the PRC's trade restriction," which came in response to Lithuania allowing "Taiwan" to be utilized as part of the name of the Taiwan economic office that was opened in Lithuania.

III. Recommendations

The recommendations below are intended to provide specifics for such a coordinated strategic security and economic framework for the United States and the ADEs in dealing with the challenges presented by China.

A. Enhance economic and security coordination by expanding the G7 to a G10-plus to formally include Australia, Norway, the Republic of Korea, and the European Union and by establishing a multinational staff focused on China

As the substantive recommendations below are generally multinational-or at least have multinational consequences-an important element of implementation will be to undertake appropriate diplomatic efforts to achieve as broad a consensus as possible as to their substance. This will involve both sustained bilateral discussions and the use of a variety of fora such as the US-EU Trade and Technology Council, the "Chip 4" alliance (Japan, Republic of Korea, Taiwan, United States), and the Quadrilateral Security Dialogue (Australia, India, Japan, United States), known as the Quad. From the US perspective, it will be important to recognize the often-substantial differences between the American economy and the economies of allies and close partners, and to incorporate that understanding into a realistic strategy that will mitigate security and economic risks without causing unwarranted economic harm.

The newly established G10-plus should create a multinational staff to help coordinate and implement China policy. Indeed, this change is even more important than the formal expansion, and the staff should have three foci: intelligence, economics, and security.

First, a shared intelligence picture will illuminate economic and security decisions. Each of the G10-plus countries (and the EU) will likely have information that others may not, and a common picture on economic and security matters would be invaluable for policymakers.

Second, economic coordination should include actions (as discussed below) with respect to limits on China in the domestic markets of the ADEs; actions taken regarding China's domestic market; and actions of importance taken with respect to other countries including those focused on the Global South. A common approach to the export of high-end capabilities, for example, will be very important as will be protections to enhance resilience for critical infrastructures. Similarly, a number of Indo-Pacific strategies have been promulgated by different members of the prospective G10-plus, and it will be highly valuable for G10-plus members to have a common understanding of how those multiple economic strategies are being implemented.

Third, security issues include limitations on trade and investment with China-the specifics for a number of which are discussed below. Security also involves gray area/hybrid concerns such as cybersecurity and influence operations, matters involving the global commons including freedom of navigation and space, security support to nations in the Indo-Pacific, and deterrence and defense issues including those concerning Taiwan, the East China Sea, and the South China Sea.

Regularizing information sharing and, as appropriate, coordination on each of the above three areas would allow for a more effective set of policies toward China (though the lead for military and intelligence issues such as military planning and operations would remain elsewhere).

B. Establish national security limits on transactions with China
1. Limit or prohibit the transfer of advanced capabilities that have significant national security implications. 2. Limit or prohibit trade and investment with companies that have substantial involvement in China's military-civil fusion effort. 3. Limit or prohibit outbound financial investments that support China's development of advanced or emerging technologies that have national security implications.
In earlier versions of the CHIPS and Science Act, the draft statute provided for review of transactions that transferred to China (or any "country of concern") capabilities or ownership that "could result in an unacceptable risk to a national security capability."Venable LLP, "A CFIUS-Type Review for Overseas Investment? Beware the Outbound Investment Review Framework Proposed in the COMPETES Act," JD Supra (website), February 18, 2022, hDefinition of a legacy semiconductor within Pub. L. 117-167, div. A, § 104, 136 Stat. 1390 (2022), as reprinted in 15 U.S.C. § 4652(a)(6), ttps://www.jdsupra.com/legalnews/a-cfius-type-review-for-overseas-9974345/. While the provision was dropped from the final enacted statute, outside financial investments can support development by China of advanced or emerging technological capabilities with defense or other national security implications. The law does prohibit "material expansion of semiconductor manufacturing capacity in the People's Republic of China" of state-of-the-art technology for a ten-year period after receiving any award under the statute. https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=15-USC-102889058-1966900778&term_occur=999&term_src=title:15:chapter:72A:section:4652.
4. Prohibit the use of Chinese products by the United States and other ADEs in their defense and intelligence sectors.
As discussed above, China is not only the "pacing challenge" for the US Department of Defense, but also a recognized security challenge for the ADEs, as underscored by the AUKUS agreement, and Japan's (and others') concerns over "peace and stability in the Taiwan Strait." Put plainly, China is a potential military adversary and therefore Chinese products should not be utilized to provide any defense or intelligence capabilities to the United States or other ADEs. That limitation should extend to components and to dual-use items to mitigate risks that could affect the functionality of defense or intelligence capabilities.

By way of example, a Department of Defense report concluded that "procuring measurably secure microelectronics sources [e.g., semiconductors, transistors, diodes] is challenged by the potential for China, or countries under the influence of China, to tamper with or insert malicious functionality into microelectronics products."Department of Defense, Securing Defense-Critical Supply Chains: An Action Plan Developed in Response to President Biden's Executive Order 14017, 2022, 35, Stephen Losey, "Pentagon Suspends F-35 Deliveries Over Chinese Alloy in Magnet, Defense News, September 7, 2022, FCC Bans Authorizations for Devices That Pose National Security Threat," Federal Communications Commission, News Release, November 25, 2022, https://
media.defense.gov/2022/Feb/24/2002944158/-1/-1/1/DOD-EO-14017-REPORT-SECURING-DEFENSE-CRITICAL-SUPPLY-CHAINS.PDF. Similarly, the United States recently "temporarily halted deliveries of F-35 fighters following the discovery that the raw materials used for a magnet in the plane were produced in China," https://www.defensenews.com/air/2022/09/07/pentagon-suspends-f-35-deliveries-over-chinese-alloy-in-magnet/. although ultimately performance appears not to be affected. Most recently, the Federal Communications Commission effectively banned the use of Chinese telecommunications capabilities in the United States." https://www.fcc.gov/document/fcc-bans-authorizations-devices-pose-national-security-threat.
5. Prohibit the use of Chinese software for key critical infrastructures in the United States and other ADEs including the electric grid, pipelines, air, rail, ports, finance, health, and water.
The Director of National Intelligence has described China's very substantial cyber capabilities:
6. Expand the scope of review of Chinese investments in the United States and the ADEs that present national security risks.
C. Undertake economic actions to offset unfair Chinese competition and reduce dependencies
1. Utilize tariffs and other limitations including a border-adjustment mechanism to offset the impact of Chinese subsidies and other types of unfair competition that China's state-driven economy supports and that Chinese enterprises undertake. 2. Establish resilient supply chains outside of China to reduce overreliance on the Chinese market through expanded use of tax credits, subsidies, and concessional financing, among other things, and specifically enhance energy-sector and other technology supply chains by developing a critical minerals financing initiative.
Coincident with the need for responding to the risks is the desirability for the ADEs generally to enhance trade and investment with the countries of the Global South. A variety of mechanisms can be utilized. For example, the Quad has six working groups undertaking economic and security cooperation.The working groups are COVID-19 Response and Global Health Security, Climate, Critical and Emerging Technologies, Cyber, Space, and Infrastructure. See White House, "Fact Sheet: Quad Leaders' Tokyo Summit 2022," White House Briefing Room, May 23, 2022, The agreement has been ratified by Australia, but not by India (as of this writing). Rod McGuirk, "Australia Ratifies Free Trade Deals with India and Britain," Associated Press, November 21, 2022, White House, "Fact Sheet: President Biden and G7 Leaders Formally Launch the Partnership for Global Infrastructure and Investment," White House Briefing Room, June 26, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-quad-leaders-tokyo-summit-2022/. Meanwhile, Australia and India are in the process of negotiating a free trade agreement. https://apnews.com/article/british-politics-india-australia-global-trade-business-d538020d808747d28b588a9c784ac207. Multilaterally, the G7 countries have agreed on the Partnership for Global Infrastructure Investment, which is intended to provide $600 billion for infrastructure projects; https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/26/fact-sheet-president-biden-and-g7-leaders-formally-launch-the-partnership-for-global-infrastructure-and-investment/. if accomplished, that will be an enormously valuable achievement.

The countries of the Global South also need capable industries as part of their economies. While the ADE governments do have multiple development financing programs, another worthwhile approach would be to build on the Japanese government's subsidy programs that incentivize companies to move out of China and into more reliable partnering nations. Such an effort could be supported by the use of tax credits, subsidies, and concessional financing. The United States and the other ADEs should utilize the G10-plus format to develop a coordinated approach to expand such incentives with a focus on the Global South.

One specific critical area that demands high focus by the ADEs-both among themselves and with the countries of the Global South-involves the supply chains for energy, especially the critical materials necessary for a clean energy transition, and for other key sectors such as defense.

The key critical materials for the energy sector include cobalt, lithium, nickel, and rare earths. The demand for each is expected to increase by orders of magnitude. The Biden administration has projected:

White House, "Fact Sheet: Securing a Made in America Supply Chain for Critical Minerals," February 22, 2022, "As the world transitions to a clean energy economy, global demand for these critical minerals is set to skyrocket by 400-600 percent over the next several decades, and, for minerals such as lithium and graphite used in electric vehicle (EV) batteries, demand will increase by even more-as much as 4,000 percent."https://www.whitehouse.gov/?s=Securing+a+Made+in+America+supply+chain. The International Energy Agency (IEA) similarly has stated that the "shift to a clean energy system is set to drive a huge increase in the requirements for these minerals, meaning that the energy sector is emerging as a major force in mineral markets." See IEA, The Role of Critical Minerals in Clean Energy Transitions, Executive Summary, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/executive-summary. The IEA document describes demand: "Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Since 2010 the average amount of minerals needed for a new unit of power generation capacity has increased by 50 percent as the share of renewables in new investment has risen."

Another analysis similarly described China's significant involvement in refining and processing critical minerals:

The administration has made some useful efforts to deal with the problem including convening supply chain ministerial fora,"Joint Statement on Cooperation on Global Supply Chains," Media Note, Office of the Spokesperson, Department of State, July 20, 2022, United States and Canada Forge Ahead on Critical Minerals Cooperation," Media Note, Office of the Spokesperson, Department of State, July 31, 2021, DOD Announces Rare Earth Element Award to Strengthen Domestic Industrial Base," Department of Defense Press Release, February 1, 2021, https://www.state.gov/supply-chain-ministerial-joint-statement/. expanding activities with Canada and Australia," https://www.state.gov/united-states-and-canada-forge-ahead-on-critical-minerals-cooperation/; and "Next Steps on U.S.-Australia Critical Minerals Collaboration," Office of Public Affairs, Department of Commerce, November 17, 2021, https://www.defense.gov/News/Releases/Release/Article/2488672/dod-announces-rare-earth-element-award-to-strengthen-domestic-industrial-base/; and "DOD Awards $35 Million to MP Materials to Build U.S. Heavy Rare Earth Separation Capacity," DOD Press Release, February 22, 2022, https://www.defense.gov/News/Releases/Release/Article/2488672/dod-announces-rare-earth-element-award-to-strengthen-domestic-industrial-base/. However, a key requirement remains sufficient financing for the very large future requirements. https://www.commerce.gov/news/press-releases/2021/11/next-steps-us-australia-critical-minerals-collaboration. and establishing contracts for rare earths through the Defense Department."

Establishing such a critical minerals financing initiative would be an important project for the proposed G10-plus.

IV. Conclusion

China will remain an important part of the new globalization. But its relationships with the United States and the other advanced democratic economies have changed and will need to further change in important ways. A combination of selective decoupling focused on national security, advanced technologies, and critical infrastructures and the development of strategic supply chains outside China to reduce dependencies will be the key elements of a new strategic approach. Establishing the G10-plus along with a multinational staff to help coordinate such actions will be invaluable. Successfully undertaking each of those efforts will be of critical importance to establishing strategic stability and economic prosperity for the United States and the advanced democratic nations.

V. Acknowledgements

This report was produced under the auspices of a project conducted in partnership with the Norwegian Ministry of Foreign Affairs focused on the impact of China on the transatlantic relationship.

The author sincerely thanks Anca Ioana Agachi and Alvina Ahmed for their valuable research in support of this issue brief. They are associate director and program assistant, respectively, at the Transatlantic Security Initiative in the Scowcroft Center for Strategy and Security.

IV. About the author

Franklin D. Kramer is a distinguished fellow and board director of the Atlantic Council. Mr. Kramer has served as a senior political appointee in two administrations, including as assistant secretary of defense for international security affairs. At the Department of Defense, Mr. Kramer was in charge of the formulation and implementation of international defense and political-military policy, with worldwide responsibilities including NATO and Europe, the Middle East, Asia, Africa, and Latin America.

In the nonprofit world, Mr. Kramer has been a senior fellow at CNA; chairman of the board of the World Affairs Council of Washington, DC; a distinguished research fellow at the Center for Technology and National Security Policy of the National Defense University; and an adjunct professor at the Elliott School of International Affairs of The George Washington University. Mr. Kramer's areas of focus include defense, both conventional and hybrid; China, including managing competition, military power, and China-Taiwan-US relations; NATO and Russia; cyber including resilience and international issues; irregular conflict and counterinsurgency; and innovation and national security.

Mr. Kramer has written extensively; in addition to the current report, his publications include: on China, Priorities for a Transatlantic China Strategy, Managed Competition: Meeting China's Challenge in a Multi-vector World, and The China Plan: A Transatlantic Blueprint for Strategic Competition (chapters on economics and on "one-world" cooperation); on trade, Free but Secure Trade; on global defense challenges, Transformative Priorities for National Defense and Deterrence Assurance: Why NATO Needs a Plan for the Indo-Pacific Region; on NATO and Russia, NATO Priorities: Initial Lessons from the Russia-Ukraine War, Defending Ukraine: US Must Offer Military Support not just Economic Threats, NATO Priorities after the Brussels Summit, Meeting the Russian Hybrid Challenge, and Meeting the Russian Conventional Challenge; on cyber and resilience, We Need a Cybersecurity Paradigm Change, Cybersecurity for Small and Medium Enterprises and Academia, NATO Needs Continuous Responses in Cyberspace, Effective Resilience and National Strategy: Lessons from the Pandemic and Requirements for Key Critical Infrastructures, Cybersecurity: Changing the Model, Cyber and Deterrence: The Military-Civil Nexus in High-End Conflict, and Cyber, Extended Deterrence, and NATO; on innovation and technology, Innovation, Leadership, and National Security; and on counterinsurgency, Civil Power in Irregular Conflict (principal editor and co-author of the policy chapter) and Irregular Conflict, the Department of Defense and International Security Reform.

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The unitary globalized economy no longer exists. Driven in significant part by security considerations, a new and more diverse globalization is both required and being built. The transition is ongoing, and its final form is yet to be determined.

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Table of Contents

The unitary globalized economy no longer exists. Driven in significant part by security considerations, a new and more diverse globalization is both required and being built. The transition is ongoing, and its final form is yet to be determined. Many of the causal factors for this very significant change revolve around China and the consequent responses to its actions by the United States, other democracies of the transatlantic alliance, and the advanced democratic economies of the Indo-Pacific. There are other important factors generating this new globalization including the impact of the Russia-Ukraine war both on energy markets and on trade and investment with Russia generally, as well as the global requirements for mitigating and adapting to climate change. However, China has been a critical element in what might be described as the "maximum trade-centered globalization," which has dominated trade and investment policy in the three decades since the end of the Cold War.

This issue brief describes the still-developing new globalization focusing on the issues surrounding China. A fundamental challenge that China presents arises because its actions have generated significant security and economic challenges, yet it nonetheless is a massive trade and investment partner for the "advanced democratic economies" (ADEs),The ADEs are liberal democracies with advanced economies. which for purposes of this analysis include the Group of Seven (G7) countries,The members are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. plus Australia, Norway, the Republic of Korea, and the European Union. Adapting to a new globalization requires establishing a strategic approach that resolves the inherent contradictions between those conflicting considerations.

The brief begins by setting forth the ongoing changes in China that have significantly affected global geopolitical and geoeconomic environments including the increased emphasis by the Chinese Communist Party (CCP) on the role of the state and on economic self-reliance. China is an ever more ideological environment generating a higher degree of economic and security risks including over Taiwan.

The brief then discusses the advanced democratic economies, first focusing on the United States including the US emphasis on national security concerns, and then reviewing the policies of other advanced democratic economies, especially issues regarding economic dependencies. The United States has put in place significant limitations on trade and investment with China and, at the same time, expanded its security and economic cooperation with Taiwan. The other ADEs have established frameworks or taken other economic and security measures affecting their relations with China, though, for the most part, not with the degree of restrictions undertaken by the United States.

Undertaking selective decoupling from China as particularly relevant to each ADE's national security requirements; advanced and emerging technologies; and critical infrastructure resilience.

Establishing resilient supply chains outside China including in and among the United States and other advanced democratic economies and through "friendshoring,""Remarks by Secretary of the Treasury Janet L. Yellen at Microsoft in New Delhi, India," Department of the Treasury, Secretary Statement and Remarks, November 11, 2022,https://home.treasury.gov/news/press-releases/jy1096. i.e., with reliable partners in the Global South; utilizing incentives including tax credits, subsidies, and concessional financing in order to reduce dependencies on China; and developing a critical minerals financing initiative focused on enhancing the transition to clean energy and providing alternatives for other sectors such as defense.

Expanding the G7 to a "G10-plus" of the advanced democratic nations, which would coordinate intelligence and economic and security interactions with China among the ADEs including through the establishment of a multinational staff.

Successfully undertaking selective decoupling and establishing resilient supply chains as the substantive cornerstones of the new globalization will require a multiyear effort that should be undertaken in prompt coordinated fashion through the G10-plus so as to accomplish the requisite security and economic objectives of the ADEs.

I. China's ongoing transition: The state and self-reliance

The ongoing changes in China's approach to economics and security under Xi Jinping are having the consequence of making the country less central to and posing greater risks for the global economy than has been the case for many years. China's changed policies, as underscored by the recent Chinese Communist Party congress and the revised CCP constitution, now include a substantially increased role of the state, a focus on self-reliance, and a willingness to put economic development behind other interests. Those factors have coupled with concerns of the United States-shared at least in part by the transatlantic allies and others with advanced democratic economies (ADEs)-arising from issues of security, unfair competition, strategic dependencies, and human rights. Security considerations, in particular, are much heightened and the prospect of conflict over Taiwan now looms larger. In combination, this multiplicity of concerns has affected economic interactions with China. To be sure, China is still-and will remain-an important participant in the global economy. For the ADEs, however, five overlapping factors have combined to require that economic interactions with China receive more thoughtful analysis and an appropriate degree of circumspection.

First, China's economic policy has now been well described as "politics in command":Dexter Tiff Roberts, "Xi Jinping's Politics in Command Economy," Issue Brief, Atlantic Council, July 2021, 1,
https://www.atlanticcouncil.org/wp-content/uploads/2021/07/Xi-Jinpings-politics-in-command-economy.pdf. the state and particularly the CCP are in control, and China consequently is less oriented to being a market-driven economy. As Dexter Tiff Roberts has written:

Findings from the recent China Pathfinder Annual Scorecard underscore these points:

As a result, China's state-owned enterprises can be expected to maintain their very significant role:

It is accurate to say that in recent weeks there has been a change in tone by the government with language of a more business-friendly approach. But that does not alter the systemic control that the state maintains. As reported by the New York Times:

Second, China is seeking a much greater degree of "self-reliance"Adam Segal, "China's Move to Greater Self Reliance," China Leadership Monitor, December 1, 2021, ChinaPower Project, "Will the Dual Circulation Strategy Enable China to Compete in a Post-Pandemic World?," CSIS, December 15, 2021, https://www.prcleader.org/segal. through its "dual circulation" strategy. Initially described by Xi in May 2020, the dual circulation strategy was "incorporated into China's central economic blueprint, the 14th Five Year Plan in March 2021, cementing its high-level status." https://chinapower.csis.org/china-covid-dual-circulation-economic-strategy/. The strategy seeks to put significantly heavier reliance on China's domestic market as compared to its long-standing export-driven approach.As the ChinaPower analysis describes: "The DCS comprises two main components: the internal (domestic) circulation and external (international) circulation. The overarching goal of the DCS is to enable the internal and external markets to reinforce and sustain the other, with a focus on establishing the domestic market as the primary driver of economic development." See ChinaProject, "Will the Dual Circulation Strategy Enable China." Key elements include reducing "external demand as a driver of economic growth by boosting domestic consumption," attaining "higher levels of self-sufficiency in key areas by enhancing innovation," ensuring "access to critical inputs by diversifying supply chains," and positioning China as a "global manufacturing powerhouse in high value-added products."ChinaProject, "Will the Dual Circulation Strategy Enable China."

Two critical elements of this approach are the focus on advanced and emerging technologies as exemplified by the Made in China 2025 plan and the very substantial subsidies that China provides to its companies:

Made in China is focused on "leapfrogging into emerging technologies . . . reducing reliance on foreign firms . . . [with] breakthroughs in 10 sectors [and for ] China . . . to lead at each point in the value chain," according to a Congressional Research Service report.Karen M. Sutter, "'Made in China 2025' Industrial Policies: Issues for Congress," Congressional Research Service, InFocus Brief IF10964, updated August 11, 2020, 1, https://crsreports.congress.gov/product/pdf/IF/IF10964/6.

China's state-provided subsidies are far in excess of any such actions by the advanced democratic economies, according to Gerard DiPippo et al.:

As a matter of fact, these party activities appear to be prevalent in larger enterprises but may not be so substantial in smaller ones.An analysis by Neil Thomas in 2020 stated: "Party organizations are more pervasive in big companies, present in 92.4% of China's top 500 private enterprises, according to ACFIC's 2019 'Top 500' annual report . . . This coverage has held steady at 92-93%, but could increase further now that Beijing has made these committees mandatory for listed companies." By contrast, a 2022 analysis by Colin S. C. Hawes states that "if we calculate the percentage of CPC branches within Chinese private firms as a whole (rather than merely in large firms), it is currently only around 7%." See Thomas, "Party Committees in the Private Sector: Rising Presence, Moderate Prevalence," Commentary, MacroPolo (Paulson Institute think tank), December 16, 2020, https://macropolo.org/party-committees-private-sector-china/?rp=e; and Hawes, "Has the Communist Party of China (CPC) Increased Its Control Over Private Corporations?, fifteen eightyfour (blog), Cambridge University Press, August 23, 2022, https://www.cambridgeblog.org/2022/08/has-the-communist-party-of-china-cpc-increased-its-control-over-private-corporations/. However, since as a general proposition, it is larger firms from the ADEs that undertake the most significant activities in China, there should be an expectation of CCP involvement. That, however, is hardly conducive to the normal business approach taken by the private sector in the ADEs. As an analysis from an investment advisory firm stated:

A related development to enhance state control is the acquisition of "golden shares" in Chinese private companies by the government or SOEs that provide "board seats and/or veto rights for key business decisions.""China Takes Stakes in Private Data Companies," Asia Financial (website), Fintech (vertical), December 16, 2021,ANI Asia, "China: Govt Buying Stakes in Tech Firms to Increase Its Influence," Business Standard, March 26, 2022,Ryan McMorrow, Qianer Liu and Cheng Leng, "China moves to take 'golden shares' in Alibaba and Tencent units," Financial Times, January 12 2023,

https://www.ft.com/content/65e60815-c5a0-4c4a-bcec-4af0f76462de As one person knowledgeable about the Tencent transaction stated, "The state is not going away, this is the trend for the future." https://www.business-standard.com/article/international/china-govt-buying-stakes-in-tech-firms-to-increase-its-influence-122032600263_1.html#:~:text='Golden%20shares'%20are%20types%20of,of%20the%20company's%20ordinary%20shares. As of this writing, the state is taking golden shares in Alibaba and Tencent, two of China's largest technology companies, and has previously acquired such shares in ByteDance (TikTok's parent company)and Weibo (social media), "usually involving a 1 per cent share of internet groups' key [subsidiary] entities." https://www.asiafinancial.com/china-takes-stakes-in-private-data-companies. Chinese regulators including the Cyberspace Administration and state-owned firms are seeking golden shares in data-rich Internet and technology firms, especially those organizing, structuring, and labeling content; these shares "give special powers to the shareholder like veto power over changes to the company's charter, and even the ability to block other shareholders from holding more than a particular ratio of the company's ordinary shares."Id.

Mariah Thornton, "China's20th Party Congress Escalates Cross-Strait Tensions," "The amendment against Taiwanese independence . . . demonstrates a significant escalation in cross-strait relations in two ways. First, the Chinese leadership is establishing a stronger legal basis from which it will likely pursue harsher, more punitive action toward any perceived expressions of Taiwanese independence or external support for Taiwanese independence. . . . Second, the amendment signals Xi's intention to cement fierce opposition to Taiwanese independence as part of the fundamental position of any successive regimes."Diplomat, October 27, 2022, https://thediplomat.com/2022/10/chinas-20th-party-congress-escalates-cross-strait-tensions/.

In sum, China has taken a number of consequential actions that have changed the nature of its relationships with the advanced democratic economies.

II. The changing ADEs

In the past several years, the advanced democratic economies have significantly changed their approaches to globalization in important part because of the changes by China described above.

A. United States

The global engagement of the United States has been importantly affected by a combination of factors. National security considerations have taken on increased importance, the relationship between economics and security has received heightened attention, concern over dependencies has received added scrutiny, and significant efforts are being taken to support the US domestic economy. The results for this new globalization have been substantial.

It is worth underscoring the military aspects of the challenge. The US Department of Defense describes China as the "pacing challenge" inasmuch as the "PRC is also investing in a military that is rapidly modernizing, increasingly capable in the Indo-Pacific, and growing in strength and reach globally-all while seeking to erode U.S. alliances in the region and around the world."White House, National Security Strategy, 23-24. Moreover, the United States has reached the clear conclusion that the risks of military confrontation over Taiwan are growing. Secretary of State Antony Blinken has stated that China has made "a fundamental decision that the status quo was no longer acceptable and that Beijing was determined to pursue reunification on a much faster timeline."Ellen Francis, "China Plans to Seize Taiwan on 'Much Faster Timeline,' Blinken Says," Washington Post, October 18, 2022, https://www.washingtonpost.com/world/2022/10/18/china-seize-taiwan-plan-blinken/.

Most notable perhaps of the changed policies are the tariffs-initially imposed by the Trump administration and generally kept in place by the Biden administration-which have substantially affected certain trade flows. A recent Peterson Institute for International Economics blog observes:

The impact of the tariffs has been across multiple sectors:

Tariffs are, however, hardly the only the instrument of change. Beginning in the Trump administration and significantly increasing in the Biden administration are regulatory limitations on trade and investment, as noted in a Foreign Policy article. Thus:

Congress has been fully supportive of this approach and has enacted relevant restrictive legislation during both the Trump and Biden administrations including adding human rights as an additional rationale for limitations:

The Biden administration not only has largely maintained the restrictions imposed by the Trump administration but has added significant restrictions of its own. Most notably it recently has established export controls barring the transfer to China of "advanced computing and semiconductor manufacturing . . . items and capabilities."Bureau of Industry and Security, "Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People's Republic of China (PRC)," Department of Commerce, October 7, 2022, 2, According to US rules relating to commerce and foreign trade, "foreign-produced items located outside the United States are subject to the EAR [Export Administration Regulations] when they are a 'direct product' of specified 'technology' or 'software,' or are produced by a plant or 'major component' of a plant that itself is a 'direct product' of specified 'technology' or 'software.' " See 15 C.F.R. § 734.9 (as amended December 8, 2022), https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file. These new controls cover not only items manufactured in the United States but also those produced outside the United States through the application of the "Foreign-Direct Product Rules." https://www.ecfr.gov/current/title-15/subtitle-B/chapter-VII/subchapter-C/part-734/section-734.9. The national security rationale for the controls is clear, as underscored in a Department of Commerce statement:

Experts noted the strong posture of the US government, with one referring to it as an aggressive approach intended to undercut China's capacity to develop its own technologies in critical areas.Ana Swanson, "Biden Administration Clamps Down on China's Access to Chip Technology," New York Times, October 7, 2022, The biotechnology restrictions focused "principally on the Chinese Academy of Military Medical Sciences and its research institutes in response to their use of 'biotechnology processes to support Chinese military end uses and end users'. . . [Control of] certain life sciences technology . . . include[d] certain software (and related technology) designed for nucleic acid assemblers and synthesizers . . . capable of designing and building functional genetic elements from digital sequence data given . . . possible use in biological weapons programs." Jeffrey L. Kessler et al., "United States Adopts Wide-ranging China Restrictions," WilmerHale, December 29, 2021, The Entity List contains the names of "foreign persons-including businesses, research institutions, government and private organizations, individuals, and other types of legal persons-that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items." See Bureau of Industry and Security, "Entity List," Department of Commerce (website), accessed November 10, 2022, 1, Exec. Order No. 14032, 86 Fed. Reg. 30145 (2021), https://www.nytimes.com/2022/10/07/business/economy/biden-chip-technology.html?campaign_id=60&emc=edit_na_20221007&instance_id=0&nl=breaking-news&ref=cta&regi_id=169223421&segment_id=109292&user_id=d2bcc4d73398823c64e17b75c053c05e. According to the article, Emily Kilcrease, a senior fellow at the Center for a New American Security, said: "It is an aggressive approach by the U.S. government to start to really impair the capability of China to indigenously develop certain of these critical technologies." The new controls were not the first restrictive actions on exports to China taken by the Biden administration. Previously, it had imposed limitations on biotechnology/life sciences https://www.wilmerhale.com/en/insights/client-alerts/20211229-united-states-adopts-wide-ranging-china-restrictions. and quantum computing capabilitiesThe earlier quantum computing restrictions added "27 Chinese and third-country entities to the Entity List for their role in support of Chinese 'quantum computing efforts that support military applications, such as counterstealth and countersubmarine applications, and the ability to break encryption or develop unbreakable encryption,' among other activities." Kessler et al., "United States Adopts." by adding multiple companies to the Department of Commerce's Entity List, thereby essentially preventing exports to them, https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list. Though requests for export licenses are reviewed on a case-by-case basis, there often is a presumption of denial associated with a listing. See, for example, Bureau of Industry and Security, "Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People's Republic of China (PRC)," Department of Commerce, October 7, 2022, , https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file. as well as expanding the prohibition of investments to Chinese companies providing "Chinese surveillance technology outside the PRC . . . to facilitate repression or serious human rights abuses." https://home.treasury.gov/system/files/126/14032.pdf.
Bown, "Four Years into the Trade War."

The results of these multiple restrictions have been consequential in the arenas where they have been applied. However, it is also important to note that there are other areas in which US-China trade remains quite substantial and, in fact, overall US-China bilateral trade has actually increased. As one recent analysis summarized:

As the trade numbers above imply, there is an important differential in the analysis of risks undertaken by private-sector enterprises and by the government. Governments will review societal risks including external diseconomies and security while enterprises generally will take a narrower view focused on the firm and sector. This is not to suggest that enterprises are unaware of societal risks, as may be relevant to the enterprise. By way of example, an annual economic analysis published in 2022 found:

In general, however, it is the government's role to take account of the wider risk environment.

B. The ADEs

The ADEs have adopted security and economic strategies that, at least rhetorically, highlight certain issues in a fashion comparable to the strategic approach of the United States. On the security side, while none of the ADEs has a statutory mandate comparable to the Taiwan Relations Act, there have been changes in policy and posture-some significant and some early days-including working more closely with the United States in key geographic and technological arenas. Economically, there has been substantial focus on the issue of dependencies, though the scope of any actual changes is yet to be determined.

In the security arena, three significant changes include the Australia-United Kingdom-United States (AUKUS) agreement; Japan's focus on the need for peace and stability in the Taiwan Strait; and NATO's inclusion of China as a challenge in its new Strategic Concept.

The AUKUS agreement involves very substantial technological interactions among the three countries. The agreement has two main components:

Providing Australia "with a conventionally armed, nuclear powered submarine capability" with decisions on the way forward planned to be made by March 2023.

Developing and providing "joint advanced military capabilities" with efforts in eight areas including autonomous underwater vehicles; generation-after-next quantum capabilities; artificial intelligence; advanced cyber; hypersonic and counterhypersonic capabilities; electronic warfare; innovation including ways to integrate commercial technologies more rapidly; and information sharing.White House, "Fact Sheet: Implementation of the Australia-United Kingdom-United States Partnership, (AUKUS), White House Briefing Room, April 5, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/05/fact-sheet-implementation-of-the-australia-united-kingdom-united-states-partnership-aukus/.

Economically, the ADEs have highlighted the issue of dependencies (as further described below), but economic interactions with China have not significantly changed, with trade flows continuing at high levels in:

Nikkei staff writers, "China Passes US as Top Japanese Export Buyer, Topping 20%," Nikkei Asia, January 22, 2021, "Japan-China Relations (Basic Data)," Ministry of Foreign Affairs (website), February 24, 2022, Japan: While the impact of the pandemic (including China's zero-COVID policy) affected trade, nonetheless "China consumed more than 20 percent of Japanese exports for the first time [in 2020] . . . leapfrogging the [United States] to become Japan's leading destination for exports for the first time in two years. . . . China and the U.S. have repeatedly alternated as Japan's leading trading partner since the late 2000s. Last year [2020], China accounted for 22% of all exports, while the U.S. trailed at 18.4%," Nikkei reported.https://asia.nikkei.com/Economy/Trade/China-passes-US-as-top-Japanese-export-buyer-topping-20. The high level of Japan's trade with China continued in 2021, with exports to China increasing from $146 billion to $206 billion.https://www.mofa.go.jp/region/asia-paci/china/data.html.

WITS, Australia data, World Bank (website), accessed November 10, 2022, Swati Pandey, "China to Remain a Key Trade Partner for Australia, Official Says," Bloomberg, October 19, 2022, Australia: Overall, Australia-China trade during the period of 2016-2021 was approximately $160 billion-more than twice the combined total of its second-largest partners in imports (Japan) and exports (United States).https://wits.worldbank.org/CountrySnapshot/en/AUS. At an Asia Society panel discussion in Melbourne, a senior Australian official described China as "such an enormous economy," and was quoted by Bloomberg as saying that "it will be almost unimaginable to think that that importance will decrease significantly." The official, Elizabeth Bowes from the Department of Foreign Affairs and Trade, highlighted that Australia's exports to China are higher than a year earlier, following record two-way trade totaling A$282 billion ($178 billion) in 2021.https://www.bloomberg.com/news/articles/2022-10-19/china-to-remain-a-key-trade-partner-for-australia-official-says.

As noted above, the data underscore the importance for ADE enterprises to engage in the China market. However, while trade flows have not been affected, the issue of dependencies has received increased attention by the governments of the ADEs.

Japan has been a leader in generating a degree of movement of Japanese companies from China. As the pandemic began to disrupt supply chains in 2020, the Japanese government saw an opportunity to diversify supply chains and in April established a multibillion yen fund to support company transfers to Japan or Southeast Asia.In dollar terms, that's at least $5 billion. See Pascal Delloue, "Why Is Japan Incentivizing Companies to Leave China," Kusu (company website), July 21, 2022, Francesca Regalado, "Japan Chip Suppliers Reap Benefits of 'China Exit' Subsidy," Nikkei Asia, January 25, 2021, Japanese Companies Try to Reduce Their Reliance on Chinese Manufacturing," Economist, September 18, 2021, https://www.kusucorp.com/blog/why-is-japan-incentivizing-its-companies-to-leave-china-and-why-it-matters. In the first year of the fund's existence, more than two hundred companies received funding to subsidize their moves, https://asia.nikkei.com/Economy/Trade/Japan-chip-suppliers-reap-benefits-of-China-exit-subsidy; and Delloue, "Why Is Japan Incentivizing Companies." and Japanese companies began to increasingly focus their new investments elsewhere." https://www.economist.com/business/2021/09/18/japanese-companies-try-to-reduce-their-reliance-on-chinese-manufacturing.

Europe has not undertaken concrete steps similar to those of Japan, but the issue of dependencies has received high-level attention. European Commission President Ursula von der Leyen's recent State of the Union Address reflects that concern, mentioning that China controls the global processing industry for strategic minerals, and referencing its dominance in rare earth materials (nearing 90 percent of the market) and in lithium processing (at 60 percent)."2022 State of the Union Address by President von der Leyen," European Commission (website), September 14, 2022, Olaf Scholz, "We Don't Want to Decouple from China, but Can't Be Overreliant," Politico, November 3, 2022, https://ec.europa.eu/commission/presscorner/detail/en/speech_22_5493. Similarly, just prior to his recent trip to China, German Chancellor Olaf Scholz wrote that Germany seeks to "dismantle one-sided dependencies in the interest of smart diversification"; and is putting "supply chains on a broader footing . . . for example with new raw material partnerships." He added that where China bars reciprocity, "it cannot be without consequences." https://www.politico.eu/article/olaf-scholz-we-dont-want-to-decouple-from-china-but-cant-be-overreliant/.

The report further quotes Breton as stating that "the European market is open, (but) with conditions."Fischer, "Market Commissioner Breton Warns Governments." According to the report, Breton also warned European businesses that they are expanding their investments in China at their own risk, as the country is becoming more "autocratic."Fischer, "Market Commissioner Breton Warns Governments."

It would be inaccurate to say that European efforts have only been rhetorical. There have been at least three significant sets of actions involving human rights, cybersecurity, and cooperation to promote investment:

Network and Information Systems (NIS) Cooperation Group, "Cybersecurity of 5G networks: EU Toolbox of Risk Mitigating Measures," European Commission, January 2020, UK Department for Digital, Culture, Media and Sport, National Cyber Security Centre, and the Right Honourable Oliver Dowden CBE MP, "Huawei to Be Removed from UK 5G Networks by 2027," Government of the United Kingdom, Press Release, July 14,2020, According to The Economist, "Australia, Canada, New Zealand and Sweden have followed America in banning Huawei gear outright. New rules in Britain force carriers to remove all Huawei technology from public 5G systems by 2027. France has asked operators to rip out Huawei gear from many parts of their networks. Other countries, such as Japan, have not barred Huawei but signaled that it is unwelcome. The constant risk of fresh restrictions has led many customers in places without bans to steer clear of Huawei. This has already happened in Italy and Portugal." See "Can Huawei Thrive despite American Sanctions?," Economist, October 25, 2022, Cybersecurity: A key set of issues related to whether the Chinese telecommunications company Huawei Technologies Co. Ltd. would be allowed to provide 5G networks for European countries. The EU adopted a "cyber toolbox" for dealing with the risks raised,https://digital-strategy.ec.europa.eu/en/library/cybersecurity-5g-networks-eu-toolbox-risk-mitigating-measures. and the United Kingdom undertook its own review.https://www.gov.uk/government/news/huawei-to-be-removed-from-uk-5g-networks-by-2027. Partly as a consequence-and in combination with limits on Huawei and vigorous diplomacy by the United States-a number of EU member states and the United Kingdom decided not to utilize Huawei.https://www.economist.com/business/2022/10/25/ren-zhengfei-has-big-plans-for-huawei-in-spite-of-american-sanctions.

In December 2021, the European Union announced that it will place extra tariffs on aluminum foil coming from China after the European Commission found that producers in China benefited from excessive and unfair subsidies."EU to Impose Extra Tariffs on China Aluminium Foil over Subsidies," Reuters, December 22, 2021, https://www.reuters.com/markets/commodities/eu-impose-extra-tariffs-china-aluminium-foil-over-subsidies-2021-12-22/.

In March 2022, the EU imposed anti-subsidy duties on imports of stainless-steel cold-rolled flat products originating in Indonesia and India to counter subsidies on raw materials and transnational subsidies from China."EU Counters Steel Subsidies Resulting from Export Restrictions on Raw Materials and Transnational Subsidies from China," European Commission Press Corner, March 16, 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1774; and Max Hall, "EU Adds Anti-subsidy Duty to Existing Trade Measures on Indian and Indonesian Steel," pv magazine, March 21, 2022, https://www.pv-magazine.com/2022/03/21/eu-adds-anti-subsidy-duty-to-existing-trade-measures-on-indian-and-indonesian-steel/.

In 2022 and 2020, the EU imposed duties on glass fiber fabrics and products from Chinese companies or joint venture on products arriving via Morocco and Egypt."EU Acts to Stop Chinese Glass Fibre Fabrics Circumventing EU Tariffs via Morocco," Directorate-General for Trade, European Commission (website), February 25, 2022, https://policy.trade.ec.europa.eu/news/eu-acts-stop-chinese-glass-fibre-fabrics-circumventing-eu-tariffs-morocco-2022-02-25_en.

In support of Lithuania, the European Parliament has passed resolutions calling "on the PRC to revoke its unjustified sanctions against Lithuanian officials" and condemning "the PRC's trade restriction," which came in response to Lithuania allowing "Taiwan" to be utilized as part of the name of the Taiwan economic office that was opened in Lithuania.

III. Recommendations

The recommendations below are intended to provide specifics for such a coordinated strategic security and economic framework for the United States and the ADEs in dealing with the challenges presented by China.

A. Enhance economic and security coordination by expanding the G7 to a G10-plus to formally include Australia, Norway, the Republic of Korea, and the European Union and by establishing a multinational staff focused on China

As the substantive recommendations below are generally multinational-or at least have multinational consequences-an important element of implementation will be to undertake appropriate diplomatic efforts to achieve as broad a consensus as possible as to their substance. This will involve both sustained bilateral discussions and the use of a variety of fora such as the US-EU Trade and Technology Council, the "Chip 4" alliance (Japan, Republic of Korea, Taiwan, United States), and the Quadrilateral Security Dialogue (Australia, India, Japan, United States), known as the Quad. From the US perspective, it will be important to recognize the often-substantial differences between the American economy and the economies of allies and close partners, and to incorporate that understanding into a realistic strategy that will mitigate security and economic risks without causing unwarranted economic harm.

The newly established G10-plus should create a multinational staff to help coordinate and implement China policy. Indeed, this change is even more important than the formal expansion, and the staff should have three foci: intelligence, economics, and security.

First, a shared intelligence picture will illuminate economic and security decisions. Each of the G10-plus countries (and the EU) will likely have information that others may not, and a common picture on economic and security matters would be invaluable for policymakers.

Second, economic coordination should include actions (as discussed below) with respect to limits on China in the domestic markets of the ADEs; actions taken regarding China's domestic market; and actions of importance taken with respect to other countries including those focused on the Global South. A common approach to the export of high-end capabilities, for example, will be very important as will be protections to enhance resilience for critical infrastructures. Similarly, a number of Indo-Pacific strategies have been promulgated by different members of the prospective G10-plus, and it will be highly valuable for G10-plus members to have a common understanding of how those multiple economic strategies are being implemented.

Third, security issues include limitations on trade and investment with China-the specifics for a number of which are discussed below. Security also involves gray area/hybrid concerns such as cybersecurity and influence operations, matters involving the global commons including freedom of navigation and space, security support to nations in the Indo-Pacific, and deterrence and defense issues including those concerning Taiwan, the East China Sea, and the South China Sea.

Regularizing information sharing and, as appropriate, coordination on each of the above three areas would allow for a more effective set of policies toward China (though the lead for military and intelligence issues such as military planning and operations would remain elsewhere).

B. Establish national security limits on transactions with China
1. Limit or prohibit the transfer of advanced capabilities that have significant national security implications. 2. Limit or prohibit trade and investment with companies that have substantial involvement in China's military-civil fusion effort. 3. Limit or prohibit outbound financial investments that support China's development of advanced or emerging technologies that have national security implications.
In earlier versions of the CHIPS and Science Act, the draft statute provided for review of transactions that transferred to China (or any "country of concern") capabilities or ownership that "could result in an unacceptable risk to a national security capability."Venable LLP, "A CFIUS-Type Review for Overseas Investment? Beware the Outbound Investment Review Framework Proposed in the COMPETES Act," JD Supra (website), February 18, 2022, hDefinition of a legacy semiconductor within Pub. L. 117-167, div. A, § 104, 136 Stat. 1390 (2022), as reprinted in 15 U.S.C. § 4652(a)(6), ttps://www.jdsupra.com/legalnews/a-cfius-type-review-for-overseas-9974345/. While the provision was dropped from the final enacted statute, outside financial investments can support development by China of advanced or emerging technological capabilities with defense or other national security implications. The law does prohibit "material expansion of semiconductor manufacturing capacity in the People's Republic of China" of state-of-the-art technology for a ten-year period after receiving any award under the statute. https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=15-USC-102889058-1966900778&term_occur=999&term_src=title:15:chapter:72A:section:4652.
4. Prohibit the use of Chinese products by the United States and other ADEs in their defense and intelligence sectors.
As discussed above, China is not only the "pacing challenge" for the US Department of Defense, but also a recognized security challenge for the ADEs, as underscored by the AUKUS agreement, and Japan's (and others') concerns over "peace and stability in the Taiwan Strait." Put plainly, China is a potential military adversary and therefore Chinese products should not be utilized to provide any defense or intelligence capabilities to the United States or other ADEs. That limitation should extend to components and to dual-use items to mitigate risks that could affect the functionality of defense or intelligence capabilities.

By way of example, a Department of Defense report concluded that "procuring measurably secure microelectronics sources [e.g., semiconductors, transistors, diodes] is challenged by the potential for China, or countries under the influence of China, to tamper with or insert malicious functionality into microelectronics products."Department of Defense, Securing Defense-Critical Supply Chains: An Action Plan Developed in Response to President Biden's Executive Order 14017, 2022, 35, Stephen Losey, "Pentagon Suspends F-35 Deliveries Over Chinese Alloy in Magnet, Defense News, September 7, 2022, FCC Bans Authorizations for Devices That Pose National Security Threat," Federal Communications Commission, News Release, November 25, 2022, https://
media.defense.gov/2022/Feb/24/2002944158/-1/-1/1/DOD-EO-14017-REPORT-SECURING-DEFENSE-CRITICAL-SUPPLY-CHAINS.PDF. Similarly, the United States recently "temporarily halted deliveries of F-35 fighters following the discovery that the raw materials used for a magnet in the plane were produced in China," https://www.defensenews.com/air/2022/09/07/pentagon-suspends-f-35-deliveries-over-chinese-alloy-in-magnet/. although ultimately performance appears not to be affected. Most recently, the Federal Communications Commission effectively banned the use of Chinese telecommunications capabilities in the United States." https://www.fcc.gov/document/fcc-bans-authorizations-devices-pose-national-security-threat.
5. Prohibit the use of Chinese software for key critical infrastructures in the United States and other ADEs including the electric grid, pipelines, air, rail, ports, finance, health, and water.
The Director of National Intelligence has described China's very substantial cyber capabilities:
6. Expand the scope of review of Chinese investments in the United States and the ADEs that present national security risks.
C. Undertake economic actions to offset unfair Chinese competition and reduce dependencies
1. Utilize tariffs and other limitations including a border-adjustment mechanism to offset the impact of Chinese subsidies and other types of unfair competition that China's state-driven economy supports and that Chinese enterprises undertake. 2. Establish resilient supply chains outside of China to reduce overreliance on the Chinese market through expanded use of tax credits, subsidies, and concessional financing, among other things, and specifically enhance energy-sector and other technology supply chains by developing a critical minerals financing initiative.
Coincident with the need for responding to the risks is the desirability for the ADEs generally to enhance trade and investment with the countries of the Global South. A variety of mechanisms can be utilized. For example, the Quad has six working groups undertaking economic and security cooperation.The working groups are COVID-19 Response and Global Health Security, Climate, Critical and Emerging Technologies, Cyber, Space, and Infrastructure. See White House, "Fact Sheet: Quad Leaders' Tokyo Summit 2022," White House Briefing Room, May 23, 2022, The agreement has been ratified by Australia, but not by India (as of this writing). Rod McGuirk, "Australia Ratifies Free Trade Deals with India and Britain," Associated Press, November 21, 2022, White House, "Fact Sheet: President Biden and G7 Leaders Formally Launch the Partnership for Global Infrastructure and Investment," White House Briefing Room, June 26, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-quad-leaders-tokyo-summit-2022/. Meanwhile, Australia and India are in the process of negotiating a free trade agreement. https://apnews.com/article/british-politics-india-australia-global-trade-business-d538020d808747d28b588a9c784ac207. Multilaterally, the G7 countries have agreed on the Partnership for Global Infrastructure Investment, which is intended to provide $600 billion for infrastructure projects; https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/26/fact-sheet-president-biden-and-g7-leaders-formally-launch-the-partnership-for-global-infrastructure-and-investment/. if accomplished, that will be an enormously valuable achievement.

The countries of the Global South also need capable industries as part of their economies. While the ADE governments do have multiple development financing programs, another worthwhile approach would be to build on the Japanese government's subsidy programs that incentivize companies to move out of China and into more reliable partnering nations. Such an effort could be supported by the use of tax credits, subsidies, and concessional financing. The United States and the other ADEs should utilize the G10-plus format to develop a coordinated approach to expand such incentives with a focus on the Global South.

One specific critical area that demands high focus by the ADEs-both among themselves and with the countries of the Global South-involves the supply chains for energy, especially the critical materials necessary for a clean energy transition, and for other key sectors such as defense.

The key critical materials for the energy sector include cobalt, lithium, nickel, and rare earths. The demand for each is expected to increase by orders of magnitude. The Biden administration has projected:

White House, "Fact Sheet: Securing a Made in America Supply Chain for Critical Minerals," February 22, 2022, "As the world transitions to a clean energy economy, global demand for these critical minerals is set to skyrocket by 400-600 percent over the next several decades, and, for minerals such as lithium and graphite used in electric vehicle (EV) batteries, demand will increase by even more-as much as 4,000 percent."https://www.whitehouse.gov/?s=Securing+a+Made+in+America+supply+chain. The International Energy Agency (IEA) similarly has stated that the "shift to a clean energy system is set to drive a huge increase in the requirements for these minerals, meaning that the energy sector is emerging as a major force in mineral markets." See IEA, The Role of Critical Minerals in Clean Energy Transitions, Executive Summary, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/executive-summary. The IEA document describes demand: "Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Since 2010 the average amount of minerals needed for a new unit of power generation capacity has increased by 50 percent as the share of renewables in new investment has risen."

Another analysis similarly described China's significant involvement in refining and processing critical minerals:

The administration has made some useful efforts to deal with the problem including convening supply chain ministerial fora,"Joint Statement on Cooperation on Global Supply Chains," Media Note, Office of the Spokesperson, Department of State, July 20, 2022, United States and Canada Forge Ahead on Critical Minerals Cooperation," Media Note, Office of the Spokesperson, Department of State, July 31, 2021, DOD Announces Rare Earth Element Award to Strengthen Domestic Industrial Base," Department of Defense Press Release, February 1, 2021, https://www.state.gov/supply-chain-ministerial-joint-statement/. expanding activities with Canada and Australia," https://www.state.gov/united-states-and-canada-forge-ahead-on-critical-minerals-cooperation/; and "Next Steps on U.S.-Australia Critical Minerals Collaboration," Office of Public Affairs, Department of Commerce, November 17, 2021, https://www.defense.gov/News/Releases/Release/Article/2488672/dod-announces-rare-earth-element-award-to-strengthen-domestic-industrial-base/; and "DOD Awards $35 Million to MP Materials to Build U.S. Heavy Rare Earth Separation Capacity," DOD Press Release, February 22, 2022, https://www.defense.gov/News/Releases/Release/Article/2488672/dod-announces-rare-earth-element-award-to-strengthen-domestic-industrial-base/. However, a key requirement remains sufficient financing for the very large future requirements. https://www.commerce.gov/news/press-releases/2021/11/next-steps-us-australia-critical-minerals-collaboration. and establishing contracts for rare earths through the Defense Department."

Establishing such a critical minerals financing initiative would be an important project for the proposed G10-plus.

IV. Conclusion

China will remain an important part of the new globalization. But its relationships with the United States and the other advanced democratic economies have changed and will need to further change in important ways. A combination of selective decoupling focused on national security, advanced technologies, and critical infrastructures and the development of strategic supply chains outside China to reduce dependencies will be the key elements of a new strategic approach. Establishing the G10-plus along with a multinational staff to help coordinate such actions will be invaluable. Successfully undertaking each of those efforts will be of critical importance to establishing strategic stability and economic prosperity for the United States and the advanced democratic nations.

V. Acknowledgements

This report was produced under the auspices of a project conducted in partnership with the Norwegian Ministry of Foreign Affairs focused on the impact of China on the transatlantic relationship.

The author sincerely thanks Anca Ioana Agachi and Alvina Ahmed for their valuable research in support of this issue brief. They are associate director and program assistant, respectively, at the Transatlantic Security Initiative in the Scowcroft Center for Strategy and Security.

IV. About the author

Franklin D. Kramer is a distinguished fellow and board director of the Atlantic Council. Mr. Kramer has served as a senior political appointee in two administrations, including as assistant secretary of defense for international security affairs. At the Department of Defense, Mr. Kramer was in charge of the formulation and implementation of international defense and political-military policy, with worldwide responsibilities including NATO and Europe, the Middle East, Asia, Africa, and Latin America.

In the nonprofit world, Mr. Kramer has been a senior fellow at CNA; chairman of the board of the World Affairs Council of Washington, DC; a distinguished research fellow at the Center for Technology and National Security Policy of the National Defense University; and an adjunct professor at the Elliott School of International Affairs of The George Washington University. Mr. Kramer's areas of focus include defense, both conventional and hybrid; China, including managing competition, military power, and China-Taiwan-US relations; NATO and Russia; cyber including resilience and international issues; irregular conflict and counterinsurgency; and innovation and national security.

Mr. Kramer has written extensively; in addition to the current report, his publications include: on China, Priorities for a Transatlantic China Strategy, Managed Competition: Meeting China's Challenge in a Multi-vector World, and The China Plan: A Transatlantic Blueprint for Strategic Competition (chapters on economics and on "one-world" cooperation); on trade, Free but Secure Trade; on global defense challenges, Transformative Priorities for National Defense and Deterrence Assurance: Why NATO Needs a Plan for the Indo-Pacific Region; on NATO and Russia, NATO Priorities: Initial Lessons from the Russia-Ukraine War, Defending Ukraine: US Must Offer Military Support not just Economic Threats, NATO Priorities after the Brussels Summit, Meeting the Russian Hybrid Challenge, and Meeting the Russian Conventional Challenge; on cyber and resilience, We Need a Cybersecurity Paradigm Change, Cybersecurity for Small and Medium Enterprises and Academia, NATO Needs Continuous Responses in Cyberspace, Effective Resilience and National Strategy: Lessons from the Pandemic and Requirements for Key Critical Infrastructures, Cybersecurity: Changing the Model, Cyber and Deterrence: The Military-Civil Nexus in High-End Conflict, and Cyber, Extended Deterrence, and NATO; on innovation and technology, Innovation, Leadership, and National Security; and on counterinsurgency, Civil Power in Irregular Conflict (principal editor and co-author of the policy chapter) and Irregular Conflict, the Department of Defense and International Security Reform.

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The unitary globalized economy no longer exists. Driven in significant part by security considerations, a new and more diverse globalization is both required and being built. The transition is ongoing, and its final form is yet to be determined.

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Reflections on Globalization, Spain, and the IMF -- Speech by Eduardo Aninat
Eduardo Aninat
Deputy Managing Director, International Monetary Fund
General Meeting of ELKARGI
San Sebastian, Spain, June 29, 2001
Thank you for inviting me to join your conference. Spain is a most fitting location to reflect on international economic developments, given its spectacular embrace of the global economy over the past few decades, and its remarkable political transformation-allowing it to assume its rightful place among the leading democratic nations. In my remarks today, I would like to look at the opportunities and risks of globalization; what globalization has meant for Spain and others; recent world economic trends; and how the international community can help spread the benefits so that far more can enjoy the unparalleled prosperity of the past 50 years.

Benefits and risks of globalization
What exactly is globalization? It could be defined as the increasing integration of activities-especially economic activities-among nations around the world. The driving forces have been improvements in technology (especially in transportation and communication); a desire by people to take advantage of the opportunities provided (whether through trade, migration, investment, and acquisition of knowledge); and in recent decades, the lowering of barriers to international trade and capital flows.

Globalization, of course, is not new. But what is different about the current episode is the enormous impact that new information technologies are having on market integration, efficiency, and industrial organization-along with its implications for human capital development. What is also different is the rapid pace. Since World War II, trade has been a major driving force in economic growth, with global trade expansion proceeding at twice the pace of global output growth. This has gone hand-in-hand with greater internationalization of production, an expansion in the trade of services, the emergence of developing countries as producers and exporters of manufactures, and the explosive growth of international capital flows.

The world as a whole has benefited greatly from this openness. Globally, real per capita incomes have roughly doubled since the mid-1960s, with those in developing countries growing, on average, just as fast as those in industrial countries. The strong consensus among policymakers and economists today is that outward-oriented strategies are essential for achieving the sustained economic growth needed to raise living standards. Indeed, it is difficult to find evidence of a single country that has significantly raised living standards for its people, on a sustained basis, without sharply improving its trade and investment performance. Conversely, despite the skepticism of some, we think the evidence supports the view that more open economies grow faster than closed ones, and that faster growth is essential, although not sufficient, to reduce poverty.

But all this is not to question in any sense that there are very real risks associated with globalization. Let me mention a few.

There is the risk of overstretching the abilities of societies and political structures to adapt.

There is the risk that excessively volatile capital markets will trigger financial crises that can much more easily ricochet from one country to another.

There is the risk that the benefits of globalization will be concentrated among the few, not the many. At the start of the 21st century, 1.2 billion people worldwide still live on less than $1 per day, a number that shows no sign of falling. In Africa alone, one in seven children will die before his or her fifth birthday. This is unacceptable!

There is the risk that diseases, like AIDS, will spread globally at frightening speeds.

There is the risk that crime will become internationalized, as we are already seeing with controlled substances, leading in turn to problems such as money laundering.

And there is the risk that expectations will not be met. A recent U.S. study on Peru, for example, found that a large proportion of respondents who enjoyed income gains-some on the order of 100 percent-over the last 15 years still felt that they were no better off. Similar findings were made for Russia in the second half of the 1990s. This raises complex questions surrounding the "frustrated middle-class."

Thus, our principle challenge, as put so nicely by Nobel Laureate economist Amartya Sen in a recent lecture, is "how to make good use of the remarkable benefits of economic intercourse and technological progress in a way that pays adequate attention to the interests of the deprived and the underdog." In the case of Latin America, I might add, this challenge centers on taking advantage of technological changes to overcome economic and social torpor, revitalize forces of modernization and change, and enhance social mobility.

During the 1990s, many Latin American countries took far-reaching steps to better integrate and quickly began enjoying the fruits. Look at Mexico, which joined the North American Free Trade Agreement (NAFTA) in 1994. Since the 1994-95 economic crisis, it has enjoyed an impressive rebound in capital flows-chiefly FDI-with growth up markedly, averaging around 5 percent a year. Besides boosting growth and competitiveness, NAFTA has helped anchor Mexico's commitment to its political, economic, and social reforms.

Take Chile. In the 1990s, tariffs fell from 15 percent to 9 percent, and are set to drop to 6 percent by 2003. This was on top of bilateral free trade pacts with Mercosur, Mexico, Canada, and others. What was the payoff? It allowed the agriculture sector to import the technology needed to become export-oriented and profitable. A side benefit was that working with better technology built up human capital. How did Chile maintain political support? One way was making trade reform part of a comprehensive program-including compensation mechanisms for those hurt by trade liberalization, and the rebuilding of social institutions (such as pension reform). Another way was careful political consensus building.
The case of Spain
But Spain no doubt is the star performer in the Spanish-speaking world when it comes to making a dramatic leap into the economic "big leagues"! Let me cite a few examples.

Spain is catching up with its European peers. Its per capita GDP has jumped from about 75 percent of the EU average in the mid-1970s to nearly 87 percent now, with most of the increase taking place just in the last five years. The economy has been growing at an average 4 percent annual rate over the last four years, and should grow at around 3 percent this year.

This progression up the development curve has gone hand-in-hand with a dramatic change in which goods Spain exports. While the export of foodstuffs fell from 53 percent of total goods exports in 1964 to 13 percent by 2000, the share of nonfood consumer goods in exports more than doubled [12% to nearly 28%], and the export of intermediate goods (other than food and energy) doubled [21% to 42%].

Trade plays a far more important role in Spain's economy, with exports (of goods and services) plus imports shooting up from 27 percent of GDP in 1970 to 62 percent in 2000. This increase is most impressive!

We also see major changes on the services front. Spanish banks are increasingly playing a prominent role in Latin America, with these banks now controlling nearly 20 percent of Latin America's banking sector. Indeed, subsidiaries of these banks are among the largest banks in Argentina, Chile, Mexico, and Venezuela. In addition, major Spanish firms like Repsol-YPF (energy) and Telefonica (communications) are investing heavily in Latin America.

Facilitating this flow of capital from Europe to Latin America, a stock exchange recently opened in Madrid (the Latibex) to enable Latin American firms to be listed in Europe with prices quoted in euros.

Moreover, Spain's foreign direct investment has shot up in the last decade from less than 1 percent of GDP to nearly 10 percent, and inward FDI has risen from just under 3 percent of GDP to nearly 7 percent. Spain has gone from being a net importer of investment on the order of 2 percent of GDP annually to being a net exporter on the order of 3 percent. Indeed, Spain is now the sixth largest investor in the world, trailing only the United Kingdom, the United States, France, Germany, and the Netherlands. It is also the twelfth largest donor of official development aid and the eighth largest contributor to the UN.

Why did Spain arrive with a splash? No doubt globalization and a desire to integrate with the rest of the world-after a long period of protectionism and political and economic isolation-was a driving factor. Of course, this didn't happen overnight but rather reflected a carefully calculated act of faith spread over many decades that has paid off. What are the landmarks? Let me mention four.

First, trade liberalization. This began with the 1959 stabilization plan and the return of European tourists after the upheavals of civil and world wars. As our colleague Mr. de la Dehesa reminds us, Spain was more open in 1913 than in 1960, with Turkey the only OECD country less open than Spain at the time. The process of liberalization was gradual and moved in stages, as Spain set its sights on integrating with the rest of Europe and partook in the global trade rounds.

Second, Spain's integration into the European Union (EU). This resulted in a very intense period of trade reform, with administered trade regimes being abandoned and tariff structures being brought into line with EU requirements. Earlier, Spain had joined the IMF, World Bank, and OECD (1958-1959), had signed a preferential accord with the European Community (1970), and had also entered into an accord with EFTA (1979).

Third, changes in the legal system. These were substantial in the early 1990s as Spain brought its laws into line with EC standards, and updated and reformed its laws to make them as complete, functional, and modern as those of its peers. Key changes included the liberalization of its exchange control system, the liberalization of foreign investment in Spain and Spanish investment abroad, and the overhaul of its securities law.

Fourth, changes in monetary policy and status of the central bank. Spain's monetary policy underwent numerous transformations over the years as the economy gradually opened up. From 1973-83, the government followed a monetary policy that was characteristic of a relatively closed economy, concentrating on the control of broad monetary aggregates. Between 1984 and 1989-when growing financial innovation made ensuring the stability of the financial system an increasingly important goal-monetary policy gradually began to focus more on interest rates and exchange rates. This process culminated with Spain entering the European Monetary System in 1989, putting the emphasis of monetary policy largely on the exchange rate. In 1994, parliament recognized the principle of central bank independence, switching the focus of monetary policy to price stability, but keeping Spain within the framework of the EMS. In 1995, Spain successfully implemented an inflation-targeting regime. Finally, in 1999, Spain became a founding member of the euro.

* * * * *

This careful planning has paid off with Spain significantly outperforming its euro-area colleagues in most respects. Even a casual glance at the data makes clear that Spain stands close to the head of the class. Over the last four years, real output has grown at an annual rate of 4 percent, and over the last six years, it has grown faster than for the euro area as a whole for each and every single year. Over the same period, real exports have grown by an average of 10 percent annually, about one-third better than for the euro area as a whole. Indeed, it was the strong growth of real exports in the mid-1990s that led off the current economic expansion.

Spain also deserves high marks for putting its fiscal house in order. Over the last five years, the budget deficit has declined from 6.6 percent of GDP to just 0.3 percent of GDP-a major achievement by any standard-with the government hoping to achieve fiscal balance this year. In addition, the ratio of debt to GDP, which in the mid-1990s stood at 68 percent of GDP, has now declined by eight percentage points, and further declines are in the offing. Of course, other countries in the euro area have also made great strides on the fiscal front in recent years. But Spain has managed to do so by relying relatively more on expenditure cuts than revenue increases.

To be sure, significant challenges still remain. On the job front, although employment has shot up in recent years (averaging 3½ percent annually since 1995, an astounding three times the euro-area average), the unemployment rate stands at a very high 13.4 percent, with significant human and social costs. But keep in mind that as recently as 1996, the rate of unemployment averaged more than 22 percent. Spain was able to turn this around thanks to wage moderation on the part of workers, better labor relations, and substantial labor market reforms that reduced dismissal costs and social security contributions for certain classes of workers. Further reforms are now needed to continue to reduce dismissal costs, enhance labor mobility, and decentralize the collective bargaining process. And Spain must continue to tackle regional disparities.

Spain should also move quickly to dampen inflationary pressures, as its persistent inflation differential relative to the monetary union average could lead to an erosion of exporters' competitive position in the medium term. Although this higher rate could be a natural outgrowth of the process of income convergence between Spain and the rest of the euro area, it is difficult to find support for this contention in the data. Thus, continued fiscal discipline and product market reforms to enhance competition and efficiency are in order.

As Spain now charts it way forward, it must do so with a world economy undergoing a critical period of adjustment. The engine of global growth over the past 10 years-the U.S. economy-is sputtering, with no other region taking its place. The IMF is forecasting world growth of around 3 percent this year, significantly lower than was generally foreseen last year. This is down from its 12-year high in 2000 of 4 ¾ percent, but still roughly in line with the average growth rate over the past two decades. On the plus side, the timely U.S. interest rate cuts and tax relief should help facilitate a pick up in the second half of this year, gaining momentum in 2002. Moreover, global inflationary pressures remain manageable, allowing room for maneuver in monetary policies. But on the negative side, oil prices still remain high, substantial current account imbalances remain among the major industrial countries, Japan's situation appears increasingly difficult, and stock markets remain volatile.

Against this background, can the euro area manage growth around its underlying potential of 2.5 percent this year? The recent slowdown of industrial production, particularly in Germany, combined with rising headline inflation gives rise to concern. While the recent increase in headline inflation may limit the scope for aggressive monetary easing by the European Central Bank, a further weakening of activity, or signs that underlying inflation is abating, would allow scope for additional rate cuts. The main policy priority, however, remains that far more is needed in terms of ambitious reforms to get rid of structural rigidities, especially in labor markets, pension systems, and product markets. Moreover, Europe should be aiming at boosting potential growth to well over 3 percent-an increase that would significantly lower unemployment, strengthen the euro, and help strengthen the global economy.

What the international community needs to do

So how can the international community help spread the benefits of globalization? Industrial countries should practice what they preach, and open up their own economies, especially in areas where developing countries have a clear and demonstrated comparative advantage-agriculture, processed foods, textiles and clothing, and light manufactures. A reduction in trade barriers by 50 percent globally would yield welfare gains in the order of an estimated $400 billion annually for the global economy-with developing countries capturing one-third of these gains! That is why developing countries should push for a new global trade round, a so-called "development round." Meanwhile, the IMF supports calls for the poorest countries to have duty- and quota-free access to industrial country markets. Here we welcome the EU's recent initiative. It is also political and economic madness for OECD countries to spend around $360 billion a year on agricultural subsidies-roughly equivalent to the entire GDP of sub-Saharan Africa.

Industrial countries should also deliver on their long-promised increase in official development aid to the targeted level of 0.7 percent of GDP. And they should follow through on their pledges for debt relief to the poorest countries-here, we welcome the decisions by a number of G-7 countries to forgive 100 percent of bilateral debts. Of course, debt relief is no panacea, but it will give these countries a leg up in their fight against poverty. Ultimately, poverty reduction will hinge on countries helping themselves ("self-help") and the international community supporting those that help themselves ("help for self-help").

Of course, the IMF has a vital role to play in the team effort to spread global prosperity. The spotlight is now on crisis prevention in the wake of the financial turbulence of the 1990s. Let me flag a few initiatives.

First, the IMF has been beefing up its monitoring of national economies. One particularly innovative effort-jointly with the World Bank-is "health checks" of a country's financial system, or Financial Stability Assessments. We want to know how well the financial system would handle adversity, and get a reading on indicators that have signaled crises in the past. Where needed, the IMF and World Bank stand ready to support the national authorities with follow-up technical assistance to help overcome the identified weaknesses. Already, we have done health checks on 20 countries, with about 30 currently under way. More broadly, we are looking carefully at all indicators of viability and refining early warning systems, with the aim of identifying crisis symptoms at the earliest possible stage.

Second, the IMF has been working to dramatically increase the transparency of economic and financial data in recent years. We firmly believe that timely and detailed information can prevent the building up of problems by forcing governments to take appropriate actions at the right time. It also enhances accountability. Of course, the need for greater transparency applies to the IMF as well.

Third, we are also looking afresh at the policy conditions we attach to loans, in the interest of greater effectiveness of our assistance and stronger ownership of reforms by the countries involved. The emphasis is on narrowing the range of required policy measures to focus on those measures that are essential for achieving the macroeconomic goals of the program. This streamlining effort shall in no way mean that incentives for structural reform and sound programs are being diminished.

Fourth, the IMF, along with other international agencies, has been crafting better international standards and codes of good practice. We now have standards for data dissemination, fiscal transparency, monetary and financial policy transparency, and banking supervision. The hope is to provide guideposts for "health checks" of financial systems and economies in general. Better information and standards should also benefit-and help integrate-the poor countries as well as the rich ones.

Fifth, the IMF has begun an informal but regular dialogue with high-level representatives of private financial institutions. This includes the creation last year of a Capital Markets Consultative Group. We are also on the verge of setting up anInternational Capital Markets Department at the Fund. These efforts reflect the new economic landscape, which features private capital flows that are far greater than official flows in both volume and sophistication.

Sixth, the IMF is working with the poorest countries, especially the most heavily indebted ones, to dramatically reduce poverty. A new approach that asks countries to take more ownership of their economic reforms-by drawing up Poverty Reduction Strategy Papers-shows some early promise. At least, and at last, poverty reduction is now moving to the top of the development agenda, and more segments of civil society are being consulted in the process. We are encouraged by "the spirit of Libreville" when African leaders met in January last year in Gabon and committed themselves to confront poverty head-on, with the active participation of their development partners. In fact, I must lend testimony-having attended the African summit-that I had not seen before that date such a strong and deeply felt commitment of African leaders to embrace change. That spirit continued and flourished with IMF Managing Director Horst Köhler's visit to Africa in February of this year, jointly with World Bank President Jim Wolfensohn.

But inevitably there will still be crises, even in the best of worlds, so the IMF is streamlining and updating its armory of lending facilities to better resolve crises. We want to discourage the extended use of IMF credit, and position ourselves to be able to respond to a sudden loss of market confidence and the threat of crises spilling over from one country to another. One of our weapons is the Contingent Credit Line, a new IMF loan facility set up in 1999 and overhauled earlier this year. Unlike other IMF facilities, which are aimed at countries already in trouble, this new facility is aimed at keeping countries out of trouble. It offers countries with strong policies an additional, preventive line of defense against potential episodes of financial contagion and of excessive volatility. There is a reasonable probability that Mexico will choose to sign up for this facility by year-end.

We are also searching for new ways to keep the private sector engaged in crisis situations-not running for the exits. On this front, substantial progress has been made in recent months, but the discussion continues.

* * * * *

In closing, I would just like to underscore how inextricably woven together our lives are in this world of increasing globalization. This puts the burden on the "haves" to reach out to the "have-nots." Or as the famous economist Amartya Sen recently put it: " ...there are critically important issues that need to be addressed in the mixed world of massive comfort and extreme misery in which we live-often far too peacefully and complacently. There is a need to reduce the contrast between our universe of remarkable possibilities and the stubborn prevalence of relentless deprivation. The world needs more interaction-not less."

The IMF seconds that notion and stands ready to help render globalization as beneficial and benign as possible, for more and more people around the world. Of course, this will take a team effort, drawing on international institutions that continually evolve to reflect the realities of the 21 st Century. On this point, who better to quote than Michel Camdessus, the former Managing Director of the IMF and a personal friend of us all. In 1999, he said in a speech to the Palacio de Congresos in Madrid: "We are the first generation in history to be called upon to organize and manage the world, not from a position of power such as Alexander's or Cesar's or the Allies' at the end of World War II, but through a recognition of the universal responsibilities of all peoples, of the equal right to sustainable development, and of a universal duty of solidarity."

IMF EXTERNAL RELATIONS DEPARTMENT

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Reflections on Globalization, Spain, and the IMF -- Speech by Eduardo Aninat

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Given at the General Meeting of ELKARGI, San Sebastian