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‘Back to the future’: this is what 2022 was supposed to be. After two years in a pandemic, global economy was on its way to a robust and lasting recovery, while the (partial) successes of the Italian G20 and COP26 in Glasgow seemed to suggest that a new season for effective multilateral cooperation could begin.

The war in Ukraine changed it all and was the detonator of a new international crisis that put to the test the limited progress achieved in 2021. Instead of going back to the future, apparently the future looks back. It looks back to a past of twentieth-century conflicts, with tanks and boots on the ground, to the inflation of 40 years ago, and to an energy crisis that seems to turn the clock back to the 1970s. Besides, all this is giving credit to the perception of a world divided into blocks, with some speculating Cold War-style scenarios that we thought we had definitively consigned to history. In fact, the intriguing academic hypothesis of ‘The West and the Rest’ model conceived by Niall FergusonFootnote 1 a few years ago appears today much closer to reality, with many experts and policy makers ringing the alarm for the end of globalization and the beginning of a new era of fragmentation, conflict, and lack of cooperation. But is this really the case? To answer this question, it is important to take a closer look at the current international tensions and their prospects without indulging in catastrophic scenarios.Footnote 2

A Divided World that Sticks Together

There are at least three continuing trends that signal a growing fragmentation and division of today’s world into alternative blocks increasingly competing with each other.

Firstly, when looking at the distribution of world GDP (in terms of Purchasing Power Parity), China accounts for 18.8% (East Asia for 26.5%), the US for 16%, the EU for 18%.Footnote 3 In real terms, therefore, it seems that China has already overtaken its main competitors. The global economy now appears to be organized around three main blocks: the US, the EU and Asia. As the US and the EU seem to share similar values and objectives, one could (over)simplify and look at them as a single block (the ‘West’).

Secondly, geopolitical tensions in recent years are leading to a growing redefinition of global value chains through the practices of reshoring, friend-shoring, and near-shoring.Footnote 4 Preliminary data seem to confirm this trend. In the US, repatriation of foreign investments (50% from Asia) involved more than 9000 companies in the 2010–21 period. In the EU, according to (unfortunately not very up-to-date) data from the European Commission's European Reshoring Monitor, 253 reshoring projects were recorded between 2015 and 2018, with Italy and France topping the list of ‘repatriations’ (mostly from China and the Far East and mainly in manufacturing industries).

Last (but definitely not least), the global race for technology leadership has taken off. As chips get smaller, their power multiplies. They are the objects of desire of major economic powers because they are now ubiquitous and crucial in manufacturing industries (from cars to computers, from defense and security equipment to ‘green’ technologies). Today they represent the real source of contention in the race for tomorrow’s economic leadership. So much so that all the main players are pursuing ambitious industrial policies aimed at strengthening their semiconductor supply chains. If Taiwan (despite its small geographical size) is now by far the leading producer of latest-generation microchips (with a global share of 90%), China has long been working to catch up: its ‘Made in China 2025’ plan—launched in 2015—aims to reduce its technological dependence on foreign countries by 30% in ten years. And the West is trying to follow suit: the USA launched the ‘CHIPS and Science Act’ in July 2022, putting 53 billion dollars on the table, as did the European Union, which last January launched the ‘European Chips Act’, planning to invest 15 billion euros in an attempt to double its global market share from 10 to 20% by 2030. On strategic assets such as chips, everyone is trying to go it alone and decrease their dependence on others, to the extent that a new economic war could be around the corner. Export restrictions of technologies to China, introduced by the US in last October, were a bold move that could trigger harsh countermeasures from Beijing.Footnote 5 However, economic tensions are rising not only between the US and China, but also between the US and the EU: the firing power deployed by Washington through the 369 billion dollars included in the Inflation Reduction Act, aimed at subsidizing domestic ‘green’ industries, has made Europe upset. Washington was accused of unfair competition through discrimination of EU companies willing to enter the US market, and the European Commission is now considering to respond by setting up its own subsidy program. Clearly, this protectionist revival might create a new rift between the two sides of the Atlantic—which appear less united than one might think—triggering consequences that could be potentially detrimental to the whole international trade system.

However, are these trends a clear-cut evidence that globalization is coming to an end? Before rushing to conclusions, it is worth recalling the high degree of interdependence among the major economic blocks. World trade reached a record 28.5 trillion dollars in 2021, making up much of the ground lost during the pandemic. Trade is set to grow further in 2022 (not by 4.7% as it had been predicted at the beginning of the year, but still by 3.5%), despite war, inflation, rising interest rates and a pandemic that is not entirely over. In short, it seems that international trade is still holding up well.Footnote 6 After all, there are several elements that bind the West and the so-called rest of the world together. The West still controls the monetary system through the US dollar, which dominates as the most-used currency in global transactions (80% of international trade) and as a foreign reserve currency (60% of global monetary reserves, followed by the euro at 21%). In addition, the ‘West’ (or more precisely Europe) is home to the SWIFT payment system (based in Belgium), which remains by far the most widely used system in the world despite China’s and Russia’s efforts to put in place ‘home-made’ alternatives that currently operate predominantly at domestic or regional level.Footnote 7 And the ‘West’ also controls the market for transport and insurance services—absolutely crucial in a time of supply chain bottlenecks. This market is almost completely run by London’s financial hub, which covers about 95% of the world's fleet of tanker ships.

By the same token, the ‘Rest’ owns many assets which are essential to the West. This holds true particularly when looking at the share of energy and raw materials in the hands of non-Western countries. Russia is still the world's second largest producer of oil and gas despite Europe’s attempts to make itself independent from imports from Moscow. Together with Russia, OPEC is able to influence the price of hydrocarbons by controlling the supply lever. When it comes to renewables, China is a major shareholder and occupies a leading position in photovoltaic capacity installed on its territory (one third of the world total). Beijing is also the leading producer of solar panels (over 80% of the world total production) and lithium batteries (with a 76% share), which are essential for the manufacturing of electric cars around the world. Not to mention other raw materials and, above all, critical minerals and rare earths that are increasingly decisive as the ‘fuel’ for the digital and the green transitions. According to the International Energy Agency, global demand for these commodities is set to grow by more than 500% between now and 2050. Currently, China holds 35% of global nickel refining capacity, between 50 and 70% of lithium and cobalt and over 90% of rare earths.Footnote 8 In a nutshell, Beijing owns most of the world’s most precious resources. It has also been smart and forward-looking in making an early move through strategic investments in Africa and Latin America that strengthen its position.

Thus, in a world where all actors behave rationally, globalization should not be doomed to fade. In light of such a tight interdependence, it should simply be in everyone's interest to make it work. However, the war in Ukraine rings a bell when it comes to the emergence of possible irrational behavior. Until last February, we thought that Vladimir Putin's threats against Ukraine were just boutades, despite the presence of 190,000 Russian soldiers amassing on Ukraine's borders. Today, on the contrary, the world is confronted with the potential threat of a nuclear escalation, despite the irrationality and immorality of such option.

While hoping that rationality holds, it is worth analyzing the wider implications of the above context for global governance.

The Enduring Crisis of Multilateral Global Governance

The last three years have been extremely difficult for the global community and have put the resilience of multilateralism—which already looked weaker than ever—to the test. However, despite this difficult context, in 2021 international cooperation gave the impression that it was still up to the task. Thanks to a renewed feeling of unity which was urged by the imperative to restart global economy after a catastrophic 2020, it was possible to find common ground and make progress on some important initiatives: the extraordinary allocation of $650 billion in Special Drawing Rights by the IMF; the commitment to boost global vaccination rates against COVID-19; the agreement to introduce a global minimum tax to establish a level playing field aimed at reducing unfair competition; and the commitment made at COP26 in Glasgow to contain global warming within 1.5 degree Celsius to avoid a climate ‘Armageddon.’

Is this enough to relaunch multilateralism? Unfortunately, the answer is probably no. This was made clear by the outbreak of the war in Ukraine, which brought multilateral cooperation at a new standstill. To begin with, the United Nations were not able to achieve unanimity in condemning Russia’s illegal invasion of Ukraine. This situation highlighted the risk of a widening fracture between Western countries, that imposed several rounds of sanctions against Russia, and the ‘Rest,’ with many countries including China not following the G7 along this route. Spillovers on other multilateral fora were inevitable and contributed to a lower level of ambition at key gatherings such as the G20 Summit in Bali and COP27 in Sharm el-Sheikh, Egypt. Amid such a tense international environment, achieving any substantial result would have been extremely hard. However, at least in Bali a common ground among G20 members was found, thanks to a widespread condemnation of Russia’s invasion of Ukraine, the acknowledgement of the negative economic implications triggered by the war and, significantly, the unanimous refusal of any threat to use nuclear weapons. Issuing a final communiqué went beyond initial expectations, and Indonesia’s G20 Presidency deserves to be praised for its firm commitment in exploring room for multilateral dialogue until the very last moment. And some sort of minimal result was achieved also at COP27, with the promise to adopt a Loss-and-Damage Fund for developing and vulnerable states. But all the details related to its functioning (how many resources it will consist of, who will pay for it, and who will eventually get the money) still remain up in the air and their definition has been postponed until 2023: once again because of the impossibility to find a compromise between Western countries and China. In fact, European States and the US would like Beijing—as the world’s biggest polluter in terms of CO2 emissions—to join them and contribute to this brand-new fund. Unfortunately, no new commitments to cut emissions were made, making the risk of derailing from the 1.5° target more and more real by the day. At current emission rates, the global temperature could reach a 1.5° increase much sooner than at the end of this century, in less than ten years. The current trajectory suggests that a 2.8° increase by the end of century is increasingly likely and may turn into a catastrophe for our planet.Footnote 9 There is no doubt that this year governments’ priorities have been redirected toward short-term emergencies in the rush to avoid another recession and to curb skyrocketing prices of fossil fuels; but losing focus on long-term challenges would be a terrible mistake.

Multilateralism Keeps Weathering the Storm

Challenging times lie ahead for international relations. Areas of geopolitical tensions will not fade away as well as pressures on energy prices, while the appetite for natural resources (from food to critical minerals and raw materials) will keep growing. This means that risks of further fragmentation are set to remain high, nurturing temptations of economic decoupling and going solo. 2023 will represent another litmus test for multilateralism, which needs to prove that is still able to support and enhance the interdependence that binds countries together. In fact, the rational acknowledgement that national economies still need each other to prosper represents the best ‘insurance’ for further multilateral efforts. National economic interests can be legitimately pursued (for instance through the diversification of supply and economic partnerships or the establishment of careful screening mechanisms of foreign investment), but it should be clear to everyone that self-sufficiency and lack of international cooperation are not only a lose-lose game but probably also a chimera.

Against this background, the dialogue between China and the West should be preserved and possibly improved, even if it takes place in a context of economic competition which—in the interests of all—cannot be detrimental to free trade and investment flows. The race for technology leadership will be the landmark of main trends in global economy for at least the next decade; and this might eventually generate some benefits, fostering innovation and urging all actors to improve their productivity and competitiveness. But the West still needs China and vice versa. Hence, the risk of new ‘trade wars’ could be defused through coordinated efforts aimed at establishing a wider and better level playing field. The WTO is still a key platform to make it possible and it could build upon the last Ministerial Conference in Geneva which showed some positive results.

The G20 could also play an important role in rekindling multilateralism. Despite its flaws and internal rivalries, the G20 could at least aim to the effective implementation of key decisions taken over the last years. In addition, the recognition of the global negative effects of potential financial defaults (especially in many developing countries) should lead to a much more effective Common Framework for Debt Treatment beyond the DSSI (approved in 2020). More broadly, the very fact that for the next three years the G20 Presidency will be chaired by key countries from the Global South (India, Brazil, and South Africa) should be seen as an opportunity to reduce geopolitical fragmentation and the distance between the ‘West” and the ‘Rest.’

In the end, it will be mostly a matter of rationality. If international behaviors are rational, interdependence will keep working as the ‘glue’ that binds together the pieces of today’s complicated global jigsaw. At least a limited multilateralism will survive as no interdependence is possible without it. The storms of the last years are not over yet, but there is still widespread international recognition that navigating toward calmer waters is the best direction for everybody.