Following is an excerpt from ”De-globalization, International Trade Protectionism, and the Reconfigurations of Global Value Chains” published by the Management International Review.
There has been an increasing interest in understanding the impact of international trade protectionism on the global organization and adaptive reconfigurations of value chain activities. The move towards protectionism started in the wake of the 2008 financial crisis, with many economically developed governments enacting populist policies and measures encouraging the local sourcing of supplies in order to protect their local industries and jobs. Such policy interventions have attracted significant interest, which was stimulated by the attempt made by the 45th President of the United States, Donald Trump, to surrender the US’s global leadership and replace it with a more inward-looking and fortress-like mentality, which led to the US-China trade war.
This significant shift of globalization toward international trade protectionism emphasizes the implicit assumption – made by the international business (IB) literature over the past decades – that globalization is ongoing and accelerating. Under this assumption, the dominant IB studies have examined the causes of globalization and its effects on the activities of multinational enterprises (MNEs). In contrast, relatively limited studies have paid attention to the reverse processes – i.e., ‘de-globalization’ or ‘anti-globalization’ related protectionism measures – and their implications for the reconfiguration of [Global Value Chains] GVCs. As some estimates suggest that around 80% of global trade is undertaken through GVCs, and in such a context protectionism measures and trade wars between the USA and China can have significant consequences for the GVCs. Rising protectionism also reflects the slowing down of globalization, suggesting far reaching implications for firms…
…De-globalization – i.e., the process of weakening interdependency between countries – has been ongoing for several years. The process is being underpinned by trade protectionism; government-level initiatives aimed at protecting domestic markets by imposing import tariffs, the strict enforcement of product standards, and policy regimes. The proponents of de-globalization argue that trade protectionism safeguards the sovereignty of countries. For example, some countries place restrictions on the foreign ownership of their airlines to protect their national and cultural integrity. However, several scholars have voiced their concerns that trade protectionism can affect MNEs by increasing the costs of GVCs and those linked to the exchange of tacit knowledge.
With trade protectionism measures, a government can restrict the exchange of products, which leads to a decrease in the financial returns on foreign direct investment (FDI) because of disruption in GVCs. Protectionism can offset any gains linked to cross-border sourcing and encourage firms to source locally, consequently fostering de-globalization.
This state of affairs was also acknowledged by The Economist in its January 2017 cover story, which averred that global companies are “in retreat” during the “era of protectionism” and “the advantages of scale and … arbitrage have worn away.” In addition, the CEOs of world-leading firms have expressed their views on the globally changing business landscape and its implications for GVCs. For example, Jef Immelt, CEO of General Electric (GE), said that “In the face of a protectionist global environment, companies must navigate the world on their own. We must level the playing field, without government engagement. This requires dramatic transformation. Going forward: We will localize”; this was further reinforced by Joe Kaeser, CEO of Siemens, who stated that “localization will matter more”. However, there is a lack of evidence in support of the argument that trade protectionism has changed the international business landscape by disrupting GVCs. Our study, therefore, was aimed at understanding the extent to which GVCs are being disrupted by the introduction of trade protectionism measures by governments.