Don't count out globalisation: Ravi Menon

Straits Times

3 days ago

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Former MAS chief Ravi Menon said that globalisation will continue to take place, driven by economic and market forces in search of efficiency and growth.
SINGAPORE – The fragmenting of the global economy will be an enduring trend, but this does not mean that the world will inevitably become less integrated and interdependent.
Despite visible setbacks such as tariffs and rising protectionism, former central bank chief Ravi Menon argued on July 29 that globalisation will continue to take place, driven by economic and market forces in search of efficiency and growth.
But given the opposing forces acting on the global economy, the onus is on countries to scan the horizon, discern underlying trends and shape a new form of globalisation, Mr Menon said at a July 29 conference organised by the Institute of Policy Studies and Singapore Business Federation.
He noted that world trade reached recorded highs following the US-China tariffs imposed during the first Trump administration, and that today's
highly integrated supply chains would be very difficult to untangle.
The law of comparative advantage – which posits that countries benefit from specialising in producing goods and services they are good at – is also 'extremely difficult to dislodge', said Mr Menon, who became Singapore's first ambassador for climate action following his retirement from the Monetary Authority of Singapore on Jan 1, 2024.
'Business people know this – they see supply chains shifting and configuring, not completely collapsing and breaking down,' he said.
'Like water in nature, trade finds a way... maybe less efficient, more frustrated, but it seems to find a way.'
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While an 'inordinate amount of attention' has been put on trade in goods, Mr Menon pointed out that globalisation consists of a range of other cross-border flows – such as in services, investment, finance and talent – and countries need to understand what is going on in each of them.
At the panel discussion, there was broad agreement that the US, which had long promoted the global trading system, was no longer willing to do so.
Former US trade negotiator Wendy Cutler said she does not see the US going back to
being a global leader on issues such as trade and climate change, even after President Donald Trump's second term.
'It's going to be a very different (America), I don't see us again becoming the guardians and the leaders of this rules-based trading system,' said Ms Cutler, who is vice-president of the Asia Society Policy Institute.
Short of that, there are things that the US and other countries can do to keep globalisation going, such as with smaller groups of like-minded countries working together and striking sectoral agreements, she added.
Fellow panellist Muhamad Chatib Basri said one way that Asean countries can do so, perhaps even with external partners, is through flexible coalitions where common ground can be reached.
The former Indonesian finance minister said such issues of mutual interest include pandemic resilience and energy security, particularly in renewables.
Mr Menon highlighted two other ways in which a renewed globalisation could take shape: countries' desire for greater supply chain resilience, and new drivers of integration such as the digital and green economies.
On the first, he noted that the trend is towards diversification and near-shoring to manage supply chain risks.
Climate change and
the attendant impact on food supplies and trade routes also mean countries need to go beyond traditional risk assessments to understand their supply chain vulnerabilities, he added.
On the flipside, the likelihood is that the digital and green economies will be key pillars of future growth, which represent new opportunities for deeper economic integration between countries.
These include areas such as common standards for environmental goods and services, the cross-border flow of green finance, and trading of carbon credits, said Mr Menon.
But he emphasised that the most important enabler of continued globalisation is for countries to have sound economic and social policies that deliver shared prosperity at home.
Much of the current backlash against globalisation is due to countries failing to upskill their workforce, bring in new investments, and consciously spread the benefits across their societies, he added.
During the question-and-answer segment, Ambassador-at-Large Tommy Koh asked whether, in this new paradigm, countries should get used to a world without American leadership.
He noted that the US today is against free trade, globalisation and multilateralism. It has also withdrawn from institutions such as the World Health Organisation and global pacts
such as the Paris Agreement .
Yet, all these things are not dead, he noted.
'America is important, but it is not indispensable. We should get used to the idea of a world without America,' he said to applause from the audience.
Ms Cutler said in reply that the US is a diverse country, and that while President Trump is pursuing certain policies, it does not mean he has unanimous support from Americans.
'Maybe you don't like some of the stuff we're doing now, but that doesn't mean the world doesn't need or doesn't want America, or America can't help... or change, looking forward,' she said.
'So I would just caution everyone to avoid this black-and-white kind of description of where things stand.'