The Globalization Myth: Why Regions Matter
By Shannon K. O’Neil
Yale University Press, 2022
Maybe the world is not so flat.
When the best-selling journalist Thomas Friedman published his famous book The World Is Flat in 2005, he was watching the beginnings of the world’s communications and technological integration. At the time, he saw the emergence of global supply chains that increased exports and imports around the world. He believed then that this would result in a flat global economy—globalization with few economic barriers.
In her new book The Globalization Myth, author Shannon O’Neil, a senior fellow for Latin American studies at the Council on Foreign Relations, questions Friedman’s thesis. Writing nearly twenty years after The World Is Flat was published, O’Neil has the advantage of being able to look at troves of economic data related to international trade over the past forty years. She concludes that actual globalization is, as the title states, a myth.
“The story of economic globalization has been told and retold in books, speeches, articles, and news clips,” she writes. “Yet this conventional narrative largely misses the geographic limits of the majority of international commerce. When companies, workers, money, patents, goods, and services head abroad, they don’t go just anywhere. More often than not, they stick close to home. What’s happening to the global economy is better termed ‘regionalization’ than ‘globalization’” (p. 3).
O’Neil argues that geographic distances, cultural and language differences, and political influences have, in fact, stymied the full-on globalization that Friedman thought would occur.
“Contradicting Thomas Friedman’s take, the world is not flat,” O’Neil states. “Moving things is still expensive. . . . Zoom, Slack, and dozens of whiz-bang digital analytics and management tools can’t erase the advantages of similar time zones, languages, and cultural cues or of shorter plan rides for face-to-face meetings. . . . Government incentives to stay regional—free-trade agreements, visa waivers, cheap loans, and other enticements—help too” (p. 5).
O’Neil’s central thesis is that the world economy is internationalized, but that most trade and economic growth is regional. Thus, she differentiates between globalization—the view that the world’s economy is completely flat—and regionalization. All the data, she says, points to a regionalization of the international economy.
Presenting this data, O’Neil shows that the world has developed three major regional economic hubs: Europe, Asia, and North America. Most trade and commerce—of all types, including cross-border capital flows—occur within each of these regions. A much smaller share of the overall global economy moves in a truly globalized way; that is, from one nation to countries outside its own region.
Specifically, her data show that half of all foreign direct investment stays within the home region, most cross-border mergers and acquisitions are regional, and that two-thirds of the revenue generated by Fortune Global 500 companies arises within a region. In terms of cross-border capital flows and financial transactions, most are regional, not global. She adds that “regionally focused corporations mostly outpace the globe-trotters” (p. 30-31).
“By combining regional understanding and cross-country advantages, companies found that they could more effectively compete in the global economic race,” O’Neil writes. “Countries that have become part of a regional bloc now have a distinct advantage over those that remain outside” (p. 36).
The book offers an in-depth look at each regional hub, with one chapter devoted to regionalization in Europe, Asia, and North America. Each of these regions has had its conflicts and struggles, but O’Neil demonstrates how Europe and Asia, in particular, have strengthened their nations’ economic resilience by forming regional bonds.
In her short history of Europe’s regional progress, O’Neil describes how after World War II, Europe’s nations began to reduce economic barriers and form political ties to foster regional trade. With hard work by diplomats, policymakers, economists, and business leaders, European nations adopted a single currency, created the European Economic Community (EEC), and further strengthened regional financial integration. Europe allowed cross-border travel and removed the need for national professional licenses (doctors, teachers, etc.), allowing students and workers to work throughout Europe. These changes also greatly improved intraregional tourism (p. 50).
With the stronger ties between national economies and businesses, all working with single-market regulations, companies in one country were better able to set up manufacturing, sales, marketing, and supply chain systems throughout Europe. This in turn expanded the markets for local businesses, which allowed them to create new jobs in each home nation (p. 62).
In Asia, which is a massive region, O’Neil describes how Japan largely led the way to increased regionalization, starting in the 1970s and 1980s. The Japanese, having had US recovery support after World War II, began investing billions of dollars into what were then “backwater cities”: Seoul, Taipei, Bangkok, and Kuala Lumpur. Then, by the early 2000s, “Japan’s trade with East Asia alone was larger than that with the United States and Europe combined” (p. 78). The capital inflows from Japan helped South Korea, Taiwan, Malaysia, and Indonesia to develop into the economic powerhouses that they are today.
China, says O’Neil, “came late to the development game” due to its political turmoil and communist economy (p. 80). Gradually, Chinese leaders began to open their doors to foreign investment and international trade, especially with their neighbors. Upon receiving billions of dollars in foreign capital, China invested heavily in its own economic growth, pulling more than 850 million people out of poverty.
“China’s neighbors were its earliest and biggest outside investors,” says O’Neil. “China quickly became their largest foreign direct investment bet” (p. 81).
Since the early 2000s, and even more so today, China has imported more goods from its regional neighbors than from the US and Europe combined. However, due to China’s huge manufacturing capacity, and because other Asian nations have a strong domestic manufacturing base, the Chinese export most of their products outside the region, to the US and Europe. “What Asia made, the United States bought,” O’Neil writes (p. 83).
Political tensions persist between China and its neighbors, but despite these problems, the overwhelming economic reality is strong regionalization. “Over the past three decades, as Asia’s companies invested, manufactured, and traded, they have turned to each other” (p. 93).
North America’s Reluctance
O’Neil argues that North America lags behind Europe and Asia in terms of forming strong regional ties, and she says that this is hurting the US, Mexico, and Canada. She describes how NAFTA, even though it was only a commercial agreement, brought tremendous benefits to North American economies. As a result, the US exports nearly five times as much to Mexico and Canada as it does to China (p. 100). She describes in great detail all the companies, industries, and workers who benefited from this regional trade agreement.
“Economic studies show that the narrative of NAFTA-driven decline is dead wrong,” writes O’Neil, documenting that all data show that NAFTA did not cause a rise or decrease in overall employment in the US. Within the massive $21 trillion US economy, NAFTA did not have much impact on jobs (p. 124).
Despite all the improved regionalization under NAFTA, the US has continued to be reluctant to pursue stronger regional economic and political ties with Mexico and Canada. In 2020, the Trump administration abolished NAFTA and implemented the USMCA. This agreement had some benefits, O’Neil states, but in most ways, it stifles regional strength. Specifically, the agreement weakens legal assurances for US and Canadian companies that would like to establish a presence in Mexico. The USMCA, and other Trump administration policies, impose tariffs on many Canadian and Mexican products—aluminum, paper, steel, motorcycles, etc.
“This protectionism [by the US] has created more losers than winners,” she writes. “Consumers lose out for sure [because tariffs increase prices]. . . . Farmers suffer—even with $30 billion in federal aid, farm bankruptcies are on the rise. . . . By hiking the cost of raw materials and parts, tariffs make US-made goods more expensive. This leads to fewer international sales and dampens local purchases . . .” (p. 150).
O’Neil uses four pages or so to document the negative impact of tariffs on North American regional trade, but she says the most negative outcome of US “America First” protectionism is that it isolates the US from the regional market and opens the door for other nations—notably China—to fill the void. Without strong regional partnerships, the US also weakens its ability to compete with other regions.
In the final chapter of the book, O’Neil presents her recommendations for improving North American strength. The author argues that the US needs to form more regional trade agreements and rejoin those that have been abolished.
The expected benefits of regionalization, she says, is backed by extensive economic research. Regional trade facilitations increase employment in each nation, in part because companies can expand their markets to nearby neighbors without paying the high cost of trading with distant lands. As populations decline—causing labor shortages—allowing for increased immigration to the US can greatly improve long-term economic growth. North American nations can provide more educational opportunities, including apprenticeships and training for high-skill workers. By improving regional supply chain infrastructure, the US, Canada, and Mexico can reduce dependency on raw materials from distant countries with sketchy political leanings.
All of this is within reach, she says. North American nations already have a good foundation of political will and mutual understanding. The region needs to strengthen its economic bonds.
“It means shifting Washington’s mindset from ‘Buy American’ to ‘Buy North American,’’’ O’Neil writes. “Today’s and tomorrow’s upheavals are making regional economic hubs all the more important” (p. 168).