The big geopolitical question is the extent to which the drive for globalisation and the inexorable business logic underpinning it are going to be tempered by new global policy goals and the growing political and regulatory rivalry between the US, China and Europe.

We have assumed that the business efficiency machine we have taken for granted for the last three decades was on a one-way journey, able to sweep aside everything in its path as the tide of economic growth lifted everyone’s boats.

There is now less reason to think that we are going to revert to that intellectual concept of free, liberalized markets and open trade about which we spoke approvingly and confidently from the 1990s onwards. This era of globalization underpinned the exponential growth of global supply chains and expanding trade which was a conveyor belt of rising living standards across the world. It was a world of low-cost human labour – above all in China; of cheaper goods transportation driven by technological innovation; of policy choices favouring tariff reduction and unilateral liberalisation; and growing ease of mobility of human labour.

In many respects, economics is still doing its job in growing the global economic cake. But politics is failing to distribute the cake fairly or to answer the bigger questions raised by globalization.

Take the resilience of supply chains – when we are facing a pandemic of the sort we are experiencing, do we want to be reliant on either China or India to produce the bulk of the world’s pharmaceutical ingredients?

Or the enforcement of international trade rules when these were drawn up in a previous era when we assumed that the world would converge on more or less similar market-based economic systems.

Or the stark differences in environmental, labour and other standards present in production in different parts of the world creating competitive and policy challenges that need to be addressed.

And the climate agenda which is now central to business planning and the operation of financial markets.

So it is not just a matter of where goods are produced but how, which is threatening to disrupt familiar trade patterns and routes. And whereas the logic of business efficiency and cost optimisation used to be the determinant of much of the world’s trade, there are now other policy considerations to which corporate strategists have to respond.

There are three reasons to think that the next thirty years of globalisation will not be driven by the same dynamic as before.

First, a big part of the current model is about arbitraging human labour costs – going abroad where it is cheapest. But automation, as well as considerations of resilience, are changing that calculus, making it cheaper to stay at home and therefore reducing the need for globalization and the drive for supply chain integration.

Second, governments are increasingly concerned about other dimensions of global supply chains – not just the ability of producers to escape higher environmental and labour laws but also the structuring of intellectual property ‘trade’ to take advantage of low tax jurisdictions. I think we can expect policymakers to try and limit this ‘leakage’. We are seeing more concerted action on tax, and more attempts to make labour and environmental standards a factor in negotiating or ratifying preferential trade agreements.

Third, and above all, the collective strategy of tariff elimination that has endured in the post-war period simply may not survive. For the US, much of the post-war period saw Washington make the case for opening its markets because it believed that this would encourage others to do the same, it did not feel threatened by global trade competition and they felt that that competition would be a good thing in any case.

Not just the Trump administration but elements in the Democrat coalition are now fundamentally challenging these assumptions. The re-shoring or re-patriation of production has become a highly competitive issue in American politics and not just amongst Republican trade hawks.

Of course these doubts are not new. They were there at the rise of Japan, the advent of Mexican off-shoring, and now fuelled above all by China since its 2001 WTO accession. The proliferation of US trade deficits has created a renewed attack of nerves across the aisle especially as the US has been even weaker than Europe at cushioning the social impacts of economic change. No wonder there has been a growing trade and globalisation backlash.

The question is whether the current model can be made fit for purpose in a world where many in the US but also in Europe have come to see the WTO system of tariff reduction as one sided, as the surrendering of leverage and deterrence to the detriment of their interests in favour of countries like China that, in their view, don’t play fair by the rules – in other words, a principle that works too much in favour of trade actors that cheat (or, put it another way, are not Western).

My instinct about the system’s prospects is that the broad principle of tariff disarmament – the continued binding of tariffs into the WTO system – will endure in a weakened state but an increasingly militant and aggressive standoff between the US and China is inevitable, generating disruptive trade barriers and disputes, creating a bifurcation of international product standards and imposing mounting costs on supply chains and reducing business efficiency.

Businesses as well as countries are going to come under mounting pressure to choose which global ecosystem they are going to inhabit – American or Chinese – creating huge pressures on multinational companies that want to be present in both these countries’ major markets and dread the emergence of competing and exclusive international standards governing the production of goods and supply of services.

Similarly, in the case of technology, companies (and countries) will be confronted with the choice, forced on them by US policy, between using Chinese or US/European technology. Smartphone companies are already part way there in having to decide which they use.

Overlaying these pressures is the need to make globalisation politically sustainable by combining business efficiency priorities with those of social equity and income distribution and environmental and climate safety. Political risk, in other words, is now the hallmark of doing business globally in the 21st century. It is the new normal. The key thing is that we do not move from the undeniable truth that globalization could work better to the false conclusion that we are better off without it.

This article is an extract taken from the Parliamentary Network publication ‘Just Transitions’. You can download a pdf version of the full document here.