Beginning of the end for globalisation?

RECENT equity market volatility, including Wednesday's 800- points fall in the Dow Jones Industrial Average, has multiple economic drivers.

Yet, another headwind is political risk, with growing concern about the future of globalisation itself that has long characterised much policy orthodoxy.

The latest example of this is the intensification of the ongoing US-China spat between the world's two largest economies. With looming further US tariffs, China has called this a violation of bilateral and multilateral accords, and threatened more retaliation in what could yet become a full- blown trade war.

The current high level of political risk, by some measures at one of the highest levels in the post-Cold War period, underlines the fact that globalisation is under major stress.

One of the novel features here of the current period of strain is that two of the countries usually known for setting the rules in global affairs - the United States and United Kingdom - are making the world a more uncertain place, from Brexit to the daily pantomime of the Trump White House.

On the horizon in coming weeks is not just the prospect of greater US-China tensions, but also the growing prospect of a hard, disorderly no-deal Brexit.

The "end game" for the current phase of the UK's withdrawal from the EU will come to a head in September and October in what could be a spectacular clash between the new government of Boris Johnson, the UK Parliament, Brussels, and the EU-27 nations.

Yet, the issues and political context that brought about Brexit and Donald Trump's 2016 victory are present in many other countries too.

Take the example of the renewed political tensions in Italy, the third largest Eurozone economy, which could yet see the government collapse in coming weeks amidst wider disagreements between Brussels and Rome over issues from immigration to budgetary discipline.

For some significant time to come, the revolt against liberal establishments will continue to shape the political agenda, even if populists do not always win elections. And large-scale immigration of people will play key roles in shaping elections, not least in western democracies.

What makes this latest bout of political angst so worrying for some market participants is that it comes on top of layers of previous turbulence in the global landscape for perhaps a decade now. This goes well beyond the rise of anti-establishment populists riding the anti-globalisation mood across much of the world.

The multiple challenges now confronting the US-led international order include the recent rise in tensions between India and Pakistan over Kashmir; the fact that Washington's relations with Russia are at one of the lowest points since the collapse of Soviet Communism; the continuing threat from international terrorism; the fact that the Israeli-Palestinian peace process has collapsed again; and continuing instability in nations from Syria to Afghanistan and Libya.

And one of the key mega trends at work, fuelling political tensions too, is a significant movement in global power taking place with a shift to key developing countries with key Asian states, especially China, primary beneficiaries so far.

While the United States remains by far the most powerful country in the world, it is in relative decline at the same time that rising powers' claims for resources are growing, as witnessed by disputes between China and neighbouring countries in the South China Sea for instance.

The gravity of these and other political challenges underlines that many hopes and expectations of the post-Cold War order have given way to a less optimistic landscape, one in which unstable countries including North Korea have acquired nuclear weaponry, and where liberal democracy itself appears to be facing its most serious crisis in decades as basic tenets like free and fair elections, rule of law, minority rights and press freedom are under what seems like growing attack.

Yet, amid the myriad challenges, there are also countervailing developments that could underpin international order and globalisation.

While big multilateral deals are becoming harder to secure, it should be remembered that there was relatively recent agreement by 11 Americas and Asia-Pacific nations of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership accounting for 13 per cent of global trade, the third largest trade bloc after the North American Free Trade Agreement (NAFTA) and EU.

Moreover, NAFTA has just been renegotiated in the proposed new US-Mexico-Canada trade deal. And the EU has relatively recently concluded a range of big economic agreements with countries from Canada to Japan.

And this economic multilateralism is also girded by a dense web of post-war international institutions, especially the United Nations, which continue to have significant resilience and legitimacy decades after their creation.

While these bodies are in need of reform, the fact remains that they have generally enabled international stability and diplomacy, especially with five of the world's key powers all on the UN Security Council.

One example of this is the 2015 UN-brokered Paris global climate change deal. While the agreement is by no means perfect, and the Trump team is withdrawing US participation, it nonetheless represents a welcome shot in the arm for attempts to tackle global warming and, crucially, a new post-Kyoto treaty framework has been put in place for tackling one of the major challenges facing mankind.

Going forward, perhaps the fundamental driver of whether globalisation will be rejuvenated, or rolled back, is the direction of the US-China "G2" relationship which could see growing tensions, but also has potential for fruitful partnerships.

Growing bilateral cooperation is most likely with strong partnership on soft issues (for example, climate change) enabling effective ways of resolving hard power disputes (for example, the South China Sea).

However, growing bilateral rivalry, rather than an increasingly cooperative relationship, is especially likely if Beijing's economic and military power continues to grow rapidly, and the country embraces an increasingly assertive foreign policy stance toward its neighbours in Asia.

Taken overall, while globalisation is under growing challenge, there are also countervailing forces in play.

The biggest uncertainty is over the future of the US-China relationship, which could be a force for significantly greater global instability or deeper, collaborative strategic partnership, and help determine whether globalisation will be rejuvenated, or rolled back.