How Information Technology Turbocharged Globalization, and Why It's Being Asked to Retreat
Technology, particularly information technology, played an integral role in facilitating the rise of globalization during the last part of the 20th century and the first decade or so of this century. Globalization, of course, existed before the rise of modern information technology, but there's no question that IT dramatically increased the scale and scope of globalization's ascent.
On its own, information technology was merely a tool; it had no teleological imperative to foster or support globalization. That didn’t matter, because transnational corporations, and the business ecosystems that served them, understood that extensive and reliable globe-girding networks, encompassing distributed centers of data, were powerful enablers of instantaneous transactions and always-on communication. Such highly performant global information networks were the prerequisites of worldwide commerce and trade.
Information technology made globalization possible at unprecedented scale, but what happens to information technology when the world’s two largest economies choose to go their separate ways, effectively opting to “de-globalize”?
Before we attempt to answer that question, let’s first consider how technology embargoes and a growing number of constraints on technology transfer are playing a decisive role in rolling back the scope of globalization.
A recent commentary, written by Alan Beattie and published in FT Edit (Financial Times), assessed the threat to globalization represented by the increasingly acrimonious China-US rift. The article begins by noting that globalization has survived a series of significant shocks, including “the 9/11 attacks, the global financial crisis, Covid lockdowns, and Russia’s invasion of Ukraine.” In each instance, the global machine sputtered, but it possessed enough resilience to trundle ahead.
The geopolitical nature and potential severity of the China-US trade conflict, involving the two largest economies in the world, is a threat of another order altogether. Early in the FT Edit commentary, the dimensions of the threat are explained:
Global trade now faces its biggest challenge yet, the great-power rivalry between the US and China. In a speech in 2019, the former Australian Prime Minister Kevin Rudd laid out the risks of reducing economic links between the two countries. A “fully decoupled world”, he said, would “[undermine] the global economic growth assumptions of the last 40 years, heralding the return of an iron curtain between East and West.”
Five years on, the US-China contest is now posing a genuine threat to globalisation. Beijing and Washington are using subsidies, tariffs and export controls to compete for critical minerals and technological advantage in sectors from semiconductors, clean energy and telecoms to electric vehicles, AI and quantum computing.
“These are troubling times for global trade,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said in July. “Amid geopolitical tensions and the backdrop of the climate crisis, we see increased protectionism.” She added that after years of talk about decoupling, “trade may be starting to fragment along geopolitical lines”.
Politicized Plumbing
Beattie then notes that “the plumbing that underpins global trade – the networks carrying cargo, commodities and information” – is increasingly politicized. Network infrastructure, subsequently followed by datacenter infrastructure, is now heavily mediated by geopolitical tensions. We witnessed U.S. and other Western embargoes against Huawei and other China-sourced 5G network infrastructure, driven ostensibly the concerns about potential espionage. That schism divided the world into mutually exclusive groups of countries that either prohibited procurement and deployment of Chinese 5G gear or allowed it. The U.S. applied pressure from one side, China from the other. Countries and their telco operators could satisfy one superpower or the other, but not both.
In more recent years, we have seen the rise of embargoes and proscriptions on the purchase of other Chinese technologies and technology services, as well as embargoes against Chinese procurement of U.S. and Western technologies, from GPUs to chip-making equipment.
Networking conflicts, too, now extend beyond 5G, as the following excerpt from the FT Edit piece suggests:
The once relatively neutral networks for trade and communications — shipping waterways, oil and gas pipelines, undersea data cables and satellites — have become engulfed in politics.
“Governments are increasingly recognising that security stretches from the bottom of the sea to the top of the skies,” says Adrian Cox of Deutsche Bank. “The infrastructure around the global economy’s weak points is typically remote, cross-border, physically fragile, hard to access and hard to repair, and with very little regulatory or legal oversight.”
Parallel Cable-Scapes
A research report from the Hinrich Foundation think tank, cited in the article, asserts that the “undersea cable-scape is bifurcating into American and Chinese spheres of influence.” Indeed, while cloud giants Google and Microsoft are active in laying and maintaining cables, they are pressured by the U.S. government not to contract or work with Chinese companies, such as HMN Technologies, formerly part of Huawei.
Satellite systems and associated technologies are also riven by geopolitical imperatives. The long-established, U.S.-originated Global Positioning System (GPS) is joined in competition by systems from China (Beidou), the EU (Galileo), and Russa (GLONASS). Creating systems of their own, Japan and India will also take a seat at the table.
As for data-link satellites that provide internet connectivity, the FT Edit article states that “governments no longer want to be so dependent on Starlink, run by Elon Musk.”
Elon Musk’s colorful father, Errol Musk, likely did his son no favors when he recently told The Times (UK) that the U.S. government “will have to come to an agreement with Elon . . . about everything.” You can interpret that broadly ambiguous statement as delusional or just plain wrong, but I’m sure somebody in the U.S. government took note of it.
What Errol and Elon Musk should remember is that nobody is indispensable in this world. Other suppliers can always be found. In fact, the hyperscalers have demonstrated that avoiding the perils and pitfalls of vendor lock-in is simply good business. (Of course, while the hyperscalers take care not to get locked into a restrictive and potentially damaging relationship with a sole-source supplier, they are not averse to foisting lock-in scenarios on their customers.)
The FT Edit article concludes as follows:
The medium-term future for globalisation seems set: a struggle between Washington and Beijing for pre-eminence, or at least resilience, which continually threatens to override economic efficiency with national security.
The counterweight will come from geopolitical agnosticism among other governments and the endlessly inventive supply-chain managers of multinationals. Those countervailing liberalising pressures have won in the past. But the centrifugal forces pulling the trading system apart are by far their fiercest opponent yet.
From Bridges to Partitions
Frankly, the change pendulum seems to have swung away from untrammeled globalization, which is perhaps why we see some of the largest U.S.-based venture capital firms taking a more nationalistic approach toward investment vehicles and market opportunities, especially those related to security and advanced-weapons systems. Andreessen Horowitz, for example, currently states unambiguously on its home page that it champions “American technology supremacy," touting the “glory of a Second American Century.”
Whether you agree or disagree with the sentiments expressed by Andreessen Horowitz, whether you believe the venture capitalist’s new north star is gratingly jingoistic or inspiringly patriotic, you will likely agree when I say that leading venture capitalists on Sand Hill Road would not have explicitly espoused such an uncompromisingly America-first credo during the lengthy period of globalization's ascendancy. Back then, you might recall, all firms strove to be cosmopolitan and international – even supranational – eager to cultivate and expand business almost anywhere and with nearly anybody, providing the trade was not proscribed by law or fell afoul of whatever ethical boundaries were set by the corporation doing the selling. Sometimes, we recall vividly, laws were breached and ethics were overlooked, but the basic precepts of laissez-faire globalization held sway.
For years, information technology, perhaps especially network infrastructure, was a critical accelerant of globalization. In the eyes of many investors and large corporations, advanced network technologies seemed ideally suited to serve as the foundational plumbing for information and knowledge transfer on a global scale. These technologies remain capable of delivering what globalization requires, but that is precisely why they have become geopolitical points of contention.
As AI has gone from the periphery of the world’s radar screen to monopolizing the center of attention, AI-related infrastructure is now viewed with proprietary intent and considerable trepidation in global capitals. That means extrinsic market regulation and geopolitical constraints will be increasingly placed on the sale and transfer of such technologies. Ultimately, such constraints cause technology buyers, such as China’s government and its largest corporate concerns, to seek and develop comparable alternatives to the products foreclosed to them, resulting in a diminution of revenue and earnings accruing to the displaced supplier. (This is what is happening, and will continue to happen, to Nvidia’s GPU sales to Chinese buyers, who rather than purchase neutered products from Nvidia, eagerly encourage domestic suppliers to rise to the challenge of approximating the performance of Nvidia’s latest and greatest offerings.)
Ties that Bind and Separate
As individual human participants in the technology industry, we have little to no influence over the rise, impact, and severity of geopolitical tensions. They are games above our station, events beyond our control.
Nonetheless, increasingly taut geopolitical tensions become ties that bind us all, figuratively and literally. Globalization is gradually being supplanted by oppositional, mutually exclusive trading blocs clustered around each of the major economic powers. Those who wish to tread a neutral path are being told, in no uncertain terms, to join one of the two blocs, accepting, as part of the bargain, all the opportunities and restrictions such status confers. (As a caveat, I should note that some countries and their domestic corporate interests will do their utmost to continue trading across and between antagonistic blocs, but they will constantly be under pressure to “pick a side.”)
Still, even though these games are above our heads and will be played regardless of how we feel about them, we need to pay attention. A global economic and industrial realignment will affect us in numerous ways, from the export potential of the companies we join to the supply chains we will have to modify or restructure to achieve streamlined business operations. (I'm using the notoriously "royal we" in the preceding sentence, for I am, as you know, retired from the hurly-burly of the industry.)
I suppose it makes a certain logical sense that the technologies that were used to enable, extend, and maintain globalization are now being selectively withdrawn from global markets in a sustained effort to demarcate mutually exclusive and antagonistic blocs. For years, information technologies, most definitely networks, were positioned as the bridges and conduits that brought the world nearer and closer together. For the most part, the technologies did their jobs well. Now they’re being asked by the major global economies to make a geographic retreat, to traverse and link not the whole world, but only some of it.
In the FT Edit article, a two-part graphic depicts the undersea cable-scape, with the global distribution of U.S.-supplied cables pictured above those of Chinese-supplied cables. What you see, though the Chinese are somewhat behind the U.S. competitively, are parallel but separate lines. That might be a useful metaphor for how the information-technology landscape will unfold during the next few years.