The great reconfiguration / Yaroslav Lissovolik

As the world economy gets reconfigured on the back of this year’s electoral outcomes and geopolitical rifts, the trend of greater South-South economic cooperation looks set to become more prevalent. In the investment and trade spheres, China’s exports and investments are encountering mounting barriers in the developed world on the back of geopolitical pressures, leading China to redirect exports to developing markets. In the sphere of migration, the stronger showing of right-wing nationalistic parties in Western Europe may limit the scope for greater migration flows into developed economies in the future, resulting in more of these flows being re-directed to other parts of the Global South. In case these trends pick up further momentum, there will need to be greater coordination among the Global South economies in creating greater capacity to absorb these rising flows of goods, financial flows and labour.

In the trade sphere the mounting protectionism against China’s exports in the advanced economies is leading to a re-direction of China’s trade to BRICS and other parts of the developing world. Some of these increases in China’s exports to Global South regions such as Latin America have been met with higher trade restrictions as part of what is starting to be branded as “protectionist contagion”[1]. In particular, developing economies such as Brazil, Mexico and Chile have introduced higher tariffs on imports of China’s steel, which according to the estimates of the Latin American Steel Association surged into the region by 44% in 2023[2]. China’s trade with BRICS economies increased by more than 11% YoY in Q1 2024 compared with declines with respect to the US and Japan[3].

In the investment sphere, China is faced with greater restrictions with respect to both inward FDI flows into its technological sector as well as limitations on its FDI into strategic sectors in the advanced economies. Some of the examples included recent US measures to limit investments into China’s AI and high-tech sectors[4], while the EU has explored the possibilities of investment controls in sectors such as AI, advanced semiconductors, biotechnologies and quantum technologies[5]. China’s response is to increasingly redirect its investment flows to developing economies via sizeable outward FDI as well as allowing for inflows of foreign investment into strategic sectors and assets[6]. The latter pertains to high-tech sectors such as AI development, with the Saudi Aramco fund opting to finance China’s Open AI rival Zhipu[7]. For its part China has become the top greenfield investor into Saudi Arabia, with greenfield investments in 2023 reaching USD 16.3 bn[8].

In the migration sphere, the South-South dimension accounts for more than a third of the global total of migrant flows [9]. Sizeable migration from developing economies into the US has played a crucial role in keeping a lid on inflation as well as boosting productivity and growth, but the regulatory trends appear to be pointing towards greater restrictions[10]. In June 2024 President Biden imposed limits on immigrants seeking asylum in the US[11] – against the backdrop of these trends, flows of Chinese migrants to locations such as Ecuador have been increasing markedly as this Latin American economy has a relatively more liberal entry visa regime with the US compared to other regional economies. The result was a temporary suspension of the visa-free regime for Chinese nationals on the part of Ecuador due to the “worrisome increase in migratory flows” [12].

The “great reconfiguration” in global trade, investment and migration flows is likely to pick up further pace in the coming years and may have important implications for the world economy. One possibility is the rise in the prominence of South-South trade and investment flows as advanced economies become increasingly averse to surging cheap imports from large developing economies such as China. The rising role of the South-South dimension also underscores the need for the economies of the Global South to create common platforms of economic cooperation that would raise the absorptive capacity of the developing world to intermediate the rising intensity of South-South trade, investment and labour flows. This in turn may necessitate the creation of South-South platforms for trade and investment liberalization as well as financial platforms and payments systems that would service the rising South-South financial flows, including remittances. Without such cooperative arrangements, the world economy may become entangled in yet another layer of tensions and protectionism instead of experiencing a new phase in globalization and market openness that is increasingly driven by the developing world.  

Origin: https://brics-plus-analytics.org/the-great-reconfiguration/