How a cup of tea tells the story of globalisation

It is reasonable to ask if globalisation has run its course, reached its limits, and is, in fact, unravelling. My answer is that globalisation continues to rise, but we have entered a new era of interdependence, and societies need to manage it differently. I will lay out my arguments in a few points.

First, more than ever, the world is connected and globalisation continues to be on the march. It is a historical phenomenon that has occurred over several phases – and never in a way that is universally good.

The first phase of globalisation was driven by empire, resources and power. It accelerated during the industrial revolution, when the steamship and railroads made international trade possible.

A cup of tea, essential to the quality of life in the industrialised world at that time, embodied this cruel reality of globalisation. It was brewed with tea leaves grown in the Far East, sweetened with sugar made in the Caribbean and Americas, with opium sent eastwards to balance trade flows, and enslaved and indentured labourers sent westwards to plough the sugar cane fields.

It was an unjust system and could not possibly be sustained. Indeed, it unravelled after the World Wars. But it does not mean that people in the developed world gave up their lifestyles, and gave up sipping tea. They continued to do so.

The world then transitioned to an age of integration – globalisation rebuilt after World War II through international rules and institutions. It was a correction of the old model and was the post-World War II global order of the United Nations, free trade between nations, global finance and currency exchange.

A major impetus for globalisation was the opening up of China, which had a monumental effect as it involved absorbing an enormous market, economy and population into the global system.

In 2001, just before China joined the World Trade Organization, annual global merchandise trade was just over US$6 trillion (S$7.7 trillion), of which China accounted for only 4 per cent. Today, global trade volume is about US$26 trillion and China accounts for about 14 per cent of that and has become the top trading partner for many countries in Asia.

Globalisation was further turbocharged by innovation and technology, such as containerisation, jet aircraft and the internet. That cup of tea has now come a long way. Today it is probably a bubble tea, enjoyed all over the world. The tea leaves may come from India or Sri Lanka, and cassava, which is used to make the tapioca pearls, from farms in Thailand or Vietnam. We pay by waving our phones, devices powered by chips, software and global supply chains, and the digital payment zips through global financial systems.

There is no bubble tea agreement to make that happen, nor is there any extraction of labour or resources to deliver that cup of bubble tea. It is a product of friendly international cooperation and division of labour governed by the rules after World War II.

Globalisation is no longer an economic choice or pursuit. It is a basic reality of life.

So when the Strait of Hormuz was closed, the clear desire of the world is to restore free passage of ships through the strait. With greater interdependence, a conflict between countries may not result in mutually assured destruction, but certainly mutually assured disruption. There is no turning back from globalisation.

A new era of globalisation

My second message is that we have entered a new era of globalisation – an age of hyperconnection. In this phase, the importance and discontent of globalisation are concurrently growing.

The advent of AI means economies have become more dependent on each other for minerals, raw materials, lithography equipment, semiconductor chips, data centres, AI models and applications. Even a technological superpower will find it extremely challenging to be self-sufficient.

My small constituency of 50,000 residents is part of a global system. Micron is building its high-bandwidth memory (HBM) advanced packaging facility there, expected to be operational by 2027. Once the new facility is completed, my constituency will be part of Micron’s global delivery system that, according to industry estimates, contributes about 20 per cent of global HBM supply, which will power the world’s AI infrastructure. Not bad for a small constituency.

More than ever, countries also need to work together to address challenges that no country can solve alone, such as climate change and pandemic preparedness.

While the world becomes far more connected, discontent against globalisation is rising too. Some workers and communities feel left behind. And if their concerns are not addressed, support for openness will weaken. In the UK, enough Britons were convinced that they lost out, voted for Brexit, and changed the course of their nation.

Globalisation can also undermine our sense of resilience and security. Because the more we feel dependent on something or someone else, the more we are wary that it is our vulnerability.

Hence, countries now seek to insource or work with trusted partners or reconfigure trade flows and investments to strengthen resilience.

But make no mistake. In this hyperconnected world, no economy can be self-sufficient, and decoupling is unrealistic. On the contrary, greater resilience is often achieved by having more supply sources and trading partners, to achieve supply stability through diversity. So ironically, to address the insecurity of globalisation, we need more globalisation.

But the most worrying objection to globalisation is anti-immigrant sentiment. When national borders become more porous, an initial sentiment of inclusivity and acceptance can morph into a sense of displacement, rejection and even resentment. That is why nationalist, anti-immigration political parties are rising in so many countries.

Albeit not to the same extent as the era of colonisation and extraction, globalisation once again seems unjust, unfair, even threatening.

Globalisation is therefore due for another significant correction, to address the contradiction of rising importance and discontent towards it. This is the heart of the challenge today.

The policy agenda

My third message is that in the era of hyperconnection, we require active, deliberate and coordinated governance from within.

Ageing is a global phenomenon that is as much of a fiscal challenge as it is a social one. In many countries, healthcare and pension spending are already rising rapidly.

To illustrate, government health expenditure as a share of gross domestic product (GDP) has risen across developed economies from about 6 per cent in 2000 to more than 10 per cent today in countries such as Japan, Germany and the UK. National debt as a share of GDP compounds the picture. If left unaddressed, it raises systemic risks and crowds out the very investment societies need for the future.

Singapore has been deliberate and pragmatic in building a fiscal system that is sustainable over the long run. Retirement expenditure is largely funded through a defined contribution system, supplemented by government top-ups. As a result of deliberate systemic discipline, our healthcare expenditure is about 5 per cent of GDP, one of the lowest in the world amongst developed economies, yet with relatively good health outcomes.

With a sound fiscal system, we can invest in the future, such as in education, housing and infrastructure. Each society is different, but governments need to balance social support, fiscal sustainability and building a hopeful future.

Governments need to develop an economic model that generates growth, opportunities and instils hope. New technologies like electric vehicles and artificial intelligence have put this challenge into sharp focus. Economies and industries are at a crossroads: whether they should embrace the new technology and transform, or persist with the tried and tested.

In Singapore, we have decided that we need to embrace the change and make the best of it. We are undertaking a deep review of how we educate the young, reconcile the potential benefits and harms of digital technology, attract new investments, grow industries, and prepare workers ahead to make the necessary adjustments. We also need to engender social cohesion, especially amidst growing sensitivity around immigration. Every open economy faces a version of this challenge.

Our approach is therefore one of calibrated openness and deliberate integration. We watch the numbers carefully – where people come from, which sectors they work in, and how well they can integrate. New citizens and permanent residents go through an integration journey to ensure better understanding of Singapore’s history, values, and social norms, as well as to build connections with fellow residents.

We work to prevent enclaves, whether residential, social or professional. We invest in common spaces where everyone can interact. The objective is not just to bring people in, but to help everyone live together, understand one another and preserve a shared sense of society.

So, in this age of globalisation, people need to see governments addressing their insecurities, protecting their livelihoods, dignity and way of life. Only then will there be confidence and trust to embrace globalisation again. This in turn provides the political support for governments to cooperate and work together. More than ever, foreign policy is a projection of domestic politics.

In that regard, the most consequential bilateral relationship for the future of globalisation is US-China relations. It will be shaped not only by geopolitics, but also by the hopes and anxieties of the people of the US and China.

Over the years, the two countries have become economically more closely intertwined. Their comparative strengths have also become more pronounced – the US a leader in technological breakthroughs, while China the master in large-scale production. Yet what seems like greater complementarity also heightens the sense of insecurity and economic rivalry between the two superpowers. The US wants to produce and bring more manufacturing jobs home, while China is working hard to invent and innovate to bring about higher quality growth.

So, the US and China may neither be enemies nor best friends. But they will compete and rival each other. If both can address the anxieties of their peoples, they will have political room to work through differences and find areas of cooperation for mutual benefit. Then there will be a sustained constructive strategic stability which would be important for globalisation, and for Asia.