Globalization 2.0 and Mexico’s Options  

Interview with Evodio Kaltenecker, Professor at the Monterrey Institute of Technology and Higher Education  

By: Guillermo Máynez Gil

Globalization 2.0 and Mexico’s Options  
Information is the lifeblood that feeds the economy of the 21st century. The increasing generation, processing and exchange of data on a global scale is one of the characteristic features of what Evodio Kaltenecker calls globalization 2.0. In an interview with Comercio Exterior, he delves into this concept and its implications in the dynamics of companies. He also gives a diagnosis of international events, the dispute for world leadership, and the growing regionalization of world production and trade. The resilience of society is the basis of his optimism about the future of the world economy, although he highlights one particular concern, that easy solutions to complex problems prevail.  

 

Geopolitical, economic, and technological rivalry between the United States and China will apparently dominate global affairs in decades to come. There is even talk about a new Cold War. What do you make of this? Will the existing rivalry between superpowers lead to a new bipolar world order?

I think so. Many countries will be forced to choose between one side or another. Russia, due to its military situation and differences it has in its relationship with the United States and China, may be able to stay out of this rivalry. It will be harder for Mexico, however, given the degree of involvement it has with the United States. Now, I believe it will rather be bipolar and a half, with the United States and China vying for world leadership and a handful of countries, which were formerly known as “non-aligned,” trying to keep their distance. Smart geopolitics will try, for example, to attract Chinese investment and maintain trade with the United States.

We see a great effort from China to add more countries from Asia, Latin America, and Africa to its area of influence. Brazil, for example, receives a lot of foreign direct investment from China; Mexico not so much. But in any case, China will seek more allies that support technologies such as Huawei’s 5G or initiatives like the isolation of Taiwan.

 

What do you think about the Trump administration’s four-year politics towards China?

President Trump has used the trade war with China to talk to his voters. Either way, deep down there is a geopolitical concern to contain China. Take a look at Trump’s business background and the type of negotiations he undertook with unions and casinos. His strategy, in general terms, is to weaken his opponent before starting a negotiation. The trade war with China is consistent with that strategy and with a tweak, he used it for the negotiation of the North American trade agreement.

In reality, Trump accomplished little in his four years in office. The trade war with China raised the end price of some mass consumer products in the United States without correcting the global trade imbalance in this country. Mexico has so far benefited from this disagreement and already comes in in first place among the largest trading partners of the United States. If the disagreement between powers persists, however, it is difficult to outline the path that trade flows will follow in the years to come.

 

 

With Biden in office, what could change in United States – China relations?

An eventual handover of the US presidency will surely represent several changes: a more environmentallyoriented policy, an effort to return the United States to multilateral forums, and, I hope, a more constructive immigration policy. The trade dispute with China will prevail, albeit in other forms and perhaps less intense. China would cease to be public enemy number one.

 

At the other end, China is getting ready to modify its development strategy with a proposal called “double circulation,” giving more importance to its internal market. Do you think an eventual disconnect of the two most important economies is possible?

I believe there could be some decoupling, but not completely. We will see a regionalization of global chains of production and supply, not only because of the trade war or the “double circulation,” but also because of the pandemic. Chains of North America, Europe, and Asia will intensify. However, it will not be a total disconnect because China will still need raw materials form all over the world, as well as products from foreign markets, since the domestic market cannot absorb everything it produces.

 

You use the term globalization 2.0 to refer to a new dynamic of the economy where virtual globalization displaces physical globalization. Does this displacement mean the end of the world as we know it?

That expression is a bit harsh. There will of course be change and it will be a different world. The physical globalization of products has dropped, but virtual globalization is growing a lot. Globalization 2.0 refers to a dual world in which the transfer of information and data grows a lot, and that of physical products decreases. I don’t think virtual globalization will be reversed: we are beginning to understand that a world without so many physical transfers is possible.

 

The pandemic has accelerated the already predominant trend towards digitization and automation. How will it affect global supply chains, employment, and production and consumption patterns?

There’s a joke going around that COVID-19 is the best Chief Technology Officer of companies. The expectation is that onshoring and reshoring activities will increase in production. Since many production chains originate in China, the global supply of some products faced serious challenges at the beginning of the pandemic. We are now going to see a trend towards the replacement of cheap and fast production chains by others capable of dealing with external shocks in a better, more resistant way. All this represents a great opportunity for Mexico if it knows how to play its cards well, since its geostrategic position is very favorable.

 

 

Are global companies ready to compete in the new globalization 2.0 scenario?

In some aspects, they have gone far and are ready; in others, they will have to learn quickly along the way. One of the most interesting changes I see is the use of large-scale data. The challenge here is the proper handling of personal data and its privacy, something that’s still not done well. Now, I believe that, in general, companies are ready from a technological point of view, but not so much from an organizational one. I think they’re going to need fewer administrators and more data scientists. They’ll need fewer people in middle management, since many functions will be replaced by algorithms, whose responsibility will fall on data scientists.

 

What are the chances that the trade war between the United States and China increases flows of goods and investments between Mexican and the Asian giant?

I believe this type of exchange responds, fundamentally, to geopolitical considerations. Mexico is part of the US sphere of influence, and so the North American power would surely disapprove of Mexico getting closer to China, even if this was limited to trade and investment. I therefore don’t see any relevant increase in these areas; in fact, there have been some unfortunate experiences in the past. In contrast, Mexico could receive investments from other countries to leverage the large North American market. A few weeks ago, for example, an agreement was announced to increase Japanese investment in the country.

 

China seems to have detected more opportunities in Brazil to increase its influence in Latin America. Do you see a division of spheres of interest in Latin America between the United States (Mexico) and China (Brazil)? How would that affect geopolitical alignments in the rest of Latin America?

Chinese investment in Brazil is huge, especially in energy, infrastructure, and transport, but so far, it hasn’t resulted in an automatic alignment. There is investment because China needs raw materials and markets,

but that doesn’t necessarily mean that Brazil is completely aligned with China. In part, this depends on circumstantial factors, like a far-right government in Brazil, which shows an ambiguous attitude towards China: it needs investment and greatly benefits from trade with China, but that doesn’t translate to—at least not in the short term—a geopolitical alliance. There will be signs in the near future, for example whether or not Brazil adopts Huawei’s 5G technology. But so far, I don't see a US-Mexico polarization vis a vis Brazil-China.

 

 

Climate change and actions to combat it head, or should, the list of priorities on the international agenda. What do you think will be the future role of the United States and China on these issues, and what role could Mexico play in this area?

The role of the United States will depend on who the next president is. For now, it’s not a priority: Trump calls himself the “carbon champion.” But if Biden takes office, it would get more attention. For China, it’s not important at all, it’s not on its agenda. It takes some actions, but its agenda focuses on economic growth and expanding its global influence. Mexico, meanwhile, can and should play a more active role in the progressive elimination of fossil fuel and its replacement using renewable sources, as well as in the conservation of its biomass. So far, however, its performance has been rather inexistant.

 

Today, are you optimistic or pessimistic regarding the future of our civilization?

I will divide my answer. In the short term, the situation of countries has worsened and will continue to worsen because the pandemic will not be controlled anytime soon. In such an uncertain scenario, the economy is going to get worse before it gets better. However, I am optimistic about the long term. If we look at historical data, before the pandemic we had already managed to reduce the rates of infant mortality, hunger and illiteracy around the world. Generally speaking, we have made a lot of progress. In the past, we have overcome crises as terrible as the world wars, so I think we will come back, but to a different normal. Ultimately, the pandemic will make us more resilient. Virtual globalization, as I pointed out, is partially but successfully replacing physical globalization.

Regarding peace, unfortunately every 15 or 20 years there are bloody regional conflicts, like the one in Nagorno-Karabakh now. In any case, I am concerned that many people are seeking solutions outside democratic processes and market rules. I am concerned about easy solutions to difficult problems.