Vol. 38 Associate Editor
Over the past year, there have been numerous events indicating that populism is on the rise in the Western world. Though the particular forms of these individual events may vary, a common thread linking them together is a desire to retreat from globalization to the perceived safety of protectionism. While a retreat from globalization would likely have steep consequences for a number of market sectors, one sector that may prove to be especially vulnerable is the financial sector. Arguably still reeling from the lingering effects of the 2008 financial crisis, the international financial sector is already under pressure from events that appear to indicate a retreat from globalization by the West, such as Brexit. Furthermore, as Western nations have traditionally occupied significant leadership positions within the international financial system, their shift towards more protectionist stances would likely create a substantial leadership vacuum within this system. Should Western nations continue to retreat from globalization, the question arises as to who will emerge as a leader and how they will shape the future of international finance and trade.
With respect to potential new leaders of globalization, China emerged as a surprising candidate during the World Economic Forum’s conference in Davos last January. At Davos, China’s President Xi Jinping delivered a stirring defense of globalization in his first speech before the World Economic Forum, where he warned against using globalization as a scapegoat for the world’s problems and likened protectionism to “locking oneself in a dark room.” However, while Mr. Xi’s speech may have been a source of great optimism for the international and free-trade supporting audience attending the Davos forum, China has a long way to go before its actual treatment of globalism aligns with Mr. Xi’s rhetoric.
At least with respect to international finance, by the numbers, China appears to have the resources and infrastructure necessary to assume a leadership position. This is because China has five mainland cities within the Global Financial Centre’s Index of the top fifty financial centers. However, China has historically not embraced the Western model of liberal globalization, by which “market forces should operate across borders largely free of national government interference.” Instead, China has tended to engage more in protectionist behaviors, from imposing regulatory rules that favor domestic firms, to outright restrictions on some firms from investment into China. Moreover, one could make the argument that China’s current policies towards globalism represent the kind of protectionist ideals that anti-globalist leaders in the West, such as President Donald Trump, seek to emulate.
It seems that if Western nations were to continue to retreat from globalism and China were to emerge as a leader in international finance and trade, one of two outcomes may potentially result. In the first outcome, which is likely what those in the audience at Davos envisioned, China would undergo the political reforms necessary to embrace a version of liberal globalization, essentially assuming the leadership role that Western nations have historically occupied in sectors like international finance. In the second outcome, which seems more likely based on China’s current policies, China would continue to maintain its current protectionist policies. Thus, in this outcome, rather than having China emerge as the new “guardian of an open global economy,” a situation would arise where no nation emerged as a global leader, either in international finance or in other market sectors.
In the event that China decides not to embrace a more liberal vision of globalism, another non-Western nation that could potentially fill the leadership vacuum is Japan. Recently, some have suggested that Japan could emerge as a leader in globalization with respect to trade. The reason why Japan has such potential is that, despite its current economic ailments and history of protectionist behaviors, Japan has recently taken steps that indicate a willingness to embrace a more liberal vision of globalism, such as becoming the first nation to ratify the Trans-Pacific Partnership. In part, this shift has been one of necessity, as Japan relies heavily on multinational supply chains to support its own companies. However, beyond mere reasons of necessity, Prime Minister Shinzo Abe’s government has also been keen on lowering regulatory barriers in order to attract foreign growth opportunities into Japan. If Mr. Abe also looks to expand Japan’s role in the international finance sector, Japan appears to have the resources and infrastructure capable of managing a leadership role, as Tokyo ranks number five on the Global Financial Centre’s Index of the top financial centers. Moreover, even if Japan were unable to fully emerge as a leader in global finance or trade, Japan may still be able to play a critical role in defending globalization and directing integration so as to convince Western policy makers to embrace globalization once again.
While the world is still relatively far away from a complete retreat from globalization by Western nations, the rise of populist political parties and their protectionist rhetoric makes such a future not as far-fetched as one might think. If such a withdrawal were to occur, China and Japan appear to be potential candidates for filling the leadership vacuum that would result, particularly in sectors like international finance. However, as matters currently stand, neither candidate seems to be a perfect fit, and there may yet be other nations that could emerge as a new leader of globalization. At this point in time, though, it would seem that for the future of globalism, the only certainty is uncertainty.
 See, e.g., Bob Pisani & Rachel Cao, Larry Summers on Trump: ‘ Hyper protectionism will make us poorer’, CNBC (Feb. 2, 2017, 1:50 PM) (quoting Larry Summers) (“Hyper protectionism will make us poorer, . . .. Consumers will pay more for their goods, which means they’ll have less spending power to spend on American goods, and that’ll definitely have consequences for the economy . . .. Other nations will retaliate, and that’ll have consequences for the health of our companies.”), http://www.cnbc.com/2017/02/02/larry-summers-on-trump-hyper-protectionism-will-make-us-poorer.html.
 See, e.g., Greg Ip, As Crisis that Vexed Obama Fades, Trump will Benefit, Wall St. J. (Jan. 11, 2017, 1:22 PM) (discussing remaining weaknesses in U.S. financial sector, despite recovery progress under Obama Administration), https://www.wsj.com/articles/as-crisis-that-vexed-obama-fades-trump-will-benefit-1484158961.
 See Larry Elliot, Brexit is a Rejection of Globalisation, The Guardian (June 26, 2016, 6:41 AM), https://www.theguardian.com/business/2016/jun/26/brexit-is-the-rejection-of-globalisation; Tim Ross & Lucy Meakin, U.K. Business Says Brexit Already Having a Negative Effect, Bloomberg (Feb. 6, 2017, 3:22 AM), https://www.bloomberg.com/news/articles/2017-02-06/u-k-business-says-brexit-is-already-having-a-negative-effect.
 See Michael S. Barr, Who’s in Charge of Global Finance?, 45 Geo. J. Int’l L. 971, 1003 (2014).
 See Ceri Parker, China’s Xi Jinping Defends Globalization from the Davos Stage, World Econ. Forum (Jan. 17, 2017), https://www.weforum.org/agenda/2017/01/chinas-xi-jinping-defends-globalization-from-the-davos-stage/; Greg Ip, On Globalization, China and Trump Are Closer Than They Appear, Wall St. J. (Jan. 27, 2017 4:49 PM), https://www.wsj.com/articles/on-globalization-china-and-the-u-s-are-closer-than-they-appear-1485531032.
 See James Blitz, Brexit Briefing: The Battle for London’s Business, Financial Times (Oct. 27, 2017), https://www.ft.com/content/e1516204-9c32-11e6-8324-be63473ce146.
 See Ip, supra note 5.
 See Max Ehrenfreund, World Leaders Find Hope for Globalization in Davos Amid Populist Revolt, Wash. Post (Jan. 17, 2017), https://www.washingtonpost.com/news/wonk/wp/2017/01/17/chinese-president-warns-against-trade-war-in-davos/.
 See Ip, supra note 5.
 See id.
 See Tobias Harris, Japan’s Opportunity to Lead on Trade, Wall St. J. (Feb. 1, 2017, 12:43 PM), https://www.wsj.com/articles/japans-opportunity-to-lead-on-trade-1485970982.
 See id.
 See id.
 See Blitz, supra note 6.
 See Harris, supra note 11.
 See, e.g., Ingrid Melander, France’s Le Pen Launches Election Bid with Vow to Fight Globalization, Reuters (Feb. 5, 2017, 2:20 PM), http://www.reuters.com/article/us-france-election-fn-idUSKBN15K0R1.