Globalization may be peaking, but the resilience of world trade in the face of increasing adversity means that reversals over the past three decades are not inevitable.
since the COVID-19 pandemic and Russia’s invasion of Ukraine Scattered global supply chains, debate has intensified on how integrated the global economy will be in the future compared to the past 30 to 40 years.
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‘Globalization’ is a shapeless subject. According to the International Monetary Fund, economic globalization refers to “the increasing integration of economies around the world, especially through the movement of goods, services, and capital across borders”.
To many economists, globalization appears to have stalled after three decades of low inflation, easy credit, China’s integration into the world economy, and a relatively peaceful period.
The pandemic, the rise of populist politics, wars in Europe and China’s military, economic and technological advances may result in the world being more inclined to look inward than outward.
But even if its strength is waning, reports of the death of globalization may be greatly exaggerated.
Global trade rose marginally at or near record levels last year, and perhaps unsurprisingly inflation rose to its highest level in 40 years, also in volume terms.
As a share of global GDP, trade and exports are expected to increase by 57% from the previous year according to World Bank data. If so, it would approach the record 61% in 2008, which was marked by consensus as ‘peak globalization’.
Alessandro Nikita, an economist at the United Nations Conference on Trade and Development, says that the structure of global trade will inevitably change – towards de-globalization or regionalization – but that the process will be “selective” across industries and countries and will take five to five years. May take up to 10 days. Year.
“De-globalization is not here yet. It’s not really evident in the data,” says Nikita, estimating that global trade grew by about 3% last year, at the same pace as the global economy.
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From a long-term investment perspective, resilience to globalization forces should help ease inflationary pressures to the benefit of emerging markets.
regionalization
Global goods trade reached a record high last year, US and European goods trade with China is also at an all-time peak, and global exports of digital services have more than tripled since 2005, according to Annabel Gonzalez, deputy director-general for the world. Has gone. trade organization.
“Trade and globalization are not decreasing, but they are changing,” she told the Chatham House Global Trade Policy Forum in November, citing growth in service and digital-based trade.
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In dollar terms, trade flows among the three largest economies are stronger than ever.
China’s exports and imports reached record highs of $3.59 trillion and $2.72 trillion last year, as did euro zone exports and imports—2.88 trillion euros ($3.05 trillion) and 2.94 trillion euros, respectively—while US exports to China and imports from China. The United States also reached record highs.
But disruptions to global supply chains since the pandemic and the war in Ukraine have forced countries and regions to seek greater self-sufficiency in energy, food, resources, technology and beyond.
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JP Morgan economists note the increasing ‘regionalisation’ of supply chains, with Asia now accounting for 79% of total machinery and transport equipment imports into China, up from 65% from 2017 to 2019.
unipolar vs multipolar
This ‘zoning’ will continue, assuming Beijing’s economic, trade and financial ties with the US gradually loosen. Deteriorating Sino-American relations have now come as thirty years of US economic hegemony since the end of the Cold War.
Economists argue that a fragmented global economy with two US and Chinese ‘ecosystems’ – or perhaps an even more multipolar world – would overall probably be inflationary, keep interest rates structurally high and deliver low growth.
Nearshoring and friendshoring are expensive, more so at a time when prices and wages are already on the rise.
Luke Templeman, an analyst at Deutsche Bank, notes that economic expansions over the past 30 years have generally been longer than in previous decades. A contributing factor is the fact that since the collapse of the Soviet Union in 1991, the global economy has operated in an essentially unipolar framework.
It’s a small sample size, and Mr. Templeman stressed that economic, financial, demographic and political factors were at play. But it is worth keeping in mind as the forces of de-globalization intensify in the coming years.
“The concern is that as countries become more self-sufficient, the incentive to compromise with difficult trading partners diminishes,” says Mr. Templeman.
(Opinions expressed here are those of Jamie McGeever, a Reuters columnist.)