Globalization may have peaked, but the resilience of world trade in the face of an increasing winter means that a reversal of the past three decades is not inevitable.
Since the COVID-19 pandemic and Russia invades Ukraine Fragmented global supply chains have fueled debate about how much more integrated the global economy will be in the future than it has been in the past 30 to 40 years.
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‘Globalisation’ is a nebulous subject. According to the International Monetary Fund, economic globalization refers to the “increasing integration of economies around the world, particularly through the movement of goods, services and capital across borders.”
For many economists, globalization has stalled after three decades of low inflation, easy credit, China’s integration into the global economy and a relatively peaceful period.
Pandemics, the rise of populist politics, war in Europe, and China’s military, economic, and technological might have resulted in the world looking inward rather than outward.
But even if its force is waning, reports of the death of globalization may be greatly exaggerated.
Last year world trade reached, or neared, a record level in nominal terms, and perhaps surprisingly, the rate of inflation in volume terms is also the highest in 40 years.
As a share of global GDP, trade is expected to grow by 57 percent from last year and exports, according to World Bank data. If so, it would be close to the record 61 per cent in 2008 which, by common consensus, was marked as ‘peak globalisation’.
Economist Alessandro Nikita of the United Nations Conference on Trade and Development says the structure of world trade will inevitably change—toward de-globalization or regionalization—but the process will be “selective” across industries and countries and It may take five to 10. The year
“De-globalization is not here yet. It’s not really clear in the data,” Nikita says, estimating that global trade grew by about 3 percent last year, which was at the pace of 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.
Global goods trade hit a record high last year, U.S. and European goods trade with China is also at an all-time high, and global exports of digital services have more than tripled since 2005, Anabel Gonzalez, Deputy According to the Director General of the World Trade Organisation.
“Trade and globalization are not going away, but they are changing,” he told the Chatham House Global Trade Policy Forum in November, citing growth in services 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 hit 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 U.S. exports from China and US sugar imports also hit record levels.
But disruptions to global supply chains since the pandemic and war in Ukraine have forced countries and regions to become self-sufficient in energy, food, resources, technology and beyond.
The Biden administration has pushed through historic fiscal packages — e.g Law of Decline in Inflation And the CHIPS funding bill — which would include unprecedented subsidies and funding for the green energy, technology and semiconductor industries.
China is working on a more than 1 trillion yuan ($144 billion) support package for its semiconductor industry, and Europe is sure to follow suit with similar plans.
Economists at JP Morgan noted the increasing ‘regionalisation’ of supply chains, with Asia now accounting for around 79% of China’s total imports of machinery and transport equipment, up from 65% from 2017 to 2019. .
Unipolar vs. Multipolar
This ‘regionalisation’ will continue assuming that Beijing’s economic, trade and financial ties with the US will gradually loosen. The deteriorating relationship between China and the US comes as US economic hegemony, now thirty years old, appears to be waning after the end of the Cold War.
Economists say a fragmented world economy with two US and Chinese ‘ecosystems’ – or perhaps even a more multipolar world – will suffer overall inflation, keeping interest rates structurally high. And will develop less.
Intimacy and friendship are expensive, even more so at a time when prices and wages are already high.
Deutsche Bank analyst Luke Templeman notes that economic expansions over the past 30 years have generally been longer than in previous decades. A key factor is that since the fall of the Soviet Union in 1991, the global economy has operated in a predominantly unipolar framework.
This is a small sample, and Mr Templeman stresses that economic, financial, demographic and political factors were at play. But it’s worth keeping in mind as the forces of de-globalization accelerate in the coming years.
“The worrying thing is that as countries become more self-sufficient, there is less incentive to compromise with difficult trading partners,” says Mr Templeman.
(Opinions expressed here are those of Reuters columnist Jamie McGuire.)