Globalization may have peaked, but the resilience of global trade in the face of mounting headwinds means that a reversal of the past three decades is not inevitable.
Since the COVID-19 pandemic and Russia’s invasion of Ukraine shattered global supply chains, debate has raged about how integrated the global economy will be in the future versus to the previous 30 to 40 years.
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“Globalization” is an amorphous 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 seems to have come to a halt after three decades of low inflation, easy credit, China’s integration into the global economy and a relatively peaceful period.
The pandemic, the rise of populist politics, the war in Europe, and the Chinese military, economy, and technology may have resulted in a world much more inclined to look inward rather than outward.
But even if its strength is waning, reports of the death of globalization may be greatly exaggerated.
Last year, world trade reached, or approached, record levels in nominal terms and, perhaps surprisingly with inflation at its highest level in 40 years, in volume as well.
As a share of global GDP, trade is likely up from 57% a year earlier and exports according to World Bank data. If so, it will approach the record high of 61% in 2008 which, by common agreement, marked the “peak of globalization”.
Alessandro Nicita, an economist at the United Nations Conference on Trade and Development, says the structure of global trade will inevitably change – towards de-globalization or regionalization – but that the process will be “selective” between industries and countries and could take five to 10 years.
“De-globalization is not there yet. It’s not really evident in the data,” says Nicita, estimating that global trade grew by around 3% last year, at a pace similar to that of the world. ‘Mondial economy.
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From a long-term investment perspective, the resilience of the forces of globalization should help limit inflationary pressures, to the benefit of emerging markets.
According to Anabel Gonzalez, deputy general manager of the World Trade Organization.
“Trade and globalization are not in decline, but they are changing,” she told the Chatham House Global Trade Policy Forum in November, citing the growth of services-based and digital trade.
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In dollar terms, trade flows between the three largest economies are stronger than ever.
Last year, China’s exports and imports hit record highs of $3.59 trillion and $2.72 trillion, respectively, as did Eurozone exports and imports – $2.88 trillion. euros ($3.05 trillion) and 2.94 trillion euros, respectively – while US exports to China and Chinese imports from the United States also hit record highs.
But the disruption of global supply chains since the pandemic and the war in Ukraine has forced countries and regions to seek greater self-sufficiency in energy, food, resources, technology and beyond.
The Biden administration has pushed through landmark tax packages — such as the Cut Inflation Act and the Chip Funding Bill — that will involve unprecedented subsidies and funding for energy industries. green, technology and semiconductors.
China is working on a more than 1 trillion yuan ($144 billion) support package for its semiconductor industry, and Europe is sure to follow with its own similar projects.
JP Morgan economists note the growing “regionalization” of supply chains, with Asia now accounting for nearly 79% of China’s total machinery and transport equipment imports, up from 65% from 2017 to 2019.
Unipolar vs Multipolar
This “regionalization” will continue assuming that Beijing’s economic, commercial and financial ties with the United States gradually loosen. The deterioration in US-China relations comes now as thirty years of US economic hegemony since the end of the Cold War seem to be fading.
A fragmented global economy with two US and Chinese “ecosystems” – or perhaps an even more multipolar world – is likely to be broadly inflationary, sustain structurally higher interest rates and generate lower growth, economists say.
Nearshoring and friendhoring are expensive, especially at a time when prices and wages are already high.
Luke Templeman, an analyst at Deutsche Bank, notes that economic expansions over the past 30 years have generally been longer than those of previous decades. One of the contributing factors is the fact that since the fall of the Soviet Union in 1991, the global economy has essentially operated within a unipolar framework.
This is a small sample, and Templeman points out that economic, financial, demographic and political factors were at play. years.
“Worryingly, as countries become more self-sufficient, there is less incentive to seek compromise with difficult trading partners,” Templeman said.
(Views expressed here are those of Reuters columnist Jamie McGeever.)