Peak Globalization

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1. Douglas Irwin:

"As measured by trade flows, this fourth era of globalization appears to have peaked in 2008. As the figure above shows, the world trade to GDP ratio has fallen off since the Great Recession. World trade bounced back in 2010 from the sharp blow in 2009, but it has faltered ever since. We are now in a fifth historical period, sometimes called “slowbalization.”

While trade has tended in past decades to grow more rapidly than world output, that is no longer the case. Instead, trade growth has been abnormally weak in recent years. World trade volume actually fell in 2019, even though the world economy grew fairly steadily.

A number of factors have been at work. The growth of global value chains—the spread of supply networks across countries—has flattened. The reform agenda has stalled around the world. Under President Xi Jinping, China began to turn inward with policies to promote the indigenous development of leading industries (the Made in China 2025 initiative, abandoned in name if not practice). China remains an export powerhouse, but exports as a share of its GDP have fallen from 31 percent in 2008 to just 17 percent in 2019, as Nicholas Lardy has noted.

Under President Donald Trump, the United States has embraced an “America First” policy, shifting away from trade liberalization (withdrawing from the Trans-Pacific Partnership) and moving toward protectionism. The Trump administration imposed tariffs on imports of steel and aluminum ostensibly on grounds of national security, prompting retaliation and the spread of trade barriers elsewhere.

The United States also initiated a trade war with China over its unfair trade practices, significantly reducing bilateral trade. President Trump’s economic advisers have equated economic security with national security and have spoken about their desire to rip up the supply chains that leave the United States dependent on China. The tensions between the United States and China have weakened their relationship in what some call a “decoupling” between the world’s two largest economies. Decoupling does not mean that integration shrinks to nothing, only that it is reduced, perhaps substantially.

Thus, even before the pandemic hit, several factors were reducing globalization."

(https://www.piie.com/blogs/realtime-economic-issues-watch/pandemic-adds-momentum-deglobalization-trend)


2. Andrew Stanley, IMF:

"Trade plateaus and restrictions rise, marking a new era for globalization

The free flow of goods, services, capital, people, and ideas across national borders leads to greater economic integration. But globalization, the trend toward these things moving ever more freely between countries, has seen ebbs and flows over the decades and most recently has hit what appears to be a momentary peak.

The trade openness metric—the sum of exports and imports of all economies relative to global GDP—is used as a proxy for globalization. Looking back over a century and a half of data, the main phases of globalization are clearly visible.

The history of globalization is characterized by five main periods of different configurations of economic and financial power and different rules and mechanisms for economic and financial ties between countries."

(https://www.imf.org/en/Publications/fandd/issues/2023/06/PT-globalization-peak-Stanley)


Discussion

The Five Stages of Globalization

Douglas A. Irwin:

"In the first period from 1870 until 1914, economic integration increased, driven by the steam ship and other advances that allowed more goods to be moved more cheaply between markets.

Globalization reversed in the second period, from the outbreak of World War I in 1914 until the end of World War II in 1945. World War I produced prolonged economic dislocation, which included the withdrawal of Russia from world trade after the communist revolution in 1917, the Spanish flu pandemic in 1918, monetary instability in the early 1920s, new immigration restrictions, the Great Depression starting in 1929, and a severe outbreak of protectionism in the 1930s. This turmoil reduced integration and the world economy suffered.

Economic integration rebounded in the third period, the three decades after World War II. American leadership helped create new institutions for economic cooperation, such as the General Agreement on Tariffs and Trade, enabling countries to open their economies once again to trade and investment. These steps helped usher in a golden age of growth.

Yet the geographic scope of this third phase—confined to the United States, Western Europe, Japan, and a few other countries—limited how far world economic integration could go. The Soviet bloc of communist states and China were nonmarket economies that did not participate for political and economic reasons. The developing world in Latin America, South Asia, and Africa chose their own path of import substitution and remained relatively isolated.

During the fourth period, from the 1980s until the financial crisis of 2008, economic integration rose to a historically unprecedented global scale. Led by China and India, developing countries began dismantling trade barriers. The Soviet bloc in Eastern Europe moved toward democracy and economic liberalization with the fall of the Berlin Wall in 1989, followed by the collapse of the Soviet Union in 1991. Changes in technology—the shipping container and improvements in information and communication technology—also fueled integration and led to the creation of global supply chains. Global growth was strong and world poverty fell significantly."

(https://www.piie.com/blogs/realtime-economic-issues-watch/pandemic-adds-momentum-deglobalization-trend)

Graph at [1]


More information

Mentioned in: Jeremy Rifkin on the Third Industrial Revolution