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Salvatore Babones / Global Asia Newsletter #006

Deglobalization?  Or just an end to globalization?

The GFC marked the end of the globalization era.  A fully globalized but no longer globalizing economic order is now taking shape. 

Salvatore Babones

Most people think globalization started in the 1990s.  But if you look at the data, global trade and investment started to rise rapidly right after the 1972 collapse of the Bretton Woods system of managed exchange rates.  Both merchandise trade and foreign investment peaked in 2007-2008.  Growth has continued in currency exchange markets but at a slower pace than in the early 2000s.  It took 25 years for the world's major markets in raw materials (oil, etc.) and manufactured goods to stabilize at a market equilibrium.  Bracket the "globalization era" with the dates 1973-2008, RIP:

Al Jazeera | China: The Most Visible Victim of Deglobalization

Some of the first major beneficiaries of currency and trade liberalization were the Gulf oil exporters.  Opec may be a cartel but it has never been a successful monopolist.  The massive redistribution of the world's income towards oil (and other commodities) exporters in the 1970s was the result of prices rising to a market equilibrium level.  A second move to market equilibrium was China's reindustrialization of the 1980s through the 2000s.  The reorientation of the world's manufacturing base to China was inevitable, though that hasn't made it any more popular than high oil prices:

Al Jazeera | Hillary Clinton, Donald Trump, and China

The crisis of 2008 can be understood as the end of a period of massive redistribution caused by the breaking of the dams that held back global markets in the post-war period.  The sub-prime mortgage bubble and the Euro fiasco were directly caused by gross economic mismanagement, and good (bad) policies could have made them much smaller (bigger), but the dramatic break in global economic time series is on a different scale entirely.  The global integration of the world's economy is now complete.  The next few centuries (yes, centuries) will clarify its direction.  Personally I expect that the United States will be its biggest beneficiary.
 
Also of interest . . .

This month: a Douglas Bulloch special.  Forbes columnist @douglasbulloch points out that despite all the talk of China "rebalancing" its economy away from a reliance on exports, this has not in fact been happening.  He suggests that declining global trade volumes could hit China particularly hard.  I don't buy his comparison to Argentina in the 1920s -- I think Argentina's fabled turn-of-the-20th-century wealth is vastly oversold -- but he is right to point out that any return of protectionism would hit China particularly hard.

But here's the thing: global trade volumes are declining without any increase in protectionism.  Sure, Wallonia is blocking the Canada-Europe trade deal, TTIP is going nowhere, and TPP faces a tough sell in the lame duck Senate, but all that just keeps trade rules at the status quo.  The (slight) decline in global trade and investment since 2008 has occurred organically, not due to policy shifts.  For example, Bulloch points out that Chinese imports are falling even though the Chinese economy is supposedly still growing rapidly.  Normally imports fall because incomes fall.  In China imports are just falling -- again, organically, and despite government pressure to the contrary.

Thanks to Douglas for some great interpretation and analysis on China's interface with the global economy.  But is China distinctive, or is it simply experiencing global trends just like the rest of the world?  My own view is that it's 1640 all over again: the world has finished globalizing (for now) and the new, globalized system is slowly consolidating.  Don't expect much deglobalization.  But don't expect much more globalization, either.
Salvatore Babones (@sbabones) is an associate professor at the University of Sydney.  He takes a long-term approach to interpreting the macro-level structure of the world-economy with a particular focus on China.  Find links to all of his global affairs writing online at salvatorebabones.com.
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