Have We Reached Peak Globalization?
The Northern Jubilee container ship sails into New York Harbor in New York, U.S. (Photographer: Peter Foley/Bloomberg)

Have We Reached Peak Globalization?

(Bloomberg Markets) -- The last decade has been a sharp rebuke to the idea of a more integrated, and increasingly frictionless, global economy. Borders, nationalism, tariffs, and even trade wars are back in fashion. So we asked economists, business leaders, and other experts whether this reversal is permanent or whether a new era of globalization can take hold. Some were more optimistic about the future of economic integration than others, but all agreed that if we see globalization reemerge, it won’t look the same as before.

Catherine Mann
Global Chief Economist, Citigroup Inc.

World trade intensity rose until around the time of the financial crisis, at which point it stalled. Cross-border financial flows peaked in 2007. On the other hand, people flows, remittance flows, and digital flows have not peaked, at least not yet. Is this a natural evolution— a peak desire for new products, financial diversification, foreign travel, fragmented value chains? Is this globalization realism—global integration has gone too far anyway, with jobs lost, regions hurt, finances in disarray? So the question really should be: If globalization has peaked, is this to be welcomed or countered?

Regardless of the aggregate benefits of global integration—and they are large, from productivity to variety to intertemporal smoothing—the gains haven’t been widely shared. Many forces, technological change for example, bring benefits and risks. If global integration has peaked, this portends fewer resources to address inequalities and risks regardless of their proximate cause. From this perspective, the problem is not too much globalization but too little. We need both to reinvigorate globalization and to deploy domestic policies to promote widely shared gains and resilience to downside risks.

Philipp Hildebrand 
Vice Chairman, BlackRock Inc.

At the moment, it certainly looks like we might have reached peak globalization. Deglobalization and the fracturing of global economic integration is probably one of the dominant themes for certainly this coming year and maybe for years to come. And it can have some pretty far-reaching repercussions, not least around price behavior because, in a way—if you think about deglobalization—it’s really quite likely to be inflationary at the margin. It’s an additional cost. So either it eats into profit margins or companies pass it on by way of higher prices. So I would expect deglobalization to be a very strong theme. We probably have seen, unfortunately, peak globalization for the time being. And one of the things to watch, which I sense is underestimated, is that at the margin this could lead to higher prices.

Kimberly Clausing
Thormund A. Miller and Walter Mintz Professor of Economics, Reed College Department of Economics

This ultimately depends on how voters assess the success of these nationalist policies. Several recent studies show that the new tariffs burden U.S. consumers and companies and that retaliation against our trade barriers have introduced labor market shocks that harm U.S. workers. Trade disputes have also weakened U.S. alliances at a time when we face important collective international policy goals such as addressing climate change, tackling tax competition, and avoiding nuclear proliferation.

The success of globalization will hinge on how well national economic policies respond to its downsides with adequate income redistribution, social insurance, and public investment. Accompanied by strong domestic policies to address economic disruption, globalization can be a force for good. Unfortunately, our present policy course combines a retreat from globalization with regressive domestic policies, the opposite of the ideal path forward.

Roberto Azevêdo
Director-General, World Trade Organization

The case for trade liberalization is tougher today than it was before. A lot of the circumstances and the reasons are structural in nature. The way the economy operates has significantly changed. Automation is taking away eight out of 10 jobs that are lost today—that’s the ballpark [estimate] anyway—which means that we are not going back to where we were before simply because the economy is growing. The types of jobs are going to be different, the types of opportunities are going to be different. We need to be responsive to all that. Until we begin to adjust to this new 21st century digital economy, I don’t think we’re going to find an end to these attritions, to these difficulties. I think this is turbulence that we are going to be facing for the near future.

Dani Rodrik
Ford Foundation Professor of International Political Economy, Harvard Kennedy School

Globalization took a distinct turn after the 1990s, with more intrusive trade agreements and the unleashing of financial flows across borders. This was not merely more globalization; it was a different model that placed corporations—multinational companies, Big Pharma, and international banks—in the driver’s seat. It prioritized market integration over more fundamental objectives such as widely shared prosperity and economic security.

Economic theory and history both suggested that this was an unsustainable kind of globalization, and so it has proven. International economic integration came at the expense of domestic disintegration, deepening preexisting economic, spatial, and cultural divides between the winners and losers. It was also predicated on the unrealistic and unfulfilled expectation that the regulatory approaches of countries with very different economic and social models, such as the U.S. and China, would tend to converge. The consequences are now familiar: anti-globalization backlash at home and trade war abroad. The illiberal, nativist impulse of the reaction should not deceive us into thinking we can return safely to the status quo ante if the political center holds. A complete collapse of economic globalization seems unlikely. But we will have to settle for a thinner model of globalization that leaves nations room for rebuilding domestic social contracts.

Leila Fourie
Chief Executive Officer, Johannesburg Stock Exchange Ltd.

Our recent history of globalization can be divided into two waves. The first began in the 19th century and peaked at the start of World War I. The second started post-World War II and peaked in 2008. The growth in this post-WWII period was significant: In 2008 exports were 40 times larger than they were in 1913.

The next wave of globalization will be structurally changed by the effects of technology. Technology has created a dematerialization and demonetization effect that alters statistics on globalization. Products that were previously physical—radios, alarm clocks, cameras, game consoles, and music—have now become apps. That means they no longer appear in production and trade statistics. Many have also become free, so they aren’t measured in any economic statistics, but the products are still used—or much more used—with what looks like zero economic activity.

Technology, data, and AI are also disrupting the rhythm and cadence of the globalization cycle, inasmuch as they are borderless and therefore drive interconnectivity. This technology disruption extends further and beyond intercountry interaction into the realm of space, using geolocation and satellite technology.

This next era of globalization will change the contours of how nations compete and cooperate and, in so doing, unlock economic, social, and political value in a vastly different way than in the past.

Ludovic Subran
Chief Economist, Allianz SE

Certainly not! Of course, for the past three years, protectionism has been on the rise. Nevertheless there are at least three reasons to believe that globalization is still vibrant and may even make a comeback. First, the record amount of liquidity, coupled with the paytech revolution—for example, digital currencies and e-payments—mean that cash will continue to travel the world much faster than shipments, hence supporting financial globalization further. Second, services, contrary to the manufacturing sector, continue to expand globally, in spite of zealous regulators. Financial and nonfinancial services are made available to the emerging customer who is sophisticated and not so frugal. Last, if one were to use cross-border data and information flows as a proxy for globalization, it would look like a renaissance, not the chronicles of a death foretold.

Abhijit Banerjee
Nobel Laureate and professor, Massachusetts Institute of Technology Department of Economics

We are at a point of inflection. I think we could globalize more. Despite all the talk about migration, we are really very close to where we were in 1965 in terms of the fractional global citizens who were international migrants. Not that much has changed. I don’t see a reason why there shouldn’t be more integration of people. I don’t see a reason why many of the countries that are basically just sort of single-product exporters shouldn’t diversify. Peak globalization is going to be because of political rather than economic reasons. There is no particularly economic rationale for stopping here.

The question is how do we solve the political backlash. The point we [Banerjee and Esther Duflo] make in our new book, Good Economics for Hard Times, is that the big constraint on globalization has been the unwillingness of many of the economic systems to invest in really targeted compensation for the losers. We know they are losers. We can even predict who the losers are. But we don’t somehow think of doing anything about them.

The U.S. has a program called the trade adjustment assistance program that is meant to help people who are victims of trade adjustments to get extended welfare, retraining, etc. A person in the most affected districts gets about a half a dollar or something per head a year, while the losses are estimated to be a thousand dollars per head per year. So it’s just nothing; it provides no compensation. You end up in a situation where people are rightly resentful of trade. I don’t blame them for being resentful—they really took a hit. And a lot of people say, “Look, I gained $5 because I could buy a cheaper toy, but my neighbor lost his job.” The empathy is very real. We have to take seriously the idea that the losers are really extremely upset, and if you don’t do anything about it, they are going to tilt the political balance against globalization.

Reporting by Shawn Donnan in Washington, William Horobin in Paris, Simon Kennedy and Zoe Schneeweiss in London, Rafaela Lindeberg in Stockholm, Prinesha Naidoo in Johannesburg, and David Westin in New York.

©2020 Bloomberg L.P.

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