Donald Trump ’s upset victory may be the biggest shock to the world economic system since the financial crisis. It represents, along with Britain’s vote in June to leave the European Union, a profound rejection of the postwar global economic order that could leave a cloud of uncertainty over the U.S. and world economies for months, if not longer.
Mr. Trump’s victory, like Brexit, is another sign that the dominant divide in the world is no longer left versus right but national versus global, working class versus elite, populist versus establishment. So writes Greg Ip on wsj.com.
So, is globalization on the wane? Yes, the tide of globalization is turning. Globalization has reached a plateau and, in some areas, is in reverse. So writes Martin Wolf at ft.com:
An analysis from the Peterson Institute for International Economics argues that ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016, though the world economy continued to grow. The stock of cross-border financial assets peaked at 57% of global output in 2007, falling to 36% by 2015. Finally, inflows of foreign direct investment have remained well below the 3.3% of world output attained in 2007, though the stock continues to rise, albeit slowly, relative to output. “Thus, the impetus towards further economic integration has stalled and in some respects gone into reverse.
Not so fast, writes Stephen DeAngelis. If globalization is in retreat, he says, it can’t retreat very far. He quotes The Economist, writing about Professor Pankaj Ghemawat of IESE Business School in Spain:
Mr Ghemawat points out that many indicators of global integration are surprisingly low. Only 2% of students are at universities outside their home countries; and only 3% of people live outside their country of birth. Only 7% of rice is traded across borders. Only 7% of directors of S&P 500 companies are foreigners—and, according to a study a few years ago, less than 1% of all American companies have any foreign operations. Exports are equivalent to only 20% of global GDP.
Some of the most vital arteries of globalization are badly clogged: air travel is restricted by bilateral treaties and ocean shipping is dominated by cartels. Far from “ripping through people’s lives,” as Arundhati Roy, an Indian writer, claims, globalization is shaped by familiar things, such as distance and cultural ties. Mr Ghemawat argues that two otherwise identical countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past.
Mr Ghemawat also explodes the myth that the world is being taken over by a handful of giant companies. The level of concentration in many vital industries has fallen dramatically since 1950 and remained roughly constant since 1980: 60 years ago two car companies accounted for half of the world’s car production, compared with six companies today. He also refutes the idea that globalization means homogenization. The increasing uniformity of cities’ skylines worldwide masks growing choice within them, to which even the most global of companies must adjust. McDonald’s serves vegetarian burgers in India and spicy ones in Mexico, where Coca-Cola uses cane sugar rather than the corn syrup it uses in America.
What’s my view? As I laid out in a series of recent presentations on international trade, globalization may, in the short-run, slow somewhat, but DEMOGRAPHICS AND TECHNOLOGY will drive international development and trade for decades to come.
And as I laid out in my presentation to the Cincinnati Chamber of Commerce, “Our Coming American Landscape: economic, social and technological trends shaping the future of business, work and community,” the regions and people that have been displaced by globalization and technology can be revitalized. How? By more localized efforts to improve business-friendliness and that incentivize new, small, entrepreneurial business formation.