Risking Deglobalization
April 10, 2022
The last thirty years of globalization have recorded huge increases in international trade, world GDP, Foreign Direct Investment (FDI), migration, multinational enterprises, and global value chains. Globalization has lowered costs for consumer goods, and raised living standards for millions of people worldwide. It has also displaced millions of workers in developed countries.
Globalization of financial markets caused a financial crisis in 2007-2009 that led to a deep global recession. Further setbacks to globalization came with Brexit, the United Kingdom’s withdrawal from the European Union; trade wars engaged by the U.S. administration of Donald Trump; the Covid-19 pandemic of 2020-2021, and now, the invasion of Ukraine by Russia.
The severing of supply chains during the pandemic, and the ethics of trading with autocratic regimes that suppress freedom and human rights, is prompting a reassessment of the costs and benefits of globalization. Limiting trade to long-standing allies, and bilateral versus multilateral trade deals, are finding favor.
However, the costs of a retreat from globalization are counted in trillions of dollars. A recent article in The Economist estimates roughly three trillion dollars in investment would be written off by multinational corporations, as they move manufacturing to less efficient, higher-cost producers, fueling inflation and lowering living standards.
A sharp decrease in FDI would likely have severe repercussions. An article in International Affairs expected FDI “almost to halve investment flows to Africa, Asia and Latin America. Contrary to hopes of fulfilling the [UN] Sustainable Development Goals, millions of people could be thrown back to poverty. While the number of refugees is already at a record high, significantly more people could join the global refugee surge. Societal unrest and more authoritarian tendencies in host states could be the result.”
However, Howard Marks, co-founder of Oaktree Capital Management, in an article in Financial Times, contends that deglobalization “may improve importers’ security, increase the competitiveness of onshore producers and the number of domestic manufacturing jobs, and create investment opportunities in the transition.”
A balance between trade and national security is a more sustainable course for the future of globalization. Groups of regional countries, such as the Association of Southeast Asian Nations and the African Continental Free Trade Area, are banding together as like-minded democracies. The U.S. and the European Union have formed the EU-US Trade and Technology Council to “coordinate approaches to key global technology, economic, and trade issues.”
The London-based Royal Institute of International Affairs summarizes the current globalization debate: “technology has unleashed powerful globalized forces which are here to stay, whether that is in international travel, finance, and trade, or borderless criminal, terrorist, and health threats. Allowing international agreements and institutions to decay only makes the world less efficient,” as well as less healthy and less safe.