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L.A. dockworkers have never been so busy.Largest U.S. port reports highest activity level in February in its 115-year historyreflecting record global trade volumes.
However surge in activity Policymakers, Economists and Investors Worry Globalization may have reached its peak After 30 years of growth. Some even predicted a sharp reversal in transaction volumes as the dispute between major powers intensifies after Russia invaded Ukraine and as companies struggle to build resilience. Global Supply Chain.
This is not the first time the crisis has sparked a major shift in trading patterns. After the 2008-09 global financial crisis, trade growth slowed sharply, from roughly double global GDP to a similar rate. The early era of globalization associated with the Industrial Revolution and based on a gold-standard monetary system was killed in the First World War. Trade as a share of global GDP did not recover to its 1914 level until the mid-1970s.
The challenge for globalization advocates is to determine the scale of the potential reversal, including the impact on competition, supply chains and shocks to developing economies.
Are we witnessing a turning point in global trade?
Geopolitical pressures are expected to lead to a dramatic shift in deglobalization, with a boost in trade seen as a last hurrah before new barriers are erected as countries recover from the pandemic.
Larry Fink, chief executive of $1 billion asset manager BlackRock end globalization We’ve been through it for the past three years”. He added that companies and governments will be watching closely their reliance on other countries and looking to “do more business onshore or nearshore”.
Shamik Dhar, chief economist at BNY Mellon Investment Management, said trade patterns will be influenced by the return of great power politics and the prevalence of friendly trade blocs.
He said that even if Russia’s war was relatively short-lived, “the existing international economic architecture is increasingly distanced from major political and economic issues” and that future governments may “promote security interests at the expense of comparative advantage.”
Eric Nielsen, economic adviser at UniCredit, said it was inevitable that “we are entering a prolonged period of deglobalization” – a process that will raise the cost and price of goods and services.
Warnings from financial officials are usually more cautious, but Bank of England Governor Andrew Bailey, said last week The world is at a “more challenging moment” in terms of trade fragmentation than it was during the global financial crisis, when countries largely avoided new tariffs or other measures.
Are the strains visible in the data?
no. The latest global data from the Netherlands Bureau for Economic Policy Analysis shows that while trade volumes between China and emerging economies fell in January and imports were hit by higher prices, total global trade remained at a record high, up from December 2019. Monthly pre-pandemic levels were about 9% higher.
This has brought global trade back above the trend level since the financial crisis.
Other indicators remained strong.Container freight rates have fallen since Russia invaded Ukraine, but still almost double At levels a year ago, ports in every region reported high levels of business and severe logistical bottlenecks.
“It’s not just port congestion. It’s a problem on land. . . we don’t have enough storage, we don’t have enough truck drivers,” World Trade Organization chief Ngozi Okonjo-Iweala, told the Financial Timesadding that supply chain issues will continue for some time.
If trade is strong, what are the concerns?
During the conflict in Ukraine, strong demand, high shipping prices and tariffs or punitive sanctions are encouraging companies and countries to prioritize resilience over efficiency.This just-in-time manufacturing It’s sometimes hard to pass the tests posed by financial crises, natural disasters, pandemics, and now a major war.
Bailey said the Bank of England was adjusting its thinking to take this into account. “It’s no surprise that businesses are adjusting given the issues they have to deal with. Inventory levels are rising because they have to be rational about the challenges they face.”
Importers will encounter more trade restrictions, often from populist governments seeking to further their domestic ambitions, said Adam Posen, director of the Peterson Institute for International Economics.
westward to block russia From the point of view of acquiring their foreign exchange reserves, it is not safe to hold U.S. dollar reserves if countries believe that they may also face U.S. sanctions one day. Johanna Chua, head of Asia economics at Citigroup, said “the use of sanctions will drive demand for de-dollarization”, thereby incentivizing China to internationalize the yuan for friendly trading partners.
Who will be the winners and losers of deglobalization?
Its critics say globalization has cost developed countries jobs and widened inequalities between rich and poor countries.but most evidence suggests that it is better technologyRather than trade leading to a decline in manufacturing employment, globalization increases efficiency and productivity.
The biggest winners over the past 30 years have been emerging economies that have integrated into the world economy and improved living standards. According to the International Monetary Fund, emerging economies have generated 60% of global growth in recent years, up from 40% in the early 1980s.
Absolute extreme poverty rates have fallen markedly, especially in Asian countries that have become part of the global economy. The number of people classified as living in extreme poverty fell from 1.9 billion in 1990 to 650 million in 2018, according to World Bank.
Low-income workers in advanced economies do lose out due to increased competition, although this is offset by cheaper prices for goods and services.
Posen said deglobalization can reduce the efficiency of companies by raising prices and reducing competition. The poorest countries will also be hit as multinationals are reluctant to “invest where they see transparency as unreliable,” he wrote in Foreign Affairs.
Any reversal is expected to slow growth, with UniCredit’s Nielsen saying a deglobalised world will be “significantly lower” than the open trade of the past 30 years.
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