Is the end of globalisation nigh?

Is the end of globalisation nigh?


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Is the end of globalisation nigh?

The last twenty-five years have been the era of globalisation. Fuelled by the birth of the internet and the emergence of multi-national technology giants, it is a phenomenon that has driven an unprecedented expansion in trade and financial flows. But to many, globalisation has now become a dirty word. Is the world about to turn in on itself once again?

Globalisation has been the cornerstone of global growth in the new millennium. Facilitated by privatisation and the deregulation of the labour market, it has, among many other things, encouraged the rapid expansion of the emerging markets and kept the price of goods down by allowing production to be outsourced to low-cost countries.

But is globalisation now a victim of its own success? The pace of economic and, to a degree, social transformation has seen politicians from left and right attack it. On the left, there is anger against capitalism and rising inequalities – faceless global corporations exploiting workers and avoiding tax. On the right, growing populism rails against the centralisation of power to the detriment of national interests.

There are other concerns about an increasingly borderless world too. Not least the controversy over Huawei, where the placing of vast amounts of personal data in the hands of a state-owned technology company is understandably viewed as a security risk.

Risk Disclaimer

This document and the views expressed in it contain forward-looking assessments, which can be identified by the use of terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “projection”, “estimate”, “intend”, “continue” or “believe”.

These do not constitute investment advice or recommendations to buy or sell investments and you should not place undue reliance on such statements or returns, as actual returns and results could differ materially due to various risks and uncertainties.

It is rare for world trade to decline outside of recessions: the recent decline is therefore unusual.

Graph showing index for Merchandise Trade Volume Index in 2011-2019
Source: Bloomberg, CPB Netherlands Bureau for Economic Policy Analysis as at 25th September. Base year 2010=100, seasonally adjusted data
Any investment involves risk as market conditions and trends fluctuate. Accordingly, investment values may fall as well as rise and investors may receive back less than originally invested.

The challenge to globalisation gathered force in the aftermath of the global financial crisis and is being accelerated by the retreat of the US from global leadership. The rise of China, India and other populous emerging nations has seen the US’ share of global gross domestic product (GDP) fall. The current US administration does not wish to lead the world on issues such as climate change and, indeed, sees reduced benefits in maintaining global alliances. The recent move towards trade barriers and protectionism illustrates more clearly than anything its more insular attitude.

So with the US no longer willing to enforce global rules, nation states are starting to fall into regional arrangements. Asian countries, for example, are now developing closer trading ties in response to China’s own move to a more introspective economic model.

Any shift from globalisation to regionalisation will likely present increasing economic and political risks. Nation-states could gravitate to the largest influencer-country in their sphere and step back from the US-led global system. And if countries decide to redress perceived imbalances, or even settle old grievances with their neighbours, the potential for intra-regional conflicts will rise.

The global financial crisis began the movement away from unfettered capitalism and globalisation as economic ideals. The huge shift in production patterns associated with the entry of China into the modern economic system has left many ordinary people bewildered and frightened by the pace of change. Protectionism is on the increase and the growth in world trade has stalled.

The focus now is much more on sustainability, redistribution and regionalism. We do not expect the global system of production to go into reverse but, equally, the pace of advancement will remain subdued. The next decade will be one of consolidation and a shift in focus. Globalisation is here to stay but the era of massive growth is behind us.

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