IS THIS THE END OF GLOBALISATION AS WE KNOW IT?

By Neel Shah

Globalisation refers to a deep-rooted historical trend describing the increased integration and interaction between various nations states. Globalisation can generally be characterised under:

• Archaic globalisation - the growth of trade between city states in Greece, as well as links to the East.

• Proto-globalisation - mercantilism, the use of trade to stimulate wealth, by European maritime powers through the East India Company for example, and colonisation following the ‘Age of Discovery’.

• Modern globalisation; improvements in communication (e.g. telephones) and transportation (e.g. steam ships), combined with industrialisation, urbanisation and rapid growth led to the growth of urban centres and manufacturing. Imperialism and the growth of TNCs (trans-national firms) furthered modern globalisation due to the trade in goods, such as rubber, coal and diamonds from sub-Saharan Africa.

• Resurgence; following protectionism during the inter-war period, political, cultural and social integration furthered globalisation, e.g. through the dominance of Hollywood. The internet accelerated this growth.

However, the current political climate, which favours increased protectionism (as evidenced by Donald Trump’s introduction of tariffs on steel and other sectors) and a move away from free trade (through the UK’s withdrawal from the EU and the US’ withdrawal from the Trans-Pacific Partnership) demonstrates a move away from globalisation. This has prompted articles from the Economist on ‘Slowbalisation’ (24th January) and the Financial Times on ‘Is It Time to Declare the End of Globalisation?’ (19th July). This article will aim to cover a brief summary of the reasons for a slowdown in globalisation and whether it is significant.

Globalisation is a trend throughout all of human history, describing an accelerating process of increased interaction. However, the significance of globalisation today is placed on modern globalisation and the post-war resurgence, due to the rapid integration of global systems under these time periods. Since 1945, the creation of global networks through the WTO (trade), UN (decision making) and IMF (finance), as well as other intergovernmental organisations, has enabled specialisation to occur. This has increased global trade and production exponentially, as demonstrated in figure 1.

By ‘the peak of globalisation’ the resurgence in globalisation is beginning to fall, creating a new period of protectionism seen in the inter-war period between 1914 and 1945. This would suggest that the rate of growth of the value of global exports will begin to slow in the coming years.

Protectionism is the practice of shielding a country’s domestic production from foreign competition, through tariffs (taxes on imports), product standards or exchange rate manipulation. Since the financial crash, protectionist policies have dominated news headlines in developed countries. Some examples include; the US-China trade war (where tariffs were placed on over $362bn goods by the US), Brexit (through withdrawal from the EU’s free-trade area) and subsidies on agricultural produce (e.g. the EU’s Common Agricultural Policy). This has been worsened by a shrink in cross-border investment (e.g. Chinese investment in Europe and North America fell by 73% in 2018 and MNC cross-border investment fell by 20%), bank loans and trade relative to global GDP.

This has resulted in deeper regional links, limiting the future scope for globalisation by inhibiting trade between the developed and developing world in particular. This can be problematic since globalisation has helped to reduce the development gap between countries, therefore a reduction in global trade may inhibit the development of countries in Asia and sub-Saharan Africa in particular. In addition, the increased cost of trade will negatively impact developed countries, where consumers face increased costs for the same products and workers (particularly in deindustrialised regions) will not regain jobs in these industries due to automation and a comparative disadvantage. Therefore, the reduction in trade between nations may serve counterproductive to the US’ intentions, by harming domestic consumers and strengthening a Chinese regional hegemony (dominance across all sectors by one state). Rising populism has also hindered non-trade globalisation, through increasing resistance to migration and growing political dissent.

However, trade in goods is only one aspect of globalisation. Despite the original cause of globalisation, trade networks are already heavily globalised, creating a greater focus on the globalisation of service trade, culture and society. These are arguably of greater importance, since they have only begun to grow under the ‘resurgence’ phase of globalisation. Key trends in these industries include:

• Trade in services; despite an increasing influence from geopolitical tension, the technology industry remains influential, accounting for 20% of global stock markets. Knowledge services and flows of data have continued to grow, providing an alternative method for globalisation despite a decline in trade in goods between countries.

• Cultural exchange; a continued cultural exchange, despite protectionist polices such as France’s ‘l’exception culturelle’ (a policy to protect domestic culture e.g. through 40% quotas on radio stations for French songs), has enabled a global culture to form, combining aspects from various nations, religions and ethnicities. However, the growth in cultural globalisation is insignificant in comparison to changes in trade patterns or society.

• Society; a growing call for improved social services to match the Nordic or Canadian models could be successful to alleviate some of the key challenges created by globalisation, such as regional unemployment in the UK and USA. However, many economists believe it is too late to reverse the decline of globalisation.

Overall, it is incorrect to suggest that globalisation will ever stop, due to the uneven distribution of essential resources, such as water, energy and crops. However, there appears to be a slowdown in the trade of goods, suggesting the rise of a new period of globalisation, which is less aggressive than the post-war ‘resurgence’ experienced in the last 70 years. The best description of the apparent future is a term coined by Dutch trendwatcher Adjiedj Bakas and the one echoed by the Economist; ‘Slowbalisation’.