While ‘deglobalization’, ‘decoupling’ and ‘economic fragmentation’ dominate the current public discourse on trade, globalization is far from finished.
According to one common narrative, globalization peaked in 2008 and was then dealt a fatal blow by the global financial crisis. The trade environment deteriorated further with the rise of populism – exemplified in 2016 by the UK’s Brexit vote and the election of Donald Trump as US president. Disruptions to supply chains then followed as a result of the US–China trade war, the COVID-19 pandemic and Russia’s invasion of Ukraine. But while there are many truths within this narrative, it also contains several misconceptions and oversimplifications.
First, 2008 was not the year of ‘peak globalization’. The merchandise trade ratio for the world’s largest trading nations either peaked before 2008 (in the case of China) or after (the US and Japan), or has stagnated rather than peaked (the EU).
A second misconception stems from a fixation on trade in goods that largely ignores trade in services. Although trade in goods clearly outweighs trade in services in terms of value, the ratio of trade in services to world output has – in contrast to that for merchandise trade – continued to rise. And third, notwithstanding supply-chain volatility, global production networks and trade have been resilient, even through the pandemic.
The likely trajectory for trade and investment ties with China is perhaps the most critical factor determining the future of globalization.
Multiple measures of globalization – from global trade in goods and services to the flow of investment, people and data across borders – indicate that globalization has not been dealt a mortal blow. However, the forces that have driven the current wave of globalization, which started in the 1990s, are wearing out. Notably, for example, China’s approach to integration within the global economy has shifted: the country that focused on strong trade growth is now emphasizing domestic growth and economic self-sufficiency under its ‘dual circulation’ strategy.
Moreover, the rapid pace of technological developments helped lower transportation and communications costs, and thus facilitated the growth of trade in the 1990s and 2000s. But this effect has diminished over time. And the way governments think about technology has also become conflated with national security concerns and competition between the West and China.
So the reality is more complex than the narrative around ‘deglobalization’ suggests: ‘reglobalization’ – a term that has been used by WTO director-general Ngozi Okonjo-Iweala – better describes the current and likely future trends of greater economic integration that is taking place in some areas alongside the fracturing of the global economy in others. The likely trajectory for trade and investment ties with China is perhaps the most critical factor determining the future of globalization.