Is Globalization Receding?
To hear the two major United States presidential candidates say it, the American public has lost its taste for globalization. Both candidates oppose the Trans-Pacific Partnership which was negotiated by the current administration, and one candidate, Donald Trump, speaks in terms of a self-reliant Fortress America. The same kinds of sentiments are reflected in other countries, such as the UK, where voters opted to exit the European Union.
But is globalization actually receding? And could that be at all desirable?
To answer the second question first, the answer is no, not if you look at history.
Many people see globalization as phenomenon that took off in the late twentieth century. In fact, its roots go back more than century before that.
As noted in a recent report from the Brookings Institution, a first wave of globalization took hold in 1870 and lasted until 1914. That period saw the growth of international trade, based on a model that saw western manufactured goods exchanged for raw materials from developing countries along low-tariff corridors. Capital flowed freely and migration was pretty much unrestricted.
The retreat from globalization’s first wave by the U.S. was encapsulated in the Smoot-Hawley Tariff act of 1930 which set off a retaliatory wave among the world’s other major economies that crippled global trade and accelerated the Great Depression. Many controls on the exports of capital were also imposed while anti-immigrant sentiment led to drastic reductions in migration.
“The breaking of globalization’s first wave is proof that the forces of global economic integration are neither irresistible nor irreversible,” noted the Brookings report.
Are those forces being reversed today? To answer that question, the Brookings researchers took three measures of globalization suggested above: goods, money, and people.
Global trade in goods has indeed slowed, as has the pace of international integration. Merchandise exports as a share of gross domestic product is now almost twice what it was in 1913. But at 15.1 percent, it has retreated from 2008’s all-time high of 19.7 percent.
The flow of capital has changed since the early twentieth century with foreign direct investment (FDI) displacing debt. The value of FDI as a share of developing world income has risen for a quarter of a century, but the rate of growth has diminished since 2012.
On the people front, “the share of the global population accounted for by migrants is at an all-time high” but its growth rate “has slowed over the past five-year period.” The proportion of the U.S. population born abroad is near its all-time high.
The Brookings study did not account for trade growth in services, a growing segment of the global economy, leading the report’s authors “to doubt that trade’s role in the global economy is bound to diminish. While trade in services is considerably smaller than trade in goods, its value as a share of global GDP has doubled in the past 30 years and has proved more resilient during the recent trade slowdown, standing today at record levels.”
As shifts in trade growth have gone from goods to services, and in foreign capital away from debt to FDI, migration patterns have also changed “towards a more diverse set of origin countries concentrated in a shrinking pool of prime destination countries.”
So it is reasonable to conclude that globalization is not in retreat, but it is slowing and changing. The era of hyper-globalization characterized by the past two decades is indeed over, the report concluded. The question, then, is what will come next. The Brookings report speculates “that the coming years will be characterized either by stabilization in the level of globalization, or further growth in the degree of integration but at a more modest pace than in the past.”