The tide of globalisation is turning

September 9, 2016

The tide of globalisation is turning

Trade liberalisation has stalled and one can see a steady rise in protectionist measures. 

by Martin Wolf

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Has the tide of globalisation turned? This is a vitally important question. The answer is closely connected to the state of the world economy and the west’s politics.

Migration raises quite specific issues. The era of globalisation was not accompanied by a general commitment to liberalising flows of people. So I will focus here on trade and capital flows. The evidence in these areas seems quite clear. Globalisation has reached a plateau and, in some areas, is in reverse.

An analysis from the Peterson Institute for International Economics argues that ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016, though the world economy continued to grow. The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling to 36 per cent by 2015. Finally, inflows of foreign direct investment have remained well below the 3.3 per cent of world output attained in 2007, though the stock continues to rise, albeit slowly, relative to output.

Thus, the impetus towards further economic integration has stalled and in some respects gone into reverse. Globalisation is no longer driving world growth. If this process is indeed coming to an end, or even going into reverse, it would not be the first time since the industrial revolution, in the early 19th century. Another period of globalisation, in an era of empires, occurred in the late 19th century. The first world war ended this and the Great Depression destroyed it. A principal focus of US economic and foreign policy after 1945 was to recreate the global economy, but this time among sovereign states and guided by international economic institutions. If Donald Trump, who has embraced protectionism and denigrated global institutions, were to be elected president in November, it would be a repudiation of a central thrust of postwar US policy.

Given the historical record and the current politics of trade, notably in the US, it is natural to ask whether the same could happen to the more recent era of globalisation. That requires us to understand the drivers.

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2 thoughts on “The tide of globalisation is turning

  1. Globalisation is a Western concept and tool originally intended simply to expand trade with the outside world. It proved successful and with investments sunk in every other country in the world, trade and profits grew inexhorably for the (Western) investers. This is then the genesis of Globalisation. The Americans and the Europeans largely control the global economy. The reality is that their huge investments (and a strong military to back it) in other countries, give them some degree of influence and control over directions these countries should take on political, economic, and security matters.

    A collaborative effort by Americans and Europeans to pull out from a targetted country can see the economy of that country collapse, giving warning signals to others, what can befall them should they act aginst the former’s interests.

    Of course Globalisation may enrich business entities but the main meal is reserved for Americans and Europeans with the others getting morsels.

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