Foreign buyers select shoes at the 133rd Session of China Import and Export Fair in Guangzhou, Guangdong Province, on May 2. Photo: CFP

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The world is undergoing profound changes unseen in a century, marked by a rise in destabilizing factors and uncertainties, and the notion of “deglobalization” has become increasingly commonplace. Despite a noticeable slowdown in global trade in goods since the global financial crisis (GFC), scholars recently interviewed by CSST affirmed that there is no evidence of deglobalization. In fact, most countries have seen increased international integration across nearly all goods, services, and factor markets.

Trade slowdown ≠ deglobalization

“The value of world trade in goods and services has stalled at just over 60% since 2008. Foreign direct investment inflows worldwide have fallen 48% since their peak in 2007. So the era of hyper-globalization has undoubtedly come to an end. But that does not mean we are deglobalizing,” said Peter Williamson, a professor from the Judge Business School at the University of Cambridge.

According to Uri Dadush, a research professor from the University of Maryland, deglobalization means that most countries become progressively less connected through all or most channels: trade in goods, trade in services, capital flows, movement of people, and technology transfer. Such a process would thus mark a reversal of economic trends that have prevailed over at least the last 150 years, interrupted only by world wars and economic depressions. The persistent slowdown in world trade after the 2008–2009 GFC is “exhibit one” for proponents of the deglobalization hypothesis. 

“While globalization clearly slowed in some respects in the wake of the GFC, there is no deglobalization,” Dadush told CSST. Globalization continues across most channels of international exchange, and most large economies continue to see stable or rising trade/GDP ratios. 

Despite notable examples of protectionism, trade in goods remains largely free, perhaps freer than it was before the GFC, Dadush said. Still, trade policy uncertainty has increased considerably in recent years. Barriers to globalization remain high in trade in services but are no higher than before. And trade in services continues to grow, facilitated by technology.

Deglobalization has occurred to some degree in international capital flows, but this was due to the financial and macroeconomic fallout of the GFC, not protectionism, Dadush said. 

Dadush explained that extremely rapid globalization, measured by the growth of the volume of world trade in goods and services at 6% a year, and as observed between 1985 and 2008, has been ascribed to two epochal developments: a dramatic reduction in trade costs and the entry into world markets of formerly planned or previously inward-oriented economies, accounting for some 40% of the world population. Trade costs fell because of the application of relatively recent technologies including the increased use of containers, air transport, and information and communication technologies.

In contrast, the slowdown could be ascribed to various factors, including the slower pace in the reduction of trade costs as they approach a lower limit. For example, the cost of international telephone costs fell to zero, as did many tariffs and structural changes such as the increased weight of services, which are less traded, Dadush said.

‘Slowbalization’

Dadush said that some important features of the trade slowdown, which suggest the deglobalization narrative is overstated, can be highlighted.

The first feature is the exceptional nature of the hyper-globalization period from 1985 to 2008. This phase is often compared to the prior great globalization phase of 1870–1914. However, trade during hyper-globalization grew almost twice as fast compared to the 1870–1914 episode, even though the trade share of world GDP was almost three times higher in 2000 than in 1900. Thus, the great trade slowdown can, to some extent, be seen as a return to normality. It is the outcome of economic actors optimizing under new conditions.

The second feature is divergent outcomes during the trade slowdown. Most non-oil exporting economies, including several European countries, Japan, and large developing economies such as Mexico, saw continued advances in trade/GDP ratios after the GFC.

The third feature is the remarkable resilience of global value chains even in the wake of the disruption caused by the pandemic. Newly released data from the US Commerce Department shows China-US goods trade hit a record high of $690.6 billion in 2022, a year-on-year increase of 5.2%.

“I believe for flows of goods, money and people it can best be described as ‘slowbalization’ — slow growth rather than deglobalization,” Williamson said. First, global supply chains involve a whole series of activities from raw materials through to final assembly. It may be possible to move one part of the chain, such as assembling a mobile phone, but it is slow and almost impossible to deglobalize all the activities in the chain which are located in particular places for good economic reasons. Second, localized production cannot be expected to significantly improve the resilience of a supply chain. Third, so-called “re-shoring” is unlikely to happen at large scale because today the largest growing markets such as China are in countries outside the home base of traditional multinationals so following your customers means continued globalization.

However, there is no room for complacency, Dadush warned. The resurgence of nationalism and of geopolitical tensions in recent years will become severe enough to cause a widespread retreat from open trade and foreign investment, and that far greater obstacles will be placed in the way of technology transfer. In the 20th century, globalization was interrupted for long spells by two world wars and a depression, and, for many, by a cold war. Globalization eventually resumed, more quickly than before, but the economic losses of entire generations were never recovered.

Williamson said that for most flows of data, information, and knowledge, globalization will generally continue. The exception is for sensitive technologies, such as semiconductors, where geopolitics threatens globalization. This is unfortunate because innovation in today’s complex products and services requires new sources of knowledge to be combined and integrated.

Edited by CHEN MIRONG