Sunday, January 05, 2014

Globalization In Decline?

Is the era of hyper global-commercialism on the wane?  Is the global economy gradually yielding to the forces of localism?  Fareed Zakaria writes that, after a 30-year romp (more like a rampage), global trade numbers are sagging.

For much of the last thirty years there has been a steady trend in commerce: global trade has expanded at about twice the pace of the global economy. For example, between 1988 and 2007, global trade grew on average by 6.2 percent a year according to the World Trade Organization. During the same period, the world’s GDP was growing at nearly half that pace: 3.7 percent.
But a strange thing has taken place in the last two years. Growth in global trade has dropped dramatically, to even less than GDP growth. The change leaves one wondering: has the incredible transfer of goods around the world reached some sort of pinnacle? Have we exhausted the drive toward ever-more-globalization?
have those trends peaked? Could the next big invention, say, 3-D printers, end the need for more and more trade? Imagine a world where you need a new faucet in your restroom. Instead of going to the local store that sells faucets made in China (which contributes to global trade) now you just print out your own faucet, sitting at home or at a local store. Are people also getting more interested in local products compared to global brands.
Joshua Cooper Ramo points out in an essay in Fortune that localism is one the rise – local banking, local manufacturing, and even local sourcing for food and restaurants. Is this simply a pause or could it be more than that? The answer will depend on politics.
Zakaria attributes the decline in global trade to protectionism but I've wondered whether other factors aren't equally driving the end of globalism.  One factor is that demand is outstripping resources.  This is manifesting in challenges such as water shortages and food insecurity that can destabilize nations that may be critical trading partners.  These problems can also lead countries to restrict access to and export of commodities.  We're now consuming Earth's renewable natural resources at half-again the rate of replenishment.  Obviously that will eventually trigger sharp restrictions.   Climate change impacts will likewise present security and stability challenges to nations in the hardest hit regions of the planet.
Globalism requires high levels of international stability and generous access to resources, neither of which may be available as they were during the golden age of globalization.   The party is far from over but the evening is wearing on.


Hugh said...

I think in particular the high cost of oil will making shipping more expensive. This would benefit local industries.

Richard said...

Hugh, you are partially correct, it does make shipping more expensive.

However, this is not an end to globalization, but a reversal. It is becoming too expensive for the western nations to utilize properly, but the eastern nations, namely China, Russia, have been quietly expanding their trade and influence.

The surge of temporary foreign workers is another sign of a reversal. As wages in China and other producer nations continue to rise, ours are falling, in competition with temporary foreign workers the extent of which they are driving down wages and more importantly job security is not yet known. Laws regarding them and pay are irrelevant as they have no worker rights and so if they complain to the Canadian government their employer can simply deport them back home. Many of the temporary workers are owned (perhaps more accurately, being leased to us) by these rising nations.

In other words, for us, it is no longer economic to import the product, so we're now starting to import the workers instead to cut our own costs.

This situation is only temporary though, the real kick to globalization is still coming. The Chinese have already attempted to start it, but when the Yuan diverges significantly and rises above the USD big things are going to happen. I anticipate whatever is left of the old globalization to basically reverse almost seemingly overnight, with western debt ridden nations becoming the new 'labour force' for the production of goods for the rising nation.

What we've done for so long against (and in partnership with) these other nations is going to come here.

This all relates back to my post on Canada secretly preparing to decouple from the USD. It's a bit older, I need to do an update on this situation.