Globalization isn’t going anywhere

Introduction

Reports concerning the death of globalization are greatly exaggerated, to borrow a turn of phrase from Mark Twain. Despite a litany of dramatic disruptions—including a global pandemic, trade friction, and the Russia-Ukraine conflict —a close examination of available data does not support the notion that companies are beating a hasty retreat from the global trade.

The case for deglobalization typically rests on an argument that combines evidence of political fracturing—the rise of isolationism and growing appeal of populism—with other potential signs of rupturing, such as fragility of overstretched supply chains. In the US, signs of that fracture ranged from its withdrawal from the Trans-Pacific Partnership in 2017¹ to the imposition of tariffs on China.² Since The Great Recession of 2008, the argument goes, the growth of globalization has slackened to what The Economist has dubbed slowbalization.³ That deceleration is expected to reverse the benefits of globalization, which included lifting more than 1 billion people out of extreme poverty,⁴ and ushering in a period of higher inflation and lower productivity growth.

But projections of a smaller, faster, and cheaper world fading into the historical mist (as misperceptions about deglobalization multiply⁵) lack a solid factual underpinning. For example, the claim that deglobalization has already begun tends to be based on a misreading of a certain statistic: Goods trade as a share of GDP has fallen globally in nominal terms.⁶

In this edition of CFO Insights, we’ll explain why it’s not actually the case that deglobalization has already begun, what CFOs can learn from previous trade shocks, and why future supply chain changes, as well as government policies, will likely have limited effects.

Endnotes

¹ “The United States Officially Withdraws from the Trans-Pacific Partnership,” Office of the U.S. Trade Representative, January 1, 2017.

² “Trump Hits China With Tariffs on $200 Billion in Goods, Escalating Trade War,” The New York Times, Sept. 17, 2018.

³ “The steam has gone out of globalisation,” The Economist, Jan. 24, 2019.

⁴ “Globalization’s Greatest Triumph: The Death of Extreme Poverty,” Cato Institute, September 26, 2018.

⁵ “The pandemic adds momentum to the deglobalization trend,” Peterson Institute for International Economics, April 23, 2020.

⁶ Ibid.

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