De-globalization forces remain strong into 2011

January 4, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The forces of globalization have been challenged by new global market barriers in the Great Recession. In 2011, the de-globalization process even could gather pace if commodity prices continue their surge or if there is another financial crisis.

The globalization of the last 20 years has been partly due to technology. The Internet and cellphones enabled companies to construct global supply, manufacturing and distribution networks not previously feasible. China, India and other emerging markets became integrated into the global economy, reducing costs for consumers and creating new demand. Since the formation of NAFTA and the World Trade Organization in 1994 and 1995, regulation has played only a minor role in greasing the process. Conversely, expansive monetary policies — which have reduced risk premiums for emerging market debt and produced pools of risk-seeking equity capital — have been critical.

The technology is not going away, although the cost advantages of global sourcing decline as emerging market wages rise. But the recent crisis has brought a rise in anti-dumping actions and other limited tariff barriers. In addition, the disruptions from continued high global liquidity have led to currency manipulation by China, capital inflow taxes in Brazil and Thailand, and a general reduction in global economic cooperation, with the Free Trade Agreement between the European Union and Korea the notable exception.

The crisis may have passed its moment of greatest intensity. But political pressures in Western countries beset by prolonged high unemployment should continue these trends in 2011, counteracting technology’s encouragement of further globalization.

There is an additional risk. A new financial crisis, or an inflation surge, could lead to sharply higher real interest rates, reducing the funds available for emerging market investment and raising risk premiums. China and other east Asian countries with high savings rates might have little difficulty in such a scenario, but India, with middling savings rates and an excessive budget deficit, could suffer from scarce capital availability. For the duration of the tight money period, globalization could grind to a halt, or worse.

Globalization is mostly economically beneficial, but by no means inevitable. In the next few years it may even reverse.

Comments

very true. may be we should start looking at fair trade versus free trade. a trade system that would ensure that in a span of 3 years, at least two years tha trade is balanced between each country we trade. It may be also imporatant that we have two categories of trade – manufacturing and services, and we balance each of these in 2 out of 3 years.

that way, countries would calm down, reduce rhetoric, and focus on the key things – improve competitivenes.

financial flows would correct automatically

Posted by srini01 | Report as abusive
 

srini01: How would you measure services?

Fair trade = ‘Managed’ trade means giving in to the unions.

Posted by Gotthardbahn | Report as abusive
 

Dow Jones Index is gaining for 5h day, financial sector, Bank of America Corp. shares finished the regular session up 6.4% on Mon., so I think financial crisis is over.

Posted by philip999 | Report as abusive
 

One of the big reason (IMHO) that the USA is losing out to the orient is that they truly value education. This is true of the people as well as the government – both of which see education as a way to advancement, individually and collectively.

This comes down to the level of support that schooling gets as much from the parents as from the government. Here people are too lackadaisical, even among families who support education. Way too often, all a chid has to do is complain “Oh that teacher is so bad,” and the parent lets him/her off the hook for performance. Kids are smart. They quickly learn how to manipulate the system and their parents.

But it is a lot more than individual. Overall the American culture is very anti-intellectual and looks down on education as somehow inferior to “hard work,” ignoring that students too must work hard to achieve their success, and those who went out to play, ignoring their homework, are the lazy ones.

In the past, this did not effect the economy negatively since all we needed to do was to import our engineers who were happy to move here. Now, however, it does – since the corporations are happy to save costs and pay them a fraction the wages in their own countries.

America – you have brought this on yourself.

Posted by jmmx | Report as abusive
 

India will suffer from an investment capital shortage only briefly. That was what the visit from the Chinese Premier late last year was all about. The are already moving to buy the gratitude of the Euro zone with their bond buys. My bet is if anyone looked they would see that the Chinese have already started shedding their T-bill stash and are diversifying.

Posted by ARJTurgot2 | Report as abusive
 

Services can be measured by incoming invoices from abroad for charges not to do with the supply of goods (Give it may – be a different tarrif code? (accounting, soft ware engineering, call centres etc. etc., charge 50%?…lost jobs tax…)

are’nt the unions a lot of PEOPLE?

Posted by Beobachter | Report as abusive
 

Some of the players aren’t playing by the rules, not just because of the lame excuse of “disruptions,” but because monetary manipulation is a very effective weapon.
This hurts globalization royally. It turns
de-globalization into a defense, a counter-measure.

Another negative is that some of the stronger players are manipulating the weaker ones and pretty much disrespecting them. Many alliance deals aren’t fair and Here, de-globalization is again a legitimate defense.

Also, it isn’t de-globalization to pull American military back, expecting sovereign nations to rule themselves and keep their own check on terrorist thugs who wish to disturb commerce within their borders. This is globalization. And this will increase in 2011 and beyond because the US can’t afford too much more military action. Without policing…its gonna be the wild west out there, man. Lord, help us all.

Posted by limapie | Report as abusive
 

I agree with the fair trade -vs- the mess we’ve made of
NAFTA/GATT and others – just a way for American business
to get very cheap labor costs. Prices haven’t gone down
at all – the only change has been the amount of profit made by the owners of the factories using cheap labor overseas…indicated by the very high stock markets. We
are finally beginning to see the results of the outsourcing binge for higher profits – there’s nobody left to buy any of those items. Government is ‘stimulating’ us so we’ll spend, but if you don’t have a job, that little stimulation you get is a joke.
We should enforce the part of NAFTA/GATT to ensure the
1 for 1 job promised when they were enacted or repeal the treaties and bring the manufacturing jobs back to America. Somebody has to be able to buy this stuff and keep the economic circle complete. The government can’t be supplying the stimulas using taxpayers money much longer…they’re running into the ‘out of opm’ problem all socialists tend to experience.

Posted by murrow | Report as abusive
 

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