Over the past few years, several events have delayed or altered globalization, which is the interdependence of the world’s economies, cultures and populations. In the article, “The Tricky Restructuring of Global Supply Chains” in The Economist, the challenges facing international trade and commerce are highlighted. It describes the reimagining of global capitalism in board rooms and governments.

The author raises concerns that globalization could lead to protectionism, worsening inflation, and a global economic slowdown because of the following:

  • A focus on obtaining goods and services on a secure rather than efficiency basis. Many firms are adopting dual sourcing and longer-term contracts.
  • Doing business with countries and people our government is friendly with and can rely on. “The West is seeking long-term supply deals from allies rather than relying on spot markets dominated by rivals.”

Since the end of the Cold War, world economies benefited from a historic increase in cross-border trade of goods and services, sharing of technology and expanded overseas investment. Globalization encouraged each country to specialize in its core area of competency using the least number of resources. It promoted economic growth and lower prices of goods and services.

An economic order — now at risk

Since 1945, the United States has helped build a global economic order. It was governed by accepted rules and overseen by multilateral institutions such as the International Monetary Fund, the United Nations, the World Bank, the World Trade Organization and NATO.

In order to sustain and expand globalization, free trade and the rule of law were mainstays. This approach prevented most economic disputes from escalating into larger conflicts.

The Peterson Institute published an article entitled, “What is Globalization? And How the Global Economy Shaped the United States.” The article provided the following data:

  1. U.S. trade grew to levels exceeding one-third of its Gross Domestic Product.
  2. 80% of world trade is driven by supply chains run by multinational corporations.
  3. China has become the biggest source of U.S. imports. China’s trade footprint is seven times as big as Russia.
  4. The United States has a growing trade surplus in services and deficit in goods.

While globalization benefited society as a whole, it hurt certain groups. For example, millions of blue-collar workers in advanced countries lost their jobs because of competition from lower paid workers in developing countries. Globalization has not protected labor, the environment or human rights. By contrast, globalization led to increased demand for high-skilled, higher-paid workers. A consensus of economists believe that globalization contributed marginally to rising U.S. wage inequality.

Over the past five years, several events have dampened globalization.

  1. America’s tariffs on Chinese exports. The Trump Administration sought to reduce our trade deficit with China.
  2. COVID-19 increased the demand for some goods, while constraining their production and transport.
  3. Russia’s invasion of Ukraine sent commodity prices soaring. The war has led to significantly higher energy and grain prices.

Globalization is changing

A Wall Street Journal article “Globalization Isn’t Unraveling. It’s Changing” pointed out that Russia’s invasion of Ukraine highlighted the problems of “becoming overly-reliant on a single country’s production, be it a microprocessor or natural gas.”

The character and pace of globalization has changed. This is not a new phenomenon. Instead, throughout history there have been periods of more and less globalization. The World Bank recently highlighted economic threats that “mirror those in the 1970s, when spiraling oil shocks followed by rising interest rates caused a combination of high prices and low growth.” David Malpass, the bank’s president, said, “For many countries, recession will be hard to avoid.”

World growth is expected to slow to 2.9% in 2022 from 5.7% in 2021 and growth for the remainder of this decade is expected to fall below the average achieved in the previous decade.

Originally published in the Sarasota Herald-Tribune