Slowbalisation is a term Adjiedj Bakas, a Dutch trendwatcher, coined in 2015 to describe the backlash against global trade. Since then, The Economist has used it to characterise the sluggish growth in trade flows that we’ve witnessed in recent years.
This trend has tended to be talked about in terms of shifts in the political landscape, chiefly the rise of populist nationalism in places like the US and UK, the retrenchment of global capital following the great financial crisis and — more recently — the pandemic, which threatened to tear apart supply chains in the spring.
But is slowbalisation inevitable? That’s the argument put forward by Pol Antràs, of Harvard University, in a paper presented to a European Central Bank conference last week. Here’s the paper and, if you like video, the presentation.
Antràs uses the chart below to show that — taken on a 50-year timescale at least — the period between 1986 and 2008 was exceptional in terms of the contribution trade made to global GDP:
He looks at migration and capital flows too, drawing similar conclusions.
Hyperglobalisation and its aftermath
The advent of hyperglobalisation involved three drivers from the political, technological, and policymaking spheres.
The demise of the Soviet brand of communism meant that, over a relatively short space of time, about 2 per cent of the world’s population had access to global markets and migration options that did not exist before. This opening up, coupled with the rise of China and India — which accounted for 38 per cent of the global population in 1990 — also gave companies access to ultra cheap labour markets. In the technology space you had the information and communication technology revolution. Combine that with the signing of various multilateral and regional trade accords, and you have a recipe for rampant globalisation.
So what comes next? According to Antràs, definitely not an out-and-out retrenchment to the point where trade flows are falling.
We are now seeing developments in technologies such as automation and 3D printing which have the potential to wipe out jobs — thereby removing the “advantage” of cheap labour. Antràs thinks this will not lead companies to retrench, however, the reason being that sunk costs involved in creating and maintaining factories act as economic barriers to change.
On the political environment, however, he is gloomier. US inequality has created a backlash against trade as the widening of the gap between rich and poor has arisen at the same time as trade barriers have fallen. Trade might not be the source of that inequality — the increasingly regressive nature of the US tax code looks a more obvious culprit — but the timing has created the perception that it’s a bad thing for less well off people.
With the recovery from the pandemic all K-shaped, one would not expect this backlash to reverse.
He is more optimistic on the pandemic’s impact on global supply chains, which looks like a temporary shock. Vehicle manufacturers, which rely heavily on these chains, saw output crash but recovered quicker than most expected. Despite Europe now being in the throes of a second wave, carmakers such as Volkswagen still think they’ll end the year in the black. Industry’s resilience augurs well for trade.
The panel discussant, Susan Lund of the McKinsey Global Institute, thinks the nature of trade will change too. Largely due to China’s pivot towards boosting consumption — and therefore domestic demand. This will, she said, lead to greater trade in services and less focus on exports. As India and other countries grow wealthier and consume more, this trend will only grow.
Covid-19 could lead to lots of discussions about resilience and dual sourcing too — though according to Antràs this means of sourcing goods is a tiny portion of actual trade flows.
Regression or retrenchment?
The argument that we’re seeing a regression to the mean is a strong one. But we think there might be more of a retrenchment than either Andràs or Lund expect.
The China consumption story is something to watch in this respect. Earlier this year, Xi Jinping, laid out a plan for a “dual circulation” model, aimed at enabling China’s economy to weather a less export friendly global climate by relying more on domestic demand.
Though this merely formalises a long-touted push to provide more growth through domestic demand — a push that has so far had mixed results — consumption still only makes up 40 per cent of output, leaving a lot of room for catch-up with the UK or the US. And while services trade is possible, the barriers are more significant than those for manufactured goods.
The policy climate remains uncertain. The signing of the Regional Comprehensive Economic Partnership by Asian countries making up a third of GDP has grabbed headlines but it is, as the FT’s Alan Beattie puts it, “a child’s paddling pool the width of an ocean”.
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