(Global X) The COVID-19 crisis exposed critical issues with today’s globalized economy and resulted in new fears about what it means to depend on others, especially when the going gets tough. With an inward turn in certain segments of the global economy under way, it’s reasonable to question modern globalization as a concept.
But globalization is unavoidable, in my view. More than ever, the world economy is intertwined, beholden to trade flows, investments, technology and people crossing borders. In an era of rapid innovation, the need to stay competitive will continue to connect the economies of far off places. That means even minor deglobalization activity can cause meaningful economic damage. Pre-COVID, the U.S. exported $2.5 trillion of goods and services each year, supporting the best-performing 12% of our economy.1 Large scale deglobalizing would put these profitable relationships in jeopardy.
Geopolitics, Technology and Cheap Labor Shrunk the Globe
The world got a lot smaller between 1980 and 2008. Economic integration rose to unprecedented levels as emerging economies like China and India opened up to trade. Democracy taking hold in Eastern Europe, highlighted by the Berlin Wall’s fall and the Soviet Union’s collapse, added to the openness.
However, advancements in information and communication technology, as well as cargo container transport, soon established new global supply chains. These innovations shrunk the world and brought modern society to previously closed off economies. In the mid-’90s, I saw first-hand what it meant to be closed off from the world while working in post-Soviet era Ukraine as a member of the Peace Corps. There, I found a society seemingly frozen in time, with economic development stuck in the 1950s and innovation among the scarcest of resources.
As the world grew increasingly connected, it also demanded new corporate strategies. With untapped economies open for business, companies from developed economies like the U.S. went in search of deals to gain an edge and outcompete their peers. Those deals often meant moving large shares of their manufacturing to developing countries with cheaper labor and minimal regulations.
The Financial Crisis: A Globalization Inflection Point
The unequal economic recovery from the 2008 financial crisis is core to the current deglobalization movement. Rising inequality spurred the growth of nationalism globally. In the U.S., the unexpected election of Donald Trump and the protectionist bent of his administration contributed to the growing nationalist wave. Thereafter, all roads led to a somewhat predictable U.S. trade conflict with China, the longtime face of globalization. (Read more)
