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Deglobalization detrimental to world economy

Author  :  WANG YOURAN     Source  :    Chinese Social Sciences Today     2020-06-27

The COVID-19 pandemic has come as a shock to global economic integration, making deglobalization a central issue of academic debate again. Many scholars warn that the trend toward deglobalization could hurt the world economy, and protectionism is not a cure for a depressed and unstable economy.

According to Douglas A. Irwin, a professor of economics at Dartmouth College, globalization comprises many different elements: cross-border flows of people, trade, investment, data, ideas and technology. Global trade is a reasonable proxy for economic integration. If we create a Trade Openness Index (TOI) by calculating the ratio of world exports to world GDP, world economic integration rose to a historically unprecedented scale before the 2008 financial crisis, with a TOI of 61.1%.

We are now in an era of “slowbalization” which began after the 2008 crisis, and the TOI has fallen off since then. Statistics from the UNCTAD and other organizations show that world trade volume grew by an average of 3.5% from 2009 to 2018, much slower than the 7.6% average growth before the 2008 financial crisis. The WTO expects that world merchandise trade will fall by between 13% and 32% in 2020, and the IMF predicts a reduction in world trade volume of goods and services by 11% for this year.

Policy shift in certain countries is a key factor in the slump of international trade, Irwin noted. For instance, under President Trump, the US has embraced an America First policy and withdrawn from the Trans-Pacific Partnership, shifting away from trade liberalization and moving toward protectionism while also erecting trade barriers elsewhere.

Peter A.G. van Bergeijk, a professor of international economics and macroeconomics at Erasmus University Rotterdam, considered the prevalence of nationalism to be the biggest challenge facing globalization today.

In recent years, a growing number of governments and people have come to view globalization as a net risk, said Richard N. Haass, president of the Council on Foreign Relations. International trade can provide better-paying jobs for the companies and industries of the exporting country as well as products of higher quality and lower prices for consumers in the importing country. But it can also displace domestic producers and cause unemployment. As a result, opposition to free trade and calls for governments to promote “fair” or “managed” trade have been growing.

People crossing borders in large numbers was traditionally accepted or even welcomed. Immigrants in the US have been the foundation of the country’s economic, scientific and cultural success, Haass noted. But now many Americans view immigrants warily, seeing them as a threat to jobs, public health, security or culture. A similar shift has taken place in much of Europe. All this adds up to a shift toward deglobalization.

Insufficient preparation for the COVID-19 pandemic and the breakdown of global cooperation reflect another underlying mechanism of deglobalization, which is the abandonment of the rules underpinning globalization by a few leading powers, Bergeijk said. Those rules were designed to build an open trade and investment environment as well as a stable and peaceful system of development. However, the US and the UK, which began as supporters of global governance, are now spoiling global governance. Brexit is a dangerous mistake, but it is a disaster that the US cut its support for the WHO in the midst of the coronavirus pandemic, in the same vein as its paralysis of the WTO’s Appellate Body by repeatedly blocking the appointment of new judges.

Some countries have imposed export bans over concerns about inadequate domestic production capacity following the COVID-19 outbreak. Such policies will exacerbate shortages, as protectionism provides no substitute for stockpiling and preparedness, which have been inadequate in recent years, Irwin warned.

“International travel is the sector most severely hit by COVID-19 and it is one of the few constantly growing factors of globalization over the last decade,” Bergeijk said. He predicted that the pandemic will reduce cross-border movement of people for some time, while merchandise trade will recover quite quickly. Many countries have discovered that disruption of international value chains is a real risk and some insourcing and diversification will occur.

Alicia García-Herrero, a senior fellow at European think-tank Bruegel, noted that deglobalization will surely hurt the global economy as it reduces the scope for economies of scale through specialization. The countries to be hurt the most will be the poorer countries, especially those with a low level of savings.

Closing borders does not guarantee security or prosperity, Haass emphasized. Tackling global challenges such as climate change, infectious disease, terrorism and nuclear proliferation requires effective collective action. No single country can manage alone. The form of global governance can and should be tailored to the threat and to those willing and able to cooperate, but neither unilateralism nor isolationism is a serious policy path.

Globalization is a reality that cannot be ignored or wished away, Haass noted. The only choice is how best to respond. Rather than a problem to solve, globalization is a reality to be managed. Deglobalization is a false cure which could cause more problems than the “disease” itself.

Editor: Yu Hui

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