For more than three decades, the world has been increasingly interconnected by globalization. However, growing anti-globalization sentiment has put a spanner in the works of this interdependence. Companies that have long benefited are now cautiously reviewing their international supply chains. The question arises: What are the pros and cons of globalization, and what can we expect from the emerging trend of deglobalization?

The downside: job losses and trade imbalances

One of the main arguments against globalization is the outsourcing of jobs to countries with cheaper labor. For example, the U.S. lost more than five million manufacturing jobs between 1988 and 2021. This outsourcing has significantly affected non-higher-skilled workers, fueling movements such as "Make america great again." In addition, trade imbalances have led to increased borrowing needs, with the U.S. currently grappling with a trade deficit with China.

The Pros: Cheaper Goods and Reduced Poverty

In contrast, globalization has had its benefits, such as cheaper and more varied goods. The share of world trade in GDP rose from 30% in 1988 to 50% in 2013, and inflation remained low. In addition, globalization has significantly reduced global poverty levels. Between 1988 and 2013, the global poverty rate fell from 35% to 10.7%.

The Rise of Deglobalization: China's Influence and Inflation

Deglobalization is already in full swing. This is exacerbated by events such as the invasion of Russia in Ukraine. China, meanwhile, is expanding its trading bloc, BRICS, to include countries such as Saudi Arabia and Argentina. This enlargement poses a challenge to the economic power of the G7 countries. In addition, higher tariffs and trade barriers lead to an increase in inflation.

Economic and geopolitical consequences

The shift from a U.S. dollar-based trading system to multiple trading blocs could have far-reaching implications. A report from Credit Suisse suggests that the West is ill-prepared for a world in which BRICS countries are in control of essential commodities. This could lead to higher prices for goods in the West, increasing inflation.

The Uncertain Future: Cold Wars and Price Inflation

Geopolitical strategist Peter Zeihan predicts a period of deglobalization, with increasing chaos and higher costs for goods. The move away from globalization can lead to protectionism and potentially heightened geopolitical tensions, reminiscent of the era before World War II. While some believe it may be too late to roll back globalization entirely, concerns remain that rising Cold War rhetoric could lead to a more hostile international environment.

Conclusion: a delicate balance

The pros and cons of globalization depend on one's location and socioeconomic position. The rise of deglobalization presents a complex problem that will force countries to choose between more jobs and higher prices. The challenge now is to find a sustainable way forward in an increasingly polarized global landscape, recognizing that we are all interdependent. 

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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe. 

Source: Toronto Star

Author: Frank Giustra