(Roughly) Daily

There’s a growing chorus of opinion arguing that the era of global trade is ending. To be sure, nationalism and the protectionism it can spawn are on the rise. But is globalization’s decline now locked in? In a recent speech at the University of Tokyo, Bill Emmott questions the conclusions of The Economist (which he used to edit) and others predicting an end to a world in which goods and services flow relatively freely– pointing out the global trade is still very much alive. It’s a provocative talk, eminently worth reading in full; it ends with a framework for thinking about the question…

The history of globalisation that I have outlined has shown the development of international trade in goods and services to have been driven by three main forces:

• Peace, war and international security
• National external trade policies
• Technology, and its effect on transaction costs

It is clear that the biggest discontinuity in the growth of international commerce was caused by what we now know as the two world wars of the 20^th century.

Russia’s invasion of Ukraine in 2022 has certainly diverted trade and financial flows considerably, thanks to direct security effects and to sanctions. But neither it nor the other conflicts we can see occurring in the Middle East, Africa or elsewhere have been sufficient to block global trade in a significant way.

Tensions between the US and China similarly have some diversionary effects, and are to some degree echoed in tensions between China and Europe and China and Japan. But those geopolitical tensions would have to get a lot worse to have a major effect on global commerce as a whole, in part because the world economy has become much more complex and multipolar in nature.

The one conflict that would be very likely to have a major “deglobalisation” influence would be a conflict between the US and China over Taiwan, for such a conflict would very likely reach catastrophic proportions and would force many countries to choose sides. We cannot predict how commerce and the exchange of ideas would look after such a conflict, just as my European forebears would have been unable to predict the world after 1918 from the standpoint of 1914 or earlier.

Secondly, nations’ external trade policies. As I commented earlier, there has been a clear trend back towards protectionism since the 2008 financial crisis, one that has lately been reinforced by policies aimed at the energy transition and by US-China tensions.

This has not yet however had a major effect on world trade. It could, of course. The big question is what would happen if Donald Trump is re-elected as US President in November and carries out his promise to impose a 10% tariff on all imported goods, and a 60% tariff on all goods from China.

One quite likely possibility is that other countries – including the EU, the UK, Japan and indeed China – would retaliate by imposing higher tariffs of their own, and we would be in a trade war, one that could escalate higher and higher.

The wider such a trade war became – i.e., taking in more countries – the likelier it would be to make deglobalisation visible in the trade statistics. Nonetheless, we should bear one other thing in mind: this is that services, especially digitally delivered services, have become an increasingly important component of global commerce. How they would be affected is unpredictable.

Third, we need to bring in the related and vitally important force of technology. Falling costs and increasing digital capabilities have been a big factor behind the growth of global commerce. The entry of artificial intelligence means that there is no likelihood of this technological force for cross-border commerce diminishing.

During the pandemic, the science and technology behind vaccine development, production and distribution were all global, even if geopolitics introduced some distortions. Moreover, the basic reason why the US stock market has been driven by the so-called “Magnificent Seven” tech stocks is that the market for all of them is global.

Geopolitics threatens, but as yet it does not decide. External trade policies at present divert, but only an escalatory trade war would be likely to have a major effect. Technology, however, remains the most powerful force in favour of continued globalisation.

The future of globalisation will be determined by the interplay of these three forces. There is no currently pre-determined destiny for globalisation. Many commentators over-play the influence of politics and under-play the role of technology. Extreme outcomes are possible, and need to be prepared for. But we must above all keep an open mind as to what the actual outcome will be…

We see deglobalization everywhere except in trade statistics: “The future of globalisation: a history,” from @bill_emmott and his excellent newsletter, Bill Emmott’s Global View .

(Image above: source)

* Paul Krugman

###

As we tackle trade, we might recall that it was on this date in 1178, about an hour after sunset, that five monks from Canterbury saw “the upper horn [of the Moon] split in two.” They reported their experience to the abbey’s chronicler, Gervase, continuing (as he reports) “From the midpoint of the division a flaming torch sprang up, spewing out, over a considerable distance, fire, hot coals and sparks. Meanwhile the body of the Moon which was below writhed, as it were in anxiety, and to put it in the words of those who reported it to me and saw it with their own eyes, the Moon throbbed like a wounded snake. Afterwards it resumed its proper state. This phenomenon was repeated a dozen times or more, the flame assuming various twisting shapes at random and then returning to normal. Then, after these transformations, the Moon from horn to horn, that is along its whole length, took on a blackish appearance.”

In 1976, a geologist suggested that this was consistent with the location and age of the 22-km lunar crater Giordano Bruno. However, such asteroid impact would have ejected debris causing an astonishing meteor shower, which was never reported. So, while that is plausible, it’s now considered more likely that the sighting of 1178 was an exploding meteor that just happened to line up with their view of the Moon.