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Goodbye globalisation, hello ‘slowbalisation’

Is globalisation on the way out? Researchers at American investment bank and financial services firm Morgan Stanley argue that it might be as a mix of geopolitical shifts and secular trends are “conspiring” to slow down or reverse globalisation. However, trade tensions form only part of the story.

Globalisation has been the dominant trend since the late 1900s and few doubted its continuation. Yet, while tariffs may be the most visible barrier, other trade blocks, like new foreign investment review in the US, are weakening the business incentive to globalise corporate footprints and supply chains.

“Meanwhile, a growing reliance on leaner manufacturing approaches, changes in consumer preferences and increased purchasing power in emerging markets are emphasising regional trade over global trade,” Morgan Stanley said. “This all adds up to what some economists are calling ‘slowbalization’.”

On a downer

In July, American business news channel CNBC featured Morgan Stanley’s Hans Redeker, global head of foreign exchange strategy, speaking of US levies on Mexico and China constituting examples of globalisation deteriorating substantially. In the same report, Eoin Murray, Hermes Investment Management’s head of investment, said that the current trade war is a tech war witnessing globalisation “unravel” and that in the future, there will likely be trading regions rather than global trade as currently perceived.

Currently, trade in services is increasing faster than trade in goods, and emerging market nations have got sufficiently rich that they’re now consuming more of the goods they sell – meaning that globalisation could be the victim of its own success. McKinsey & Company has calculated that the proportion of products travelling across borders dropped from 28.1% to 22.5% from 2007 to 2017.

Something else altering trade patterns is the move towards just-in-time logistics. McKinsey & Company notes that today just 18% of goods trade is based on labour-cost arbitrage, with this potentially reducing further as businesses seek to streamline their supply chains and bring more automation into the fold.

Michael O’Sullivan, Credit Suisse’s former chief investment officer, is author of The Levelling: What’s Next After Globalization, a book first published in May which “explodes the idea and the end of globalisation, and potentially what comes next”. In it, he notes that daily there are reminders that globalisation is ending. According to his publication, Brexit and Trump constitute part of stage one of “a paradigm shift that will see the disintegration of the world order that we have come to know over the past 30 years, such as globalisation”. The book offers four key issues in a post-globalisation era: political discontent, economic growth, debt and central banks and, finally, geopolitics.

“We’re now going into a multipolar world where at least three big regions do things increasingly different, be it through democracy, the Internet, etc.,” Mr O’Sullivan says. “I think also many of the institutions of the 20th century … in many cases have fulfilled the roles that were set for them, in other cases are becoming defunct, and I think attention needs to shift now to the institutions of the 21st century — for example, a global climate authority with policy teeth, a body that can oversee the Internet or cyberwar. And also, I think you get new alliances and constellations between countries.”

Not over yet

However, one article from Bloomberg asserts that globalisation isn’t dying off — it is simply going through an evolution process. The article claims that while the “populist assault on globalisation” by US President Donald Trump has raised concerns about its slowdown, or even its end, “those fears ignore what globalisation really is, and how it is evolving”. Globalisation, the article notes, has been around since time began and isn’t static. While currently it is associated with the shipping container, or the outsourcing of jobs in advanced economies and the rebirth of great trading economies like China’s, the world is entering an era where “data is the new shipping container and there are far more disruptive forces at work in the world economy than Trump’s tariffs”.

“For good or bad, we are more exposed to a global culture of ideas than we have ever been, and we are only becoming more global as a result,” Bloomberg says.

Bloomberg also argues that the amount of cargo shipped around the globe is not the best measure of globalisation. If only the trade in physical goods is considered, globalisation might be slowing, but this fails to take “an explosion of the digital economy” into account — and “increasingly, the digital realm is where the 21st-century economy lives”. Additionally, as economies mature, the rights to make something are being sold to someone in another nation, rather than it being shipped there. Although these changes mean less physical trade in goods, this means globalisation is evolving and maturing rather than slowing.

“Traditionally, trade data measures shifts in goods by recording products’ value when they leave a port,” the article says. “But the parts in products often come from other countries these days. Even those parts can be made up of parts from elsewhere. That means a more accurate measure of trade and economic relationships involves recording where value is added.”

Morgan Stanley agrees that “without question, the shifting tides of trade create a complex dynamic”.

“That said, investors can start to think about the broad implications through a relatively-simple framework based on key questions: How sensitive is a company’s product or process to a country’s economic or national security? How much does its production rely on a global supply chain, and does that reliance continue to make sense? The companies most vulnerable to ‘slowbalization’ are those that deal in sensitive technologies and depend on supply chains that are globally diffuse.”
Source: Baltic Exchange

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