What we know as globalisation today, took roots after the second world war had ended. Nations across the globe wanted to break the trade barriers, promote free trade and set up global presence. One of the main events that gave pace to the globalisation movement was the creation of the World Bank and the International Monetary Fund (IMF) in 1944 through the Bretton Woods Conference. The early adopters of the globalisation movement were rewarded with extreme growth and development in their economies. This growth along with the prevailing economic crisis in many nations after the war and after gaining independence from colonial powers during this period enticed and even forced them to open up their borders by the end of the 20th century. A prime example of this situation is India’s case during the dawn of the 1990s. Since then, globalisation has continuously spread across the world and international trade and commerce has grown continuously. Up until recently, the volume of global merchandise trade has grown at an average of 3.4% p.a. in the 21st century.
However, in the decade after the Recession of 2010, this progress has reversed. As early as 2012, signs were starting to emerge, showing decline in global commerce. An IMF paper published in 2015, titled, “The Global Trade Slowdown: Cyclical or Structural?”, studied this very topic. During the period after the economic crisis of 2008 and the Great Recession of 2010, the world trade growth rate was cut to more than half of what existed during the prior period before 2008. The paper identified that, “....a slower pace of expansion of global supply chains is an important determinant of the trade slowdown….” and that, “....the high trade elasticity of the long 1990s reflected the increasing production fragmentation driven primarily by the United States and China; that particular engine appears to have exhausted its propulsive energy in the 2000s.” By 2018, Foreign direct investment had fallen to 1% after hitting a high of 3.6% in 2016. These signs clearly indicated a slowdown in global commerce.
The decline in world trade has been visualised in this graph representing the Trade openness index.
This trend of slowdown in global trade and commerce has been given a boost by the recent US-China trade war and more so by the Covid-19 pandemic, which completely destroyed international trade due to shutting down of borders. In 2019, global volume of merchandise traded went into reverse in stark contrast to the 21st century average growth rate of 3.4% p.a. In addition to this, in December of the same year, the World Trade Organization’s dispute settlement mechanism was effectively disbanded. To top it all, the recent Russian invasion of Ukraine has made economies retreat somewhat from global economic integration with policymakers and entrepreneurs questioning the alliances and relations between nations.
However, this does not indicate the setting of deglobalization but rather a phase of ‘slowbalization’. This slowdown in global trade and economic activity is a sign of a slowdown in the process of globalisation rather than a shift to deglobalization. Although national governments of most if not all countries are pushing for self-reliance, the level of interconnection that the modern global economy has cannot be simply dissolved. The recent troubles are sure to put a speed limit on globalisation but it will still continue. After the dip in foreign trade (as a proportion of GDP) at the outset of the pandemic, it has already exceeded the pre-pandemic levels in all regions during the second half of 2020 as can be seen by the data on imports visualised in the graph below.
Similar observations can be drawn about financial globalisation. Total international liabilities of banks reached its height in 2008 as the global credit boom blew up but since around 2016 international financial liabilities have been rising quickly. Even though they fell by a little bit during the past 2 years, they still remain near peak levels.
These movements in global trade and financial markets are a clear signal that we are currently not facing deglobalisation.
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