“Deglobalisation” and world trade flows

I dislike the word “deglobalisation”. More importantly I think it is an inappropriate description of what is happening to world trade. Yes, trade levels are falling but this does not mean the world is less “globalised”.

Clearly, it depends on one definition of globalisation but unless trade barriers start rising again there is no problem. However, IF we do see increased protectionism then the word could be considered appropriate.

Plots of the extent of globalisation over time are by no means linear. It can be argued that the world was more globalisation over 100 years ago.

The FT discuss world trade levels which, given China’s increasingly important role in world trade flows, should be of interest to readers of this blog.

If we are to survive this current slump in a recession and not a depression then it is essential that free trade remains free.

World trade [FT]

Deglobalisation: ugly word, scary concept and now painful reality. The World Trade Organisation estimates global trade will drop by 9 per cent this year, its biggest decline since the second world war. Given that trade was growing at a 6 per cent clip only 15 months ago, the fall is so abrupt that some now worry about the return of Smoot-Hawley, the US tariffs law that made the 1930s depression Great.

That is alarmist. Much of the recent reversal in the global movement of capital, goods and jobs has been directly due to the financial crisis. It has been the collapse in demand, not protectionism, that has savaged trade flows. A lack of trade credit has also hurt, given that 90 per cent of trade involves some kind of credit, insurance or guarantee.

So, yes, since October, China has banned Belgian chocolate, India forbidden Chinese toys and the US energy secretary said he would like to see tariffs on Chinese goods unless Beijing reduces greenhouse emissions – the “green face” of protectionism. There are dozens more such cases. Yet the effects of such incipient protectionism have been small, so far.

Will it stay that way? Reasons to be hopeful include the WTO, and the treaties that bind its members. Companies, even those producing for domestic markets, are more dependent on imported inputs than ever before. Exporters also have more political heft. This changes the politics of protectionism. The “Buy America” programme was watered down. And, in Brazil, private sector outrage that followed an attempt to impose import controls led to their removal. That is encouraging.

Even so, protectionism could rise as the recession worsens, putting governments under pressure to protect jobs at home. Indeed, anti-subsidy duties, anti-dumping rules, imports banned in the name of health, safety or the environment – all these are WTO-legal. Eight decades ago, many sensible people opposed the Smoot-Hawley bill; 1,028 economists petitioned against it, as did Henry Ford. Yet still the “asinine” bill passed. Free traders everywhere cannot drop their guard.

Originally published at the China Economics Blog and reproduced here with the author’s permission.

4 Responses to "“Deglobalisation” and world trade flows"

  1. Guest   March 26, 2009 at 1:48 am

    Who benefit the most from the globalization? My answer is China.Who will lose most from the deglobalization? My answer is also China.

  2. ex VRWC   March 26, 2009 at 8:29 pm

    Smoot-Hawley = Different World. We were the exporters then, and China is now. If anyone is to pass a ‘Smoot-Hawley’ bill it will be the Chinese. In order to protect their growth-poised domestic market.Not that anywhere else (except less developed Asian countries) could really compete with them and undercut their costs anyway.Protectionism will happen, and it will take a different form, as job protection, restrictions on IP and information flow, capital outflow protection, currency manipulations, and foreign debt machinations. Do not look for something as obvious as Smoot-Hawley.

  3. Ray Tapajna   March 26, 2009 at 9:01 pm

    Smooth-Hawley, protectionism and Trade were mute issues as causes of the Great Depression. It was all about a money crisis as it is now. Money was scarce and things finally start ramping up when President Roosevelt instigated the Lend Lease Act. He said he was not going to let the dollar sign get in his way and start shipping goods and food to the allies with out worrying about payments.So called Free Trade is not trade as historically practiced and defined. Free Trade is mainly based on moving production from place to place for the sake of cheaper labor with the water line being wage slave and even child labor.The process as radically degraded the value of workers and this value is a real money standard that has affected all money products now.See http://tapsearch.com/flatworld http://www.tapsearch.com/tapartnewshttp://www.bizarrepolitics.com/confessions-for-history.It is time to start defining the real world now.

  4. george harter   March 27, 2009 at 3:54 pm

    All this economic theorizing ignores one HUGE troll under the bridge. Wherefore China as a political entity 2012-2015??????My numbers and a small group of personal contacts indicate that the unemployment situation in China is disastrous! From my data(SCRIMPY) to friends reading of the local situation, the numbers are NOT 20 Million migrant workers unemployed but in all likelihood closer to 80 Million. Conveniently, the Chinese don’t add in LOCAL unemployment numbers!!!!! I work at a steel mill in BaoShan, lose job, stay home, live off of dwindling savings and so on. I would not be in that 20 Million figure because I am not migrant. Also see RGE for likely employment of College College Students in China this spring, 30%. Trouble.Essentially deflation becomes a necessity if I am to survive as a buyer of services. If costs don’t come down, my savings are exhausted very quickly. There is no recourse to governmental handouts. Banditry is already bad in rural areas(also not reported by media).If unemployment grows at a similar rate, how does the Chinese government actually survive. The deal was “We take the dictatorship, you give us jobs, income.” The government can not produce, the contract is broken and Americans seem to forget that the Chinese people are NOT PACIFISTS. Their people face a very bleak future and THEY KNOW IT!!Every factory that closes, loses CENTURIES of human technical/economic knowledge for the Chinese economy(here as well of course). Much of this CAN NOT BE REPLACED IN A YEAR OR TWO. Their future as an exporter is also dependant on willing Japanese co-operation to supervise Chinese branch factories.Without close Japanese supervision, quality can only suffer. They NEED the Japanese but I don’t think the Japanese can afford China anymore. De-Globalization as I see it means less technical help for China, less Progressive foreign investment and we can’t forget, they have likely lost any future growth in medical products except to the poorest parts of Africa.America should be preparing to face impending political disaster in China and our proper humanitarian response. Economically?? China will be an after thought for many years.Captain AmericaBaghdadontheHudson, USA