Is the Age of Globalization Over?

Anyone who knows anything about economics knows we live in a global age. Historically, economists like Thomas Friedman went as far as saying the world was headed in a ‘flat’ direction — one economy that completely ignores national borders, leveling the playing field.

At the same time, we’ve recently seen growing tensions between countries, a rise in xenophobic rhetoric and a return to protectionist policies imposing restrictions on international trade. Does this mean that we’re at the precipice of a new era moving away from globalization?

What is globalization?

Globalization is ‘growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information’.

The history of globalization

It started with the Silk Road connecting the East and the West over 2,000 years ago, marking the beginning of global trade as, for the first time in history, Chinese goods were transported thousands of miles across the Eurasian continent to Rome. This effectively ended trade as an exclusively local endeavor. However, it was only during the Industrial Revolution that modern globalization mushroomed around the world.

The result was astounding. Economic growth went from nearly 0% to 2% per year, whilst GDP more than doubled between the early 19th century and the beginning of the First World War. Famous economist John Maynard Keynes interestingly noted that “the inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole Earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep”. Of course, today this statement is truer than ever before.

The fall of the Iron Curtain

That being said, globalization really started to peak in the late 1980s with the collapse of the Eastern bloc. This meant that for the first time in a long time, there was one global power –– the US –– as opposed to two or more competing powers. Sprinkled with the integration of Europe and the North American Free Trade Agreement (NAFTA), and the opening up of China, this laid the foundation for an accelerated process. Furthermore, the creation of the World Trade Organisation signified a new era of globalization on a high scale, with tariffs being halved.

Technology is king

But it wasn’t all about high-level agreements where governments and conglomerates played market chess. Other factors sped up this process, namely technological advancements, better transport links and increased communication. The internet is arguably the greatest contributor to globalization, enabling fast 24/7 connectivity between countries, and allowing companies to split their production across borders, with headquarters, factories and value chains spread and distributed all over the world.

The rise of electronic payment systems is also worth noting as these made an already global market faster, cheaper, and more convenient. “The need to move money efficiently and securely across borders has been pressing since the day international trade began,” explains Stan Cole, Head of Financial Institutions at Inpay, an innovative cross-border payments provider. “For decades, banks and other financial institutions have relied on core SWIFT architecture to safely move money from bank account to bank account. However, legacy systems do not run in real-time and are not directly connected to customer interfaces.”

Inspired by the rise of viable fintechs offering nearly instant payments across borders, retail and business customers are rapidly embracing quicker and cheaper options to transfer money. “By using a fintech cross-border provider like Inpay, financial institutions and businesses can send international payments as quickly, easily and economically as a domestic bank transfer, thus making global payments faster, cheaper, and more convenient for all,” Cole adds.

Factors like these allowed globalization to rapidly increase in the 21st century. In the 2000s, global exports became a quarter of global GDP, and some countries like Singapore even report trade of more than 100% of GDP.

Has there been a reversal of globalization?

With the 2007-08 financial crisis, both ordinary people and seasoned economists started to doubt whether the trajectory of the global economy would continue in the same direction. When the markets started recuperating, everyone breathed a sigh of relief. But then came 2016.

For many, the Brexit vote and the victory of Donald Trump in the US elections signaled a return to protectionist policies. Along with these campaigns, even the media seemed to take a turn and describe globalization as the root of all ailments. Only one week after the inauguration, The Economist published an article on globalization claiming “the biggest business idea of the past three decades is in deep trouble”. It seemed like the dream of a borderless world had dissipated into the abyss.

Now the Trump era and Brexit are behind us, we can look back and ask whether the world has really opted for protectionism over globalization. From a pure public opinion standpoint, it still seems like globalization is portrayed more negatively in the press than pre-2016. And when we examine the facts and figures, we see that global exports have stalled and even started to back-pedal. However, with Biden’s presidency, things are still in movement.

What is the future of globalization?

The COVID-19 pandemic has resulted in a return to globalization in many ways. After all, dealing with a global pandemic requires a global solution. If anything, this has reminded us of the benefits of a world-encompassing economy. Global equities have gained 12% between January and November 2020, and investment is on the rise again. Biden’s return to the Paris Agreement might also indicate that his policies will be less protectionist.

The truth is, when investigating the future of the global market (especially in the context of the Trump years), it’s critical to understand that globalization has its ebbs and flows. They don’t say that history repeats itself for nothing and globalization has historically fluctuated. The first wave in the 19th century was halted by the First World War, but then came back.

Similarly, as supply chains are being restructured and services and manufacturers are being moved around locally and internationally, globalization is not being guillotined but amended. More likely than not, this will result in a hybrid solution giving space for the needs of local cultures while utilizing the power of a global economy.

If this transformation of globalization is done well, not only will it empower nations and the world as a whole, but also manifest an economy that worries about the micro and the macro together. This means we will be better equipped to tackle climate change, balance some of the raging inequalities we’ve seen emerge in the past few decades, and even prepare us for any future pandemics.