Peter Coy

Globalization Isn’t Over. It’s Changing.

“Deglobalization” is a word on many people’s lips these days — and understandably so. Russia has been largely cut off from the West for its appalling invasion of Ukraine. The economic marriage of convenience between China and the United States (“Chimerica”) is unraveling. And there’s more and more talk about “re-shoring” — producing more stuff at home — either for national security reasons or to avoid future supply-chain disruptions such as those caused by the Covid-19 pandemic.

“Rather than the cheapest, easiest and greenest sources, there’ll probably be more of a premium put on the safest and surest,” Howard Marks, co-founder of the investment firm Oaktree Capital Management, wrote to shareholders recently.

Wait, though. Maybe globalization isn’t dead after all. I talked to experts on both sides of the debate over “globalization: dead or alive?” and came away with the impression that globalization is changing shape but not going away. For example, the bottlenecks at the ports of Los Angeles and Long Beach, Calif., have been caused largely by enormous demand for imports — a conspicuous sign that globalization is very much still at work.

Jeffrey Kleintop, the chief global investment strategist at Charles Schwab, is among those who argue that globalization remains by and large healthy. I interviewed him last week after seeing a provocative Twitter post of his: “The ‘End of Globalization.’ Where have I heard that before?” His post featured various books and magazine covers going back to 2016 that warned of deglobalization — displayed against a backdrop of a chart showing generally rising volumes of world trade.

I reproduced Kleintop’s chart below, but starting in 2000 rather than 2015 and extending the vertical axis down to zero. The figures come from the Central Planning Bureau of the Netherlands, a respected authority on global trade.

The chart shows that the volume of world trade is higher than ever. To be sure, the global economy is also bigger than ever. To account for that, the following chart measures world exports as a share of output. It shows that globalization has been flat in recent years and dipped sharply in the pandemic year of 2020, but is still well above its level of a few decades ago.

Another aspect of globalization is foreign direct investment, which is cross-border purchases of factories, real estate, companies and so on, and excludes “portfolio” investment such as purchases of stocks and bonds. The chart below shows that it rebounded in the first half of last year after a soft period.

I exchanged emails about the degree of financial globalization with Geert Bekaert of Columbia Business School. He wrote that “firms are still financing themselves in international capital markets, there are still massive capital flows across countries and financial market returns still seem highly interconnected.”

China, in particular, is more embedded in the global economy than ever despite efforts by the US government to decouple its economy from China’s. According to the Organization for Economic Cooperation and Development, China was the No. 1 recipient of foreign direct investment in the first half of 2021, with the United States second and the United Kingdom third. The O.E.C.D.’s information is consistent with what Bekaert argues. If there is any slackening of financial globalization, he wrote to me, it’s in the financial flows between the developed economies.

Assaf Razin, an economist at Tel Aviv University in Israel, told me that “globalization is always getting reorganized and it had to go through disruptions but the disruptions didn’t really move it away from the trends.” Like Bekaert, Razin said that the rise of China has been and remains a driving force in the globalization of trade and investment.

Alicia García Herrero, a senior fellow at Bruegel, a think tank based in Brussels, was the most skeptical person I interviewed about globalization. For one thing, she said, China is reducing its reliance on foreign parts for the products it makes. It’s still dependent on trade, but more of the value of what it sells is being generated at home, she said. China has faced criticism from other countries, including the United States, for its “Made in China” 2025 self-sufficiency initiative and has played down use of the phrase in recent years. But García Herrero said the effort continues.

She added that in financial statements and calls with analysts, more company executives are saying they want to emphasize safety and reliability in their sourcing, switching from “just in time” to “just in case.”

That’s true, but it doesn’t mean globalization is passé. International migration and travel, which are another form of globalization, are still on the rise. And if countries re-shore production they may need more immigrants to do the additional work, especially if they have low population growth, García Herrero said. While companies and countries are trying to wean themselves off over-dependence on distant suppliers, especially ones in possibly unfriendly countries, “it doesn’t mean it’s all coming home,” Kleintop said. What was once made in China might be supplied instead by Mexico, for example, he said.

A year ago, when I was writing for Bloomberg Businessweek, I cited a similar argument by Peter Williamson, an honorary professor of international management at Cambridge Judge Business School. Our headline then: “Talk of Deglobalization Is Fashionable but Wrong.”

There will always be forces pushing countries apart. But there are equally strong forces pulling them together: Companies and countries have a strong motivation to trade because they can make more money by focusing on doing what they’re best at and buying the things they’re not so good at from others. (Globalization can also be harmful at times: It hurts workers and the planet when companies ship jobs to countries that pay lower wages or have poorer environmental protections.)

Even though globalization has its problems, the current fad for re-shoring production is likely to run into some limits. As someone pointed out soon after the imposition of sanctions on Russia: If cutting the Russian economy off from the rest of the world and forcing it to produce everything it needs at home is a punishment to Russia, why would it be a good thing for the United States to try to become self-sufficient? Answer: It wouldn’t.

The New York Times