In his maiden column for The Manila Times, Dr. Dan Steinbock, an internationally recognized expert of the multi-polar world, writes how world trade, investment and migration have come to a standstill. He says globalization is not dead but its drivers are moving from the transatlantic axis to Asia. Dr Steinbock focuses on international business, international relations, investment and risk among the major advanced economies and large emerging economies; as well as multipolar trends in stocks, bonds, currencies,and commodities. Altogether, he analyzes some 50 major world economies—particularly major advanced economies (G7), large emerging economies (BRICs) and a dozen strategic small- to medium-size nations, across all world regions. He is also an expert of the global ICT, competition and innovation. For more, see http://www.differencegroup.net/
INTERNATIONAL media has not adequately reported the history that was made in the recent G20 Summit in Baden-Baden, Germany. After pushback from US Treasury Secretary Steve Mnuchin, the summit backtracked from a joint position that would have renewed longstanding pledge to free trade.
For the first time since 2008, the world’s leading G20 finance ministers dropped the commitment to free trade. This is the most consequential shift of the international trading community since World War II.
And the timing could not be worse.
Plunging world trade
In 2008, when the advanced economies led by the United States could no longer contain the global financial crisis, large emerging economies joined the G20 to contain the crisis. In return, major advanced economies (G7) pledged to accelerate governance reforms in multilateral international organizations.
As advanced economies enjoyed a brief recovery, thanks to huge stimulus packages and more debt, those pledges were ignored. Until recently, most advanced countries have sought to overcome stagnation through ultra-low interest rates and rounds of quantitative easing. At the same time, world trade has seen the rise of protectionism, which the Trump administration plans to push hard in the coming months.
World export volumes reached a plateau in early 2015, in both advanced and emerging economies. Meanwhile, protectionism was 50 percent up from the previous year as policy initiatives harming foreign commercial interests outnumbered trade liberalization by three-to-one.
Except during global recessions the world economy has not seen such a long trade slump, at least since the collapse of the Soviet Union. Worse, there is no light at the end of the tunnel because some major advanced economies believe they will enjoy better growth prospects through protectionism – that is, by staying in the tunnel.
Lingering world investment
Before the global crisis, world investment soared to almost $2 trillion. But the past decade has seen only stagnation.
According to the UN, global FDI flows are projected to resume growth in 2017 and to surpass $1.8 trillion in 2018 over the medium term. Yet, even such projections remain almost 10 percent below the pre-crisis peak.
Positive FDI prospects are hampered by weak global growth, continued weakness of demand, sluggish growth of commodity exporters, and the slump in multinational companies’ profits.
In advanced economies, FDI activity seemed to recover in 2015. But as the upturn is unlikely to be sustained, the sentiment is turning less optimistic.
In the West, large emerging economies have been portrayed as yesterday’s promises, yet FDI flows to the BRICS economies could return to growth, increasing by some 10 percent.
In the dire global environment, the only bright spots are large emerging economies.
Slower migration, worst global displacement since 1945
Finally, global migration—the third leg of globalization—is slowing, particularly in advanced economies.
Between 1990 and 2015, the number of international migrants worldwide rose by 91 million, or by 60 percen. In the 2000s, some 4.9 million migrants were still added annually. In 2010-2015, only 4.4 million were added on average. In the Brexit UK and Trump US, international migrants serve as a convenient scapegoat for the domestic economy’s secular stagnation. International migrants account for just 3.3 percent of the world population.
Of the three major immigration destinations—Europe, Asia and North America —the two first ones combined hosted nearly two thirds of all international migrants worldwide in 2015, about 75 million in each. Despite media hoopla, international migrant inflows to North America have been on decline, whereas Asia has added more international migrants than any other major area since 2000.
Unsurprisingly, as migration flows slow or are being blocked, the number of globally displaced has exploded. After the terrorist attacks of 9/11 in 2001, the subsequent US-led wars in Afghanistan and Iraq, the West’s interventions in North Africa and the Middle East and elsewhere, conflicts and persecution have driven more than 65 million people from their homes.
It is the greatest global forced displacement since 1945.
New drivers of globalization
In the past, world investment, trade and migration habitually picked up as recessions ended. Today, that is no longer the case.
This, however, does not mean that globalization is dead. Rather, it means that globalization by major advanced economies, which thrived in the late 20th century, is lingering as their economies remain mired in secular stagnation. Conversely, it means that, in the early 21st century, globalization will be driven by large emerging economies.
That is why the US is against free trade, which leaves even the EU divided. That is also why new globalization will be driven by China and other large emerging economies. Unlike advanced economies, they share solid long-term growth potential. They are the new globalizers.