Is the demise of Globalisation greatly exaggerated?

Anish Narang, MD, Karavan Advisory Enterprises LLP participated in the Macrorrueda 90 de ProColombia events in Cali & Medellin last month.

Nothing proves globalization like McDonald’s. Its burgers and fries retain a trademark flavour no matter where they are sold. Yet, the company encourages embracing local tastes.

The year 1990 was momentous for globalization as McDonald’s opened its first outlet in the Soviet Union, signaling the then communist superpower’s desire to move towards a more open market. In 2022, the fast-food company temporarily closed its 850 outlets in Russia and 108 in Ukraine as the two countries battled each other.

Experts across the world have declared that after decades of economic growth, the world is now set for a period of slower global integration. Former WTO chief Pascal Lamy said recently that the world has realized it has to take a lot more factors into account while doing global trade.

Though experts claim slower globalization started after the 2008 global financial crisis, they point out that it has gained pace because of the Covid outbreak, the Russia-Ukraine war, spiraling costs of procurement through global value chains, and a general tendency by several nations to tilt towards protectionist policies. In fact, some argue globalization — often feted for helping poorer countries create wealth and get access to new tools and technology — is today under threat to a degree never experienced before. Time-tested models of trade flows are no longer relevant suddenly and are being redrawn or reshaped. This is slowing down the global economy.

Experts also point out that key players in global trade are slowly losing the motivation to stay globalized. Partly because they suddenly have huge domestic issues to address first. For example, China, a key participant in global trade, has lately been battling fresh rounds of supply chain crises. The country with a global trade share of nearly 15% saw its factory activity slump at the fastest pace in two years in March 2022. Further, widespread Covid outbreaks have forced major Chinese cities to impose lockdowns. Shanghai, the world’s busiest and largest container port, is under a strict lockdown. These signs indicate the “world factory” has to deal with economic, and probably even social, hardships first before looking at being a global player.

China’s race to stop the spread of COVID-19 is clogging highways and ports, stranding workers, and shutting countless factories – disruptions that are rippling through global supply chains for goods ranging from electric vehicles to iPhones. More than 30 Taiwan companies, many making electronics parts, said that COVID-19 measures in eastern China had led them to suspend production until at least next week.

An April 7 study found that 87 of China’s 100 largest cities by GDP have imposed some form of quarantine curbs. In addition, US-China tensions, and the negative impact of the Ukraine invasion will lead to some reshoring and decoupling away from China.

As long as a crisis persists, countries may prefer a slow globalized world. “But when the crisis passes — eventually it will, though it may take a while, given current animosities — we will again realize the wisdom of the Law of Comparative Advantage (which argues that we are collectively better off if we export what we are best at and import commodities that others are best at)

Experts also reckon that the presence of the World Trade Organization (WTO) will keep a cap on incidences of countries breaching global trade obligations. There is a global movement claiming that entities such as the WTO and UN are not relevant anymore. But the principles these agencies were built upon are even more relevant in today’s fractured world.