Globalisation’s demise has been greatly exaggerated

Don’t shed too many tears for globalisation. The steady flow of goods, services, capital and know-how across national boundaries hasn't come to a screeching halt. Nor has the global economy splintered beyond repair. Some shifts in investment, far from extricating US industry from China's  influence, may even enhance the latter's presence in supply chains.

Trendy terms like reshoring, friend-shoring and fragmentation are having a field day. They offer a pithy way to frame developments that, taken in isolation, might seem incremental. Such turns of phrase can also be safely lobbed about at Davos parties without fear of great challenge. But they can also suffer setbacks: US-China trade surged to a record last year, in defiance of all the learned writings about decoupling. Another flaw is that catchy expressions don't do nuance well; the dispatch of merchandise may have peaked, but services are doing splendidly. The most global of markets, that of currency trading, has swollen to an eye-popping $7.5 trillion a day, according to the Bank for International Settlements.

A new publication from the Center for Economic Policy Research and the International Monetary Fund scrutinizes these kinds of tensions and endeavors to put the disruptions of the past few years into perspective. Yes, trade flows and the allocation of dollars are undergoing a significant transformation. But it can be subtle, uneven and unfold in ways that make the embrace of popular labels problematic. Nor did these shifts begin with Donald Trump or the pandemic. That will make them longer-lasting and, as a consequence, their implications less predictable.

This is different terrain from the 1990s, a decade marked by the relentless expansion into Asia and the former Soviet bloc of brands like Starbucks, Microsoft and Boeing, and the forward march of supply chains driven by Japanese automakers and European chipmakers. The contemporary scene has a different vibe, but nonetheless, stops short of a rewrite of economic history. IMF Director of Research Pierre-Olivier Gourinchas, writing in the e-book,  acknowledges the system’s durability, while being discouraged by the trends: "Despite all the talk of de-globalisation, trade in recent years proved to be very resilient to multiple shocks and the world economy is still highly integrated. Even when we look at trade between China and the United States, where the trade relationship is most tense, we still have that US imports from China in 2022 are over 30 percent higher than in 2017… So, is it all ‘scare tactics?’ Not really. Although we are not yet in a fragmented world, we are observing important cracks in the system."

Gourinchas notes that US imports of products subject to the tariffs imposed by Trump, and kept by Joe Biden, are down noticeably. Capital flows, while relatively unhindered, are beginning to reflect nations' strategic and economic ties — to the extent that it's possible to distinguish between the two. Industrial policy, once considered a relic of the Cold War, is getting a new lease of life.