Deglobalisation is not the mirror image of globalisation. The losers of globalisation will thus not be the winners of deglobalisation. Indeed, the vulnerable and poor will be the big losers of deglobalisation both in the Global North and Global South.
In the world economy, the guards are changing: we see the emergence of China as the major trading economy of the world continue and at the same time the crumbling of the economic power of the United States of America. Handing over world economic leadership is always a painful process, and it is certainly not a new phenomenon. The rise of the British Empire ended the period of Dutch hegemony. After the Second World War, the USA became global leader, and now we see China emerging on top of many economic rankings. Both before and during these phases of geo-economic transformation, similar processes occurred that reflected shifts in the costs and benefits of hegemony.[1]
SHIFTING POWER IS PAINFUL
A non-contested hegemon has significant market power and can appropriate a substantial part of the benefits of the rules and regulations of the world order. These benefits enable the hegemon to finance the costs of world order maintenance. However, when an emerging economic power contests the incumbent, the balance of costs and benefits shifts to the detriment of the hegemon. It also becomes apparent that the division of the benefits of the world order are not proportional to the costs. Clearly, US actions currently are being fed by popular sentiments (and also feed these sentiments!), but a rational explanation of what we see happening is certainly not beside the point. Modelling exercises of a great diversity of trade disturbances and trade wars show that the United States hurts itself, but that China has to pay a higher price (Figure 1).
Source: J. Bollen and H. Rojas-Romagosa, 2018, ‘Trade wars: Economic impacts of US tariff increases and retaliations. An international perspective’, CPB Netherlands Bureau for Economic Analysis, The Hague.
Making America the Greatest Again can be done in two ways: either by putting more effort into improving the US economy, or by trying to hurt China more. In the current context, the outcome of the second option is more certain, especially in the short run. Economists therefore cannot but conclude that this form of neomercantilism for the United States in a political sense is quite effective. A trade war that involves the United States, China, and the European Union (the blue bars in figure 1) consistently finds that the negative impact in other regions is always larger than for the United States. For an all-out trade war of the US with all advanced economies (the orange bars in Figure 1), a somewhat different picture emerges, but still China is hurt most.
It is important to recognise that the current context extends well beyond trade disturbances and that this is part of a new long downward phase. Indeed, an important empirical finding is that Make America Great Again and Brexit should be seen as symptoms rather than causes of deglobalisation: already long before the elections and referendum, a significant break could be observed in the pace and direction of internationalisation of leading democratically oriented economies.[2] It is not obvious that a change can be expected with respect to these trends in the near future. Indeed, policy uncertainty is on a clearly upward trend and has entered uncharted territory (Figure 2). This increase in uncertainty already has a negative impact on investment decisions of firms and consumers. Certainly, deglobalisation has a much broader palette than the trade disturbances that presently make the headlines.
Figure 2 Global policy uncertainty (monthly data 2000-2018)
Source: S. J. Davis, 2016. “An Index of Global Economic Policy Uncertainty,” Macroeconomic Review, October, http://www.policyuncertainty.com
The impact of deglobalisation goes further and also includes development cooperation and other international flows. Attacks on global institutions and multilateral agreements is an essential element of neomercantilism and its impact is felt all around the globe. A comprehensive deglobalisation scenario of the International Futures Model shows that the long-run losses are large and always negative (Table 1). The impact in the US in this scenario is relatively limited, and strong losses in income level appear on other continents. A recent study of the German Institute for Development has analysed the impact of Brexit and finds that losses outside the UK are important. In particular, the impact on the least developing countries is significant.[3]
Table 1 Estimated impact of deglobalisation on per capita income in 2035
Source: Hillebrand, E. E., 2010, ‘Deglobalization scenarios: who wins? Who loses?’ Global Economy Journal 10 (2) article 3 available at: http://www.ifsprev.du.edu/assets/documents/hilldeglob.pdf
The European Union can make a difference here. It is clear that developing countries are not part of the conflict between the big powers and that their plight is due to collateral damage. The European Union has always supported trade as a means to achieve development. It should step up efforts to facilitate trade and help the least-developed countries to divert their trade so as to make up for the losses caused by the deglobalisationists.
[1] Z. Olekseyuk and I.O. Rodarte How Brexit Affects Least Developed Countries, Deutsches Institut für Entwicklungspolitik, Briefing Paper 2/2019
[2] P.A.G. van Bergeijk, On the brink of deglobalization … again, Cambridge Journal of Regions, Economy and Society 11, 59–72. In the same vein China’s support for the multilateral trade and investment system did not come unexpectedly.
[3] P.A.G. van Bergeijk, Deglobalization 2.0: Trade and openness during the Great Depression and the Great Recession, Edward Elgar Cheltenham 2019. https://www.e-elgar.com/shop/deglobalization-2-0 https://www.e-elgar.com/shop/deglobalization-2-0
In 2018, Bliss Blog featured a series on deglobalisation. Articles of this series can be read here, here and here.
About the author:
Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.
What do you think?