Tag Archives deglobalisation

Do Natural Disasters Stimulate Trade? by Chenmei Li

Do Natural Disasters Stimulate Trade? by Chenmei Li

Typically, disasters are seen as disruptions of normal economic activity and thus reducing trade. However, the existing empirical evidence for a negative relationship between disasters and trade is contradictory. On ...

Europe in Times of Deglobalization by Peter A.G. van Bergeijk

Europe in Times of Deglobalization by Peter A.G. van Bergeijk

The current phase of deglobalization is a challenge for social sciences. Peter van Bergeijk discusses what we can learn from previous deglobalizations. What do the periods of the Great Depression ...

The New World “Order”: Brexit, Trump and the Developing Countries by Peter A.G. van Bergeijk

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]


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).

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:

pag van bergeijk

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.

Deglobalisation Series | Will deglobalisation save the environment? by Sylvanus Kwaku Afesorgbor and Binyam Afewerk Demena

Deglobalisation Series | Will deglobalisation save the environment? by Sylvanus Kwaku Afesorgbor and Binyam Afewerk Demena

Anti-globalists and some environmentalists argue that globalisation is harmful to the environment because it leads to an increase in the global demand for and supply of goods and increased energy ...

Deglobalisation Series | (de)globalisation and the fear of trade by Ana Cristina Canales Gomez

Deglobalisation Series | (de)globalisation and the fear of trade by Ana Cristina Canales Gomez

While the consequences of globalisation over health and nutrition can be contradictory, trade openness can be a relevant policy for reducing food insecurity. This relatively inexpensive action, when compared to technology ...

Deglobalisation Series | Financial deglobalisation: a North-South divide? by Haroldo Montagu

The Financial Crisis of 2008/09 led to a structural break in financial globalisation, setting cross-border capital flows back to the average of the 1990s. Do differences between cross-border financial flows of the Global North and Global South disqualify the financial slowdown as deglobalisation? Will the 21st Century be a deglobalised century, or are we just witnessing a new (and maybe better) face of financial globalisation?

While it is clear that trade flows collapsed and slowed down after the global financial crisis of 2008/2009 and that deglobalisation in terms of international trade has occurred ever since, the picture is less clear for capital flows. Forbes argues that financial deglobalisation is visible in the sharp and sustained decline in cross-border financial flows associated with the recent global financial crisis, with no signs of recovery. Leading think tanks and international organisations, such as the McKinsey Global Institute (MGI), the Bank of International Settlements (BIS), and the International Monetary Fund (IMF), have, however, argued that financial deglobalisation is not a reality because the decrease of financial flows is not a broad-based and sustained phenomenon. Closer scrutiny of data related to this can help us to better understand whether financial deglobalisation is happening or not.

Graph 1: Cross-border financial flows (share of world GDP) reached a peak before the crisis and have since been at a lower level, with indications that they are now flattening out
Graph 1.png
Source: own elaboration based on IFS and WEO databases (2018) (see IMF data)

As illustrated in Graph 1, the financial crisis created a structural break in the level and pace of financial globalisation. In 2007, international financial flows peaked at more than 50% of world GDP, but then global cross-border flows fell significantly in 2008 and after some recovery levelled out at around 15% of world GDP (slightly above the average for the 1990s).

G7 versus BRICS

This global average, however, does not in itself reflect different experiences in the Global North and Global South. So, let’s take on one side the advanced economies gathered in the G7 (Canada, France, Germany, Italy, Japan, UK, US) representing the Global North and, on the other, emerging economies labelled as BRICS (Brazil, Russia, India, China and South Africa), as a Global South sample, and regard their own experiences to move beyond the aggregate picture that might not reveal differences in the extent of deglobalisation. Graph 2, like Graph 1, shows cross-border financial flows, but rather than focusing on global GDP displays the regional GDPs for the Global North (G7) and the Global South (BRICS).

Graph 2: Different experiences in G7 and BRICS (cross-border financial flows as a share of regional GDPs)
Financial deglobalisation(?)

Graph 2

Source: own elaboration based on IFS and WEO databases (2018) (see IMF data)

The graph clearly shows that the G7 grouping reached a financial peak in 2007, followed by a sharp decline in 2008/09 and poor recovery following the crisis. The graph, however, paints a very different picture for the BRICS economies. A number of factors are noteworthy in determining whether financial globalisation is also taking place in the BRICS grouping. First, the decrease in financial flows after the crisis, although important, is not as significant for the BRICS as for G7 countries. While the decline of the advanced economies was about 40 percentage points during 2008/09, amongst the BRICS economies the fall was only about 8 percentage points.

Second, in the BRICS grouping the financial flows recovery (both in level and in terms of speed) was quite remarkable. As a consequence, in 2010 the BRICS had recovered to a level well above the level in the 1990s, while the share of the G7 countries remained around 30 percentage points below the pre-crisis peak. These figures clearly show that nowadays the BRICS countries hold a similar share of financial integration (relative to their own GDPs) as the G7 countries(!). A third point worth mentioning is that BRICS’s financial flows, while insignificant in the 1990s and early 2000s, increased, on average, to about 2% of world GDP following the crisis (2010-2016). Again, this means that the gap between advanced and emerging economies is shrinking.

How global is financial deglobalisation?

The key issue is whether these dissimilarities would disqualify the labelling of the financial slowdown after the crisis as deglobalisation that after all is understood to be a widespread phenomenon. While G7 countries can’t recover financial momentum, the BRICS’s financial decline was neither sharp nor sustained. In short, there does not (yet) seem to be enough evidence to call it a collapse justifying the deglobalisation denomination.

The McKinsey Global Institute also points out here to other differences between advanced and developing countries. They argue that while cross-border capital flows for the whole world remain 60% below their peak finance momentum, in developing countries capital flows have rebounded. By estimating shares in constant terms, different than the current ones I showed, MGI arrived at the same conclusion. In addition, they emphasise the increase in South-South financial flows linked to foreign direct investment (FDI).

In the same vein the BIS argues here that even in the advanced economies, deglobalisation is restricted only to European countries. If focusing only on banking flows, consolidated by bank nationality—and not by bank location as the IMF usually presents—a broad-based deglobalisation trend is not evident. Rather, we are witnessing a European financial retreat.

Resetting financial globalisation

What is this diverse financial flows behaviour telling us? According to Mallaby, after the crisis financial flows show a “healthy correction”, defining the years leading up to the financial peak as an “aberration”. Accepting the “healthy correction” hypothesis would lead us to pose an alternative characterisation to the deglobalisation of financial markets. In this sense, words like “retreat”, “retrenchment” and even or “reverse” would be more appropriate for depicting the phenomenon. Moreover, can we say that post-crisis financial globalisation is healthier than the one registered before the crisis? Maybe it is not about lower shares, but better ones, leading to sounder financial markets where the financial globalisation reach is set by policymakers and regulators and not by an indomitable financial speculation, heading, as usual, to a crisis.

Whether is the rising regulation, the macro-prudential policies or just plain and simple risk aversion after the aberration (or a mix of all of them), financial globalisation’s newest phase looks, in general, the least volatile phase that might be least prone to crisis. However, is this new shape of globalisation good news? As usual, it depends. The Global North cannot afford to cause another boom-and-bust cycle whose impacts and costs are, indeed, globalised while their benefits are not. On the other hand, Global South recovery is not necessarily good news either. It is not clear that financial flows linked to ODA, debt, remittances or even FDI alone can drive economic growth or development.

Hence, cautionary measures should be taken (or reinforced) by governments to allocate foreign capital where is needed and do not validate unregulated financial speculation, especially the one triggered from the Global North. Despite their heterogeneity and criticism, the UN Sustainable Development Goals (SDGs) might be a good starting point regarding what is required to finance with foreign capital and what it’s not. Additionally, countries of the Global South must stand up and speak out, jointly, in international fora, warning about the dangers of financial aberrations. This should be presented as a global problem (even when it originated in the Global North) rather than a regional phenomenon or as a once-in-a-lifetime kind of thing, which it may not be.

Will the 21st Century be a deglobalised century, or are we just witnessing a new (and maybe better) face of financial globalisation? Only time and, hopefully, financial markets regulators, will tell.

Also see: Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

Untitled.pngAbout the author:

Haroldo Montagu is a recent graduate of the ISS. Before studying at ISS, the author was appointed as National Director of Development Strategies and Macroeconomic Policy at the Ministry of Economy and Public Finance of Argentina. He also worked as a consultant for the Economic Commission for Latin America and the Caribbean. He teaches topics in International Economics and Economic Development at university level in Argentina.



Deglobalisation Series | China: ‘restarting’ globalisation? by Chenmei Li

Deglobalisation Series | China: ‘restarting’ globalisation? by Chenmei Li

After benefiting from international trade and investment for the past 30 years, China’s global position is starting to change. This is perhaps most evident when regarding its position at the ...

Deglobalisation Series | Challenges to the liberal peace by Syed Mansoob Murshed

Deglobalisation Series | Challenges to the liberal peace by Syed Mansoob Murshed

We may have reached a stage where economic interactions have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace. But the logic of the capitalist ...

Deglobalisation Series | Backtracking from globalisation by Evan Hillebrand

While globalisation still enjoys strong support in the Global South, major economies in the Global North now seem less enthusiastic about its purported benefits. This article explores how the United States through its previous policies came to backtrack from globalisation, showing that it is an altogether unsurprising development.

From the perspective of the United States (US), embodied in US president Donald Trump’s recent discourses, the liberal international trading system faces at least three major economic and socio-political challenges going forward: (1) income redistribution, (2) the rise of Asia and a potential shift in comparative advantage, and (3) the rise of China and the national security argument. Given the growing domestic unease with free trade and the fact that these exacerbating issues are worsening, I suggest that US policies will become less supportive of globalisation.

US withdrawal: surprising or expected?

In our 2011 article, “Backtracking from Globalization” (1), my coauthors and I discussed the declining support for globalisation in the United States and elsewhere. Since then the trend has gotten worse.

But why shouldn’t it? The US, after all, has only had a liberal trade policy for 60 or so years. In its early years, US policy focused on high tariffs, large subsidies to key industries, and infrastructure investment designed to create an industrial economy for the sake of military and economic power (sounds not too dissimilar to China today). The US moved to a freer-trade stance when the US was economically dominant and an expansion of global markets seemed as if it would be economically beneficial.

The US free trade strategy was also based on political theories and grand strategy. After World War II, trade expansion was seen as a good way to bolster Europe economically, tie it to the West, and strengthen the West against the Soviet Union. The US spurred the creation of the GATT/WTO in an effort to bring all countries into a democratic rule-based system under the assumption that trade would help all countries prosper under US leadership. Since 1980 or so, the US has tried to lure China into the world market system to foster interdependence and peace. In many respects, that policy can be considered a great success—ushering in a vast improvement in the material standard of living almost everywhere and many decades of great-power peace. China also did turn away from its Maoist phase of development.

 Ebbing enthusiasm for globalisation

Support for globalisation, however, is clearly headed in a negative direction and the ebbing of enthusiasm has been particularly dramatic in the United States. Recent polling data from the Pew Foundation and the Council on Foreign Relations (2) show that there is still support for international trade, but a majority worry that trade generates labor market costs in terms of job destruction and lower wages. This worry helped elect the current US president and his administration talks more about fair trade than free trade: ‘Nothing about the theory of comparative advantage would lend itself to a defense of a status quo that imposes higher barriers to exports on American producers than on foreign producers’ (Economic Report of the President 2018: 219) (3).

It is important to understand that it is not ignorance that has led US policy in this direction.

Many voters were lured to Donald Trump’s “America First” pitch because of a perception that wages were stagnant and communities were hurt because of globalisation. In reality it is more than just a hunch: income distribution in America has worsened and academic research by Paul Krugman (4) and others attributes some of that worsening to trade, although the magnitude of trade’s contribution is (and always will be) in dispute.

Support for globalisation has to some extent rested on the theory of comparative advantage, but that theory has never been the “slam dunk” argument that enthusiasts have made it out to be. It depends on so many assumptions that do not fit the current world economy, so the theory should only be relied upon as a general principle, not the decider of every policy dispute. Paul Samuelson (5) claimed in 1972 that the aggregate gains from trade are not necessarily positive. He expanded on this idea in his (2004) paper, ‘Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization’, saying that growth in the rest of the world can hurt a country if it takes place in sectors that compete with its native exports—where it has comparative advantage.

The rise of China

Relative, and even absolute, per capita GDP can fall in such a situation (6). Whether China’s rise can actually diminish the US is not clear, but the current Chinese government continues to employ active trade policies to push its industries up the value chain, aiming explicitly at sectors that have been the mainstay of US industrial pre-eminence. Samuelson says that ‘economic history is replete with examples like this, first insidiously, and later decisively’, pointing explicitly to British manufacturing being overtaken by US industry after 1850.

In addition to the economic threat posed by China, the US government has long worried about the security threat posed by China’s rise. The US-China Economic and Security Review Commission is an organisation chartered and funded by the US Congress and dedicated to the proposition that China poses a multifaceted threat to the US. It yearly issues a massive report that cites declines in the US defense industrial base, insecurity of defense supply lines, financial threats, Chinese ownership of critical US facilities, cyber threats, and other problems—all related to China. In the most recent report (7), it lists 26 recommendations for congressional action, many of which would amount to new trade restrictions.

Trade policies, while often rooted in interest groups scrambling for distributional gains, are also related to national economic and security concerns. In the past, pragmatic national interests have pushed trade policy in varying directions. There is no reason now to believe that the US is giving up on international trade, but there is every reason to believe that for a variety of national interests it will be much less enthusiastic about globalisation in the future.

(1) Hillebrand, E.E., J. Lewer and J. Zagardo (2011) ‘Backtracking from Globalization’, Global Economy Journal 10(4).
(2) Poushter (2016) American Public, Foreign Policy Experts Sharply Disagree over Involvement in Global Economy. Pew Research Center, http://www.pewresearch.org/author/jpoushter.
(3) Council of Economic Advisors (2018) Economic Report of the President. Washington, D.C. https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL.pdf
(4) Krugman, P.R. (2008) ‘Trade and Wages, Reconsidered’, Proceedings of the Brookings Panel on Economic Activity. Spring conference. Available at: (http://www.princeton.edu/~pkrugman/pk-bpea-draft.pdf).
(5) Samuelson, P.A. (1972) ‘Heretical Doubts About the International Mechanism’, Journal of International Economics, 2(4): 443-453.
(6) Samuelson, P. (2004) ‘Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization’, Journal of Economic Perspectives 18(3): 135-146.
(7) U.S.-China Economic and Security Review Commission (2017) 2017 Report to Congress. Washington, D.C. Available at https://www.uscc.gov/sites/default/files/annual_reports/2017_Annual_Report_to_Congress.pdf

Also see: Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

UntitledAbout the author:

Professor Evan Hillebrand taught international economics at the Patterson School of Diplomacy and International Commerce at the University of Kentucky. His most recent book is Energy, Economic Growth, and Geopolitical Futures (MIT Press, 2015).



Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

A remarkable 'big switch'  has emerged from the turn of the millennium in terms of attitudes towards and discourses over globalisation. But while the world is currently witnessing a new backlash ...

Deglobalisation Series | Deglobalisation 2.0: Trump and Brexit are but symptoms by Peter A.G. van Bergeijk

Deglobalisation Series | Deglobalisation 2.0: Trump and Brexit are but symptoms by Peter A.G. van Bergeijk

We live in strange and usual times. Actually, this is what people always do. And all people always think that their era is unique. We seem to live in the ...