Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

U-Turn or Perfect Storm? Globalization a Decade after the Financial Crisis

Economics / Global Economy Sep 10, 2018 - 08:20 AM GMT

By: Dan_Steinbock

Economics A decade ago, globalization peaked. Today, it remains in the doldrums.  Consequently, the Trump trade wars take place at a historical moment, when globalization may further stagnate or even fall apart.

On Friday September 7, President Donald Trump threatened to impose tariffs on $267 billion in Chinese goods, on top of the additional $200 billion that he said will likely be hit with import taxes in a matter of days.

If the tariff stakes would increase close to $500 billion, it could penalize Chinese GDP by 1.0%, but the US GDP, which is relatively more vulnerable, would suffer a net impact of 2.0% of GDP.


Worse, a full trade war would penalize global confidence, which could unsettle key stock indexes. The consequent uncertainty would lead to further downgrades of countries’ economic outlook. Global growth would suffer collateral damage. And as credit would take a hit, financial conditions in the West could deteriorate, and so would trade in the East.

If Trump remains loyal to his trade pledges, following China he would target other major economies that have a significant trade surplus with the U.S., including Germany, Italy and the EU, Japan and South Korea, Mexico and Canada and, over time, Vietnam and India.

If the Trump administration would expand its trade war as it has promised, it would achieve a perfect reversal of decades of postwar globalization in just months – and it would pave way to a perfect storm in the global economy.

Globalization at crossroads

At the peak of globalization, the Baltic Dry Index (BDI) was often used as a barometer for international commodity trade. The index soared to a record high in May 2008 reaching 11,793 points. But as the financial crisis spread in the advanced West, the BDI plunged by 94% to 663 points.

Even today, the BDI remains only around 1,500, some 90% below its peak, despite soaring financial markets (Figure).

Figure   The Baltic Dry Index, 1986-2018



While the BDI can serve as a short hand for international trade, broader measures of global economic engagement offer equally dire visions.

Global economic integration is usually measured by world trade, investment, and migration. By the 1870s, capital and trade flows rapidly increased, driven by falling transport costs. But the first wave of globalization in the modern era was reversed by the retreat of the U.S. and Europe into protectionism between 1914 and 1945.

After World War II, trade barriers came down, and transport costs continued to fall. As foreign direct investment (FDI) and international trade returned to the pre-1914 levels, globalization was fueled by Western Europe and the rise of Japan. This second wave of globalization benefited mainly the advanced economies.

Following 1980 many developing countries broke into world markets for manufactured goods and services, while they were also able to attract foreign capital, thanks to offshoring in the West. This era of globalization peaked between China’s accession to the World Trade Organization (WTO) in 2001 and the global financial crisis in 2008.

After the global crisis, China and large emerging economies fueled the international economy, which was thus spared from a global depression. But as G20 cooperation has dimmed, so have global growth prospects.

Falling world investment

Before the global crisis, world investment soared to almost $2 trillion. A year or two ago, the UN predicted that global FDI flows were projected to resume growth in 2017 and to surpass $1.8 trillion in 2018. In contrast, I predicted that the improvement was unlikely and that world investment would either continue to stagnate or worse.

So what actually happened? Well, according to the most recent UN data, global flows of foreign direct investment fell by a whopping 23% in 2017. Cross-border investment in developed and transition economies dropped sharply, while growth was near zero in developing economies.

In effect, global FDI flows fell to $1.43 trillion – that is almost 20% below the pre-crisis peak around 2007-8. In turn, FDI flows to developing economies remained stable at $671 billion, seeing no recovery following the 10% drop in 2016.

This negative trend is not just a long-term concern for policymakers worldwide; it should be an alarm bell, especially as US rate hikes are likely to dampen the projections of many emerging economies and the collateral damage associated with US trade wars is likely to spread in global economy.

Undermined world trade recovery

In 2017, world merchandise trade recorded its strongest growth in six years. According to the World Trade Organization (WTO), the ratio of trade growth to GDP growth returned to its historic average of 1.5, far above the 1.0 ratio recorded in the years following the 2008 financial crisis.

"Trade growth in 2017 was the strongest since 2011,” said WTO Director-General Roberto Azevêdo in his opening message. "If we are to avoid this strong performance being compromised by a further escalation in tensions, we must seek to further enhance global cooperation."

Yet, that is precisely what is unlikely to happen in 2018. Azevêdo wrote his message before Trump’s tariff warnings took effect.

Historically, it may be useful to recall that, about a decade ago in July 2008 WTO then-Director-General Pascal Lamy declared that there was “unqualified public support for globalization.” Yet by that fall, trade depression halted most containers worldwide.

It does not follow that history will repeat itself, but it does rhyme. Trump’s tariff wars are penalizing a trade recovery that took a decade to materialize.

The slump of global finance

The soaring stock equity markets in the United States reflect less the strong fundamentals of the U.S. economy (America’s sovereign debt exceeds 106% of its GDP) than wishful thinking about U.S. leadership in the 21st century.  Following the global financial crisis, there has been a dramatic fall in global finance as well.

Global debt has continued to swell since the crisis but has remained stable relative to world GDP since 2014; that is, at 169% of global GDP.

Indeed, gross cross-border capital flows-annual flows of FDI, purchases of bonds and equities, lending and other investment-have shrunk by -53% in absolute terms, returning to the level of global flows as a share of GDP last seen in the early 2000s.

The sharp contraction in gross cross-border lending and other investment flows explain half of the decline, and Eurozone banks are leading the retreat.

From geopolitical friction to migration crises

Since the advanced West subjected migration to greater control in the early 20th century, global migration—the third leg of globalization—has shrunk dramatically. Yet, the number of globally displaced people has surged.

Wars, other violence and persecution drove worldwide forced displacement to a new high in 2017 for the fifth year in a row. Overwhelmingly it is developing countries that are most affected. According to the UNHCR, the UN Refugee Agency, 69 million people were displaced as of the end of 2017. Among them were 16.2 million people who became displaced during 2017. In other words, about 45,000 people are being displaced each day.

This represents the greatest global forced displacement since 1945.

As evidenced by recent migrant crises in Western Europe and Trump’s intent to build a wall against Mexico, sentiments against migration are hardening – precisely at the time when skill-based immigration would be vital to the future of advanced economies, which are rapidly aging and stagnating.

Beware of rising risks                        

So these are the prospects of globalization today. International commodity trade is now where it first was in the early 1990s, according to the Baltic Dry Index. Global investment is plunging. Trump’s tariff wars have potential to undermine a global trade recovery. Global financial flows are now where they first were 10-15 years ago.

The only highs in recent globalization stem from the surge of the number of globally displaced people.

As the IMF has warned, the ongoing cyclical recovery in global growth prospects is likely to wind down in a year or two. Thanks to the Trump administration’s tariff wars, the day of reckoning may take place much sooner.

Of course, globalization is no panacea. It has always been accompanied with winners and losers.

Yet, in the current status quo, when the growth drivers in major advanced economies are amid secular stagnation and consequently growth prospects are decelerating in emerging economies, external growth drivers are desperately needed.

Nevertheless – so it seems now – it is precisely those forces of world investment, trade, finance, and migration that are currently being undermined.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2018 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dan Steinbock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules