Zeke - It's great to get a different perspective of why globalization won't end as the news has been flooded with the opposite. When I read #1 that globalization isn't as pervasive as people think, I worried that the current environment has undone the little progress we made but the last point about companies distributing their global capabilities still off-shore and investing in non-cost related benefits helped me understand that can keep progressing globalization in the long run. But I then focused on the trade drop during financial crisis and the bounce back to 2011. We were never able to push that trade % past that peak of 2011. Can you offer some insights on why?
Thanks for reading and commenting, Harija. And great question. I've asked myself the same thing, and I don't know if I have a great answer. But a few possibilities come to mind.
It's important to point out (I should've in the article) that the chart plots average trade/GDP per country (the data are here: https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS), as opposed to the ratio of world trade to world GDP (which would be a lower number). In other words, the recent steady state seems to be that trade is 60% of GDP for the average country. That's lower for big countries like the US (28%).
OK, so what are the possible explanations:
1. 60% is quite high for a country already, so maybe we're approaching some kind of natural peak. The growth rate has to slow down at some point.
2. The financial crisis did permanent or long-term damage to some of the underlying factors that were leading to increases in global trade. We returned to pre-crisis levels by 2011, but there was a permanent erosion in factors that would've led to continued growth. I think that a loss of faith in international institutions (e.g. WTO, etc.) is a factor, but that's just my opinion.
3. If we ever reach a period of stability again, there's plenty of room to grow still because large countries are well below the 60% threshold. For instance, trade is only 38% of Chinese GDP, 28% of US GDP, 29% of Brazil GDP, etc. If those countries redirect towards trade-friendly policies in the coming years, we could see the numbers inch up. But once again, I think 60% on average (per country) is pretty high to begin with.
Zeke - It's great to get a different perspective of why globalization won't end as the news has been flooded with the opposite. When I read #1 that globalization isn't as pervasive as people think, I worried that the current environment has undone the little progress we made but the last point about companies distributing their global capabilities still off-shore and investing in non-cost related benefits helped me understand that can keep progressing globalization in the long run. But I then focused on the trade drop during financial crisis and the bounce back to 2011. We were never able to push that trade % past that peak of 2011. Can you offer some insights on why?
Thanks for reading and commenting, Harija. And great question. I've asked myself the same thing, and I don't know if I have a great answer. But a few possibilities come to mind.
It's important to point out (I should've in the article) that the chart plots average trade/GDP per country (the data are here: https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS), as opposed to the ratio of world trade to world GDP (which would be a lower number). In other words, the recent steady state seems to be that trade is 60% of GDP for the average country. That's lower for big countries like the US (28%).
OK, so what are the possible explanations:
1. 60% is quite high for a country already, so maybe we're approaching some kind of natural peak. The growth rate has to slow down at some point.
2. The financial crisis did permanent or long-term damage to some of the underlying factors that were leading to increases in global trade. We returned to pre-crisis levels by 2011, but there was a permanent erosion in factors that would've led to continued growth. I think that a loss of faith in international institutions (e.g. WTO, etc.) is a factor, but that's just my opinion.
3. If we ever reach a period of stability again, there's plenty of room to grow still because large countries are well below the 60% threshold. For instance, trade is only 38% of Chinese GDP, 28% of US GDP, 29% of Brazil GDP, etc. If those countries redirect towards trade-friendly policies in the coming years, we could see the numbers inch up. But once again, I think 60% on average (per country) is pretty high to begin with.