Deglobalization
Global trade is declining. China, often referred to as the “world's factory,” is experiencing a decrease in exports, while the United States, the world’s largest consumer, is reducing imports. This not only points to a slowdown in the global economy but also serves as a warning of a larger underlying trend: signs of deglobalization.
There is growing concern that the trend of deglobalization, centered around the West with the U.S. and a developing bloc centered around China and Russia, could lead to significant economic losses.
The outlook for global trade is dim. According to the Wall Street Journal (WSJ) on Aug. 9 (local time), the International Monetary Fund (IMF) estimates that this year’s global trade growth rate will be limited to 2 percent, falling short by half of last year’s growth rate of 5.2 percent.
The World Bank (WB) and the World Trade Organization (WTO) also have unfavorable projections. They expect a growth of a mere 1.7 percent, which is lower than the IMF’s forecast.
The U.S., which plays a crucial role in the consumer sector of the global economy, is reducing its imports. According to the U.S. Department of Commerce on Aug. 8, imports in the first half of the year dropped by 4 percent compared to the previous year. On the other hand, exports rose by 2.6 percent. In June, imports declined by 1 percent from the previous month to US$313 billion, marking the lowest level in a year and a half since December 2021.
Experts believe that while some recovery in trade is expected next year, it is highly unlikely to reach the robust average annual trade growth rate of 4.9 percent recorded in the two decades before the pandemic.
In an effort to curb China’s semiconductor ambitions, the U.S. is imposing regulations on investments by American companies and individuals in China’s advanced industries, including semiconductors. Europe is also not far behind. They are contemplating measures to reduce dependence on China. However, given the reliance of numerous European companies, including German automakers, on production and raw materials in China, they have a long way to go.
Economists are greatly concerned about the contraction of globalization, which rapidly drove global economic growth since the collapse of the Berlin Wall. They warn that the deglobalization driven by political motives could result in significant economic losses, high inflation, and low productivity. Lorenzo Codogno, an exchange professor at the London School of Economics (LSE) and Chief Economist at LC Macro Advisors, cautioned, “The world splitting into two blocs is economically a severe loss.”