The beginning of deglobalization or just a blip?

Bloomberg economist Carl J. Riccadonna said the current “trade war” was more a “trade skirmish” and that globalization was just slowing. Michael Pettis, professor of finance at Peking University’s Guanghua School of Management, in contrast, believes that we have entered a phase of deglobalization. Read more

While I am quite persuaded by the data that deglobalization currently is a real world phenomenon with which we have to deal, others are clearly not. Lund and Tyson (2018) use a provocative title ‘Globalization Is Not in Retreat’ to point out that the slow-down of world trade in physical goods may be due to increasing e-commerce and digitalized services. By implication the traditional metrics of globalization show a decrease due to this substitution effect. Constantinescu et al. (2016) ask the question, ‘Does the global trade slowdown matter?’ Yet another disbeliever Bordo (2017) adds: ‘The Second Era of Globalization is Not Yet Over’ arguing that we are witnessing a slowdown of globalization or a pause rather than actual deglobalization. According to Bordo it is simply too soon to tell and the apparent slowdown of world trade may have been caused by subdued global demand and reorientation of international value chain activity. Bordo also points to increased regulation of banks and institutional investors as this may explain the slowdown in financial flows. Martin (2018) is very explicit: ‘Keeping it real: Debunking the Deglobalization Myth’.
Disbelief in deglobalization is not an academic treat only. Global think tanks such as the McKinsey Global Institute (Lund et al., 2017) and international organizations have expressed their views that the developments that we discussed above are too specific and/or not sufficiently broad-based and/or not sustained enough to merit the use of ‘deglobalization’. Incident, pause and slowdown characterize what we see, according to these critical discussants of the ‘deglobalization thesis’.  There is more at stake than the profession’s belief in the inevitability of globalization. To understand why disagreement is a common feature of ‘Black Swans’ (high-impact low-frequency events), such as the Great Recession or the Great Depression, and also to help you to see the uncertainty and weakness of the arguments in the deglobalization debate (including my own!) it is helpful to think a bit about how we learn about the real world.

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