Is it the De-globalization Era?? Lets understand
The global milieu is under huge economic distress with all the nations striving to revive their piece of land. There is a sense of stagnancy across the world. Trade, investment, production, growth, etc. are in a downturn with no signs of resurgence. People across all demographics are living amidst this uncertainty and fear and are desperate for the change. The Global environment has never been so vulnerable. There is increased polarization amongst the people across nations with hope of new dawn in terms growth and security. People’s verdict in favour of Brexit and Trump’s electoral victory are the biggest examples of it.
Have you heard about the term ‘De-globalisation’ in recent times? This term has gained significance and is being used with increasing frequency across globe. Looking at the word, it is clear that we are talking of something which is opposite of globalization. Though broadly correct, let us get into some more detail as to what deglobalisation means.
Deglobalisation basically means disintegration amongst the nations. Whenever there is a gradual decrease in the globalization process, one can affirm the economic shift to a deglobalisation era. It is a result of decrease in economic trade, investments and migration of human capital between global nations.
Linking the above to current global scenario, one can say that deglobalisation era has begun. You may have noticed that the countries have are becoming more protectionist than ever before with increased sense of nationalism across globe. The Governments are coming out with policies with an aim to make their country the most lucrative investment place. Government’s policies are motivated towards increased job creation, growth and security for their citizens.
The volume of world trade had gone up multifold since 1950 with simultaneous increase in foreign investments. However, over last couple of years, the trend is reversing with slowdown in global trade. This can be said as foundation for the deglobalisation era, thereby reducing or rather restricting free trade and movement across nations.
Many may have heard of talks in relation to offshore outsourcing ban by the US. What does this mean? This move is very well directed to increase local job markets. Significant reduction in corporate tax rates is also on cards so as to incentivize the business in the country. It is also likely that additional taxes may be hammered on the company having its manufacturing plants and outsourcing offices outside the resident country so as to neutralize the cost benefits of the operating from that country.
Impact and risks
Needless to say, this would amount to increased enmity between various nations and there would be economic tensions across globe. Various countries would respond to such anti-trade policies in their own respective manner. Amidst this increased tensions, one cannot rule out the possibility of an economic war. The ramifications of this are unimaginable and it could create a very dreadful atmosphere across globe.
Most primary impact is reduced international trade thereby reduction in world growth. There would be less movement of between economies resulting into reduced flow of ideas, technology, labour and investments. This brings threat to various sectors right from manufacturing to tourism. It could create a monopolistic environment with reduced competition.
Financial sector is no different and it could turn out to be most hit sector in this era. The biggest impact will be fall in cross border transactions resulting in reduced foreign exchange reserves. The foreign currency market would become volatile or rather the foreign exchange would become costlier. This would further increase trade barriers. Financial markets and banks would remain under stress amidst deglobalisation.
Phew!! Its too much of negatives, does it have any positives or not? May be less but it certainly has. Deglobalisation could help in reducing income inequality. There is increased inequality between rich and poor. This can be attributed to globalisation and liberalization. Due to globalisation and integration, there is disproportionate distribution of income. With lower wages in other countries the local human capital suffer. Deglobalisation is one of measures to reduce this inequality and create a better economic environment. Deglobalisation could also have a positive effect by way of more income in hands of local public, thereby increasing local demand and in turn the production.
Though, we think, deglobalisation would be a temporary phenomenon and not a permanent affair however, in economics nothing is a thumb rule. We can only wait for the future of unveil, amidst these increased global tensions. It has wide ramifications and could go either way.
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The above is jointly written with Mr. Ankit Gandhi
