“The development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labour markets.”
That’s the Merriam-Webster definition of globalization, the trend that has dominated economics and trade for decades.
And now, it might be about to go into reverse.
From the financial crisis to Brexit to the election of Donald Trump, globalization has flatlined, and has taken one blow after another. Now, it likely to see at least a partial unwind.
“The political backdrop looks negative for globalization,” Bridgewater’s Jason Rotenberg and Jeff Amato wrote in a client note Friday, a copy of which was viewed by Business Insider. Bridgewater is the world’s biggest hedge fund firm with about $150 billion under management.
This was a recurring theme in Wall Street’s analysis of Trump’s victory.
“Globalisation, competition, internationalism are now firmly in the retreat,” hedge fund manager Crispin Odey said in a note to clients. “Inflation and protectionism promise a future which is not as kind to financial assets as QE and deflation has been.”
And even prior to Trump’s victory, strategists and analysts were signalling the significance of this “mega-trend.”
“If 2008 marked the trigger, this year is likely to be remembered for signalling the persistence of a new mega-trend: the peak, and likely unwind of globalization,” Deutsche Bank’s chief forex strategist George Saravelos said prior to the election.
title=”Exports are slowing”
content=”World nominal exports had been steadily trending upwards for decades, bar a drop during the first and second World Wars and the Great Depression. That was up until the 2008 financial crisis, when they started to flatline.
‘Putting politics aside, both trade and capital flows as a share of global GDP have already flattened out for economic reasons,’ Rotenberg and Amato said in their note.”
source=”Bridgewater client note”
title=”Global trade peaked in 2008″
content=”‘The world has been on a ‘globalising’ trend since the end of World War II,’ Saravelos said prior to the election. ‘But looking at evidence this year, there is compelling evidence to argue that this is being reversed.’
World exports as a per cent of GDP have peaked, and declining over the last two years, while crossborder gross financial flows in to the US are heading sideways.”
title=”The appetite for trade deals is waning”
content=”Globalization has been become more and more unpopular, with popular discontent showing up in a drop in new trade agreements.
‘The number of new trade deals is at its lowest in more than two decades,’ according to Saravelos at Deutsche Bank.”
title=”Labour from the developing world costs a lot more than it used to”
content=”Cheap labour in emerging markets, which drove globalization in previous decades, has gotten more expensive.
‘Much of the low-hanging fruit in emerging market economies has already been exploited,’ the Bridgewater note said. ‘This is particularly true in China, where a stronger currency (in global currency terms), combined with higher domestic labour costs, are causing a flattening out of China’s share of global trade.’
At the same time, the cost advantage of building a factory in China versus at home has shrunk.”
source=”Bridgewater client note”