No Easy Road For Deglobalization, Economist Claims

The most recent era of globalization seems to have come to an end. The ratio of global exports of goods and services to world GDP peaked in 2008 and has trended down ever since, Prof. Raghuram G. Rajan of the University of Chicago wrote in an analysis for the Foreign Affairs issue for January/February 2023.

Photo Insert: Both authors foreclose the notion of a world entirely open and connected by trade: in their view, globalization is passé, and a fragmented future lies ahead.

According to the World Bank (WB), foreign direct investment peaked in 2007 at 5.3 percent of world GDP and drifted down to 1.3 percent by 2020. The world’s two largest economies, China and the US, have become hostile, trying to cut their dependence on each other for goods and services.

Since the global financial crisis of 2008, there have been five times as many protectionist measures enacted across the world as there have been liberalizing ones. Deglobalization is well underway.

In a recent speech, Janet Yellen, the US treasury secretary, advocated “friend shoring,” that is, restricting US investment and trade to countries that share US values.

Two books, largely written before Yellen’s speech, help assess whether friendshoring is a goal worth pursuing.

In “Homecoming,” Rana Foroohar, a business columnist and editor at the Financial Times, says yes: the US should not trade with countries like China that do not share its values and it may even cut back on trade with others that do.

In “The Globalization Myth,” Shannon O’Neil, a vice president at the Council on Foreign Relations (CFR) and a scholar of trade and Latin America, claims that there has never been such a thing as unfettered globalization; the US has always traded more with friendly neighbors than with distant, possibly adversarial regimes. In other words, most US trade is already friendshored.

O’Neil insists on the importance of maintaining and strengthening regional trade and investment.

Both authors foreclose the notion of a world entirely open and connected by trade: in their view, globalization is passé, and a fragmented future lies ahead. Their claims certainly reflect a growing consensus, but the costs of giving up on globalization are immense and will be borne disproportionately by those these books pay insufficient attention to: people who live outside the developed world, the young, and future generations.

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