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A Costly De-Globalization is Underway, It Just Doesn’t Look Like It Yet

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56 comments on A Costly De-Globalization is Underway, It Just Doesn’t Look Like It Yet

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Is De-Globalization Happening? 

De-Globalization Transition?

The Cost?

The correct answer follows.

Three Stages of De-Globalization

Please consider the Three Stages of De-Globalization.

It is true that you cannot see de-globalization in the data, but there is a problem with this argument: today’s trade is the result of decisions taken a long time ago. Last year, German companies invested €11.5bn in China, the highest ever. Trade volumes with China are also near record levels. The WTO’s chief economist, Ralph Ossa, now warns that political decisions taken today will eventually be reflected in data on trade and investment.

He told FAZ that de-globalization takes place in three stages. Stage one is complete. It is a change in narrative. The second is protectionism, like the US inflation reduction act, and various measures now taken by all countries, the EU included, to subject trade and investment to geopolitical considerations. The third stage is an actual fall in trade and investment. That has not happened yet. But it is only a question of time.

Ossa put the cost of global de-fragmentation in terms of a fall in global national income at 5.4%. He puts the total opportunity cost at 8.6% of national income if one includes the gains that would have been possible through tariff reductions. There are similarities to the debate on the economic consequences of Brexit. Fragmentation has a cost. A single country can offset this cost, for example by switching the economic model. The world, as a whole, cannot do that. This is going to be a real loss in income due to negative network effects.

We see global fragmentation as the biggest of the foreseeable structural economic risks the world economy is facing right now. Ossa’s is the first numeric estimate we have seen of the total cost. We saw similar predictions ahead of Brexit. But there is one big difference. In the case of the UK, an electorate decided that it was ready to pay this cost. The world is now sleepwalking in a similar direction.

Stage Two

I discussed stage two, several times already. 

Stage three is not that far off.

This post originated at MishTalk.Com

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Lisa_Hooker
Lisa_Hooker
1 year ago
“The world is now sleepwalking…”
Truer words were never spoken.
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Mjs357
Mjs357
1 year ago
You cannot have de-globalization without de-dollarization…Mish. why is one true and the other 99% nonsense? The world’s econ is a symbiotic system; one cannot survive without the other.
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Roadrunner12
Roadrunner12
1 year ago
Reply to  Mjs357
My crystal ball says we will have de-globalization, de-industrialization, de-dollarization and global depression in the decades coming. De-dollarization will be a slow process. I expect the Euro to decline much faster and how will that void be filled.
Energy=economic growth
I fully expect that within 3 years, it will become common knowledge that the worlds largest oil producer production is in decline.
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Mjs357
Mjs357
1 year ago
Reply to  Roadrunner12
Precisely. Since the BRICS plans a commodity-backed global currency (precious metals, rare-earth minerals, land and…oil) the West stands to lose the next economic war. The BRICS, and their 20+ nation applicants have not signed onto, have not made serious efforts to reduce the .04% CO2 threat (snark) or legislate their citizens in a Green Energy re-education camp. This will leave that group, potentially, if all goes well for them, in charge. While we, the western civ, fails to compete. They have time, nothing but…as we debate men having babies, AR15s, and a fictitious, ultra-maga extremist threat.
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Salmo Trutta
Salmo Trutta
1 year ago
“About 40% of American stocks are owned by foreigners and about one-third of corporate bonds. If foreigners start fleeing, both plunge.”
What If the Dollar Falls? | Mises Wire
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Mike 2112
Mike 2112
1 year ago
Globalization hollowed out much of America outside of major urban areas. The result was we had to blow bubbles in housing and then govt debt to create money b/c we were actually creating much less wealth b/c of outsourcing.
Bring on the deglobalization. I’d rather see vibrant cities in upstate NY that can pay their bills instead of what they are now which is basically dependent on Albany and Wall Street.
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xbizo
xbizo
1 year ago
We can afford it. But depending upon how far you go into deglobalization, the U.S. needs to control the resources it needs. Not every input can be sourced in the country.
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Avery
Avery
1 year ago
What’s the latest on Taiwan situation?
Didn’t Uncle Buffy recently sell out his entire poison on TMSC?
He makes money the old fashioned way, tipping his paperboy well to get his newspaper a week early.
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Casual_Observer2020
Casual_Observer2020
1 year ago
Globalization was a zero sum game for middle classes between countries or across the globe. I forget what year but there was a study a few years ago that conclusively showed that the rise in the middle class of emerging economies that benefited from offshore and globalization of jobs also resulted in a decline in the middle class of advanced economies like the US, EU and Japan. This is really the crux of what the Trump movement was about in addition to being anti immigrant. Globalization really had no answers to common problems experienced by most middle class workers in advanced economies that lost jobs to people overseas.
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Christoball
Christoball
1 year ago
The high cost of idle hands and the ensuing Devils Workshop cannot be dismissed. Bring wealth back to America by adding value to Labor. When Capital fled America to places that do not hold certain truths to be self evident; the value of labor fell.
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Captain Ahab
Captain Ahab
1 year ago
Reply to  Christoball
The movement of capital has little or nothing to do with certain truths being self evident. ‘Adding value to labor’ presume that the US labor force is intelligent, motivated, and well educated. This is a problem. The countries you compete against may a higher national IQ and a better education system.
Short of war, the only solution should be self evident.
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Christoball
Christoball
1 year ago
Reply to  Captain Ahab
What you say is what the owners of capital always say. Is this why they move capital to 2nd and 3rd world countries because they are filled with Rocket Scientists??? The truth is there are lots of smart Americans out there. Young people are increasingly unmotivated to work for Yankee Carpetbagger Types. Young people are no longer being gaslighted to trade their youth for someone else’s portfolio, golden pension plan, or stock options. Don’t confuse their intelligence with laziness.
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Captain Ahab
Captain Ahab
1 year ago
Reply to  Christoball
Of ‘land, labor, and capital,’ capital has the lowest friction when it comes to movement. It finds the best risk-return from a host of opportunities.
When you consider how far countries like India and China have come in the last 30 years, the lesson is clear. Compete or fade.
As for “young people”…not wanting to “trade their youth for someone else’s portfolio, golden pension plan, or stock options…” what exactly are they interested in? Besides tiktok, facebook, and twitter? are they interested in science and engineering to develop new products and processes, farming the land, working 12-18 hours a day to get the capital to start a business….?,
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cklaus76
cklaus76
1 year ago
Reply to  Captain Ahab
To compete on that level, we would have to disavow free universal k-12, something all the test score comparisons conveniently overlook. There are plenty of “unworthy” Ss in those two countries that Xi and Murmu are happy to forget about…child labor anyone?
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worleyeoe
worleyeoe
1 year ago
Reply to  Captain Ahab
The liberal youth want everything for free, want their opinions to be set in stone, and to never to be found wrong of anything. They want to impose their will on the rest of us. They want everyone to be equal, unless you have conservative ideals. They want those around them to think conservatives are fascist. They want to take away the 1st & 2nd Amendments and religious rights. They want to defund the police & prisons. Basically, they want anarchy, to live the hippy, van life lifestyle & to redistribute the baby boomer’s wealth.
That’s about it, I’d say.
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Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  Captain Ahab
Many of these 2nd and 3rd generation kids don’t know what to do with a business when they inherit one.
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Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  Christoball
BS.
Young people can’t afford to pay $75 a pair for American “hand crafted” boxer shorts.
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Columbo
Columbo
1 year ago
Some of this de-globalization needs to take place just for the fact of U.S. security. The pandemic exposed this with the supply chain for one. And, I’m not just talking about toilet paper.
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Doug78
Doug78
1 year ago
The article Mish cited written by K. Regling, “The Euro on the Global Stage”, is very good. The Euro is the best alternative to the Dollar because it has many of the same characteristics such as a large economy, deep financial markets, a credible central bank and rule of law. The Euro is adding new members and there is a tightening of financial cooperation. The sovereign bond market however is fragmented with each individual nation issuing their own bonds rather than having a federal level debt issuance like in the US and this renders the Euro less attractive vs a vis the Dollar. Nevertheless the Euro is going in the right direction as these shortfalls are recognized and being corrected albeit slower than some want but faster than some wish.
In the article the author explains very succulently the drawbacks of renminbi becoming a major reserve currency and until some profound changes take place its’ role will be limited even though it does have uses in country to country commerce like Brazil and some of Saudi Arabia’s oil sales to China.
The authors says:
“However, China’s ambitions to promote the renminbi as a global reserve currency are hampered by a closed capital account, the lack of currency convertibility and deep pools of safe financial assets, as well as by the absence of transparent rule of law protecting foreign investors and a central bank that is not independent. China’s capacity as global lender of last resort remains untested, while the recent bouts of volatility also challenge global investors’ confidence in the renminbi and the authorities’ commitment to capital account liberalization.”
It takes more than just the size of your economy for your money to become a reserve currency and China for now only has that and is lacking in all the other necessary elements.
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RonJ
RonJ
1 year ago
Reply to  Doug78
“It takes more than just the size of your economy for your money to
become a reserve currency and China for now only has that and is lacking
in all the other necessary elements.”
Everything happens in its time. The Chinese Covid lockdowns ended when a deadly fire suddenly resulted in millions of Chinese holding up blank pieces of paper in protest. The Berlin Wall suddenly fell. No one saw Nixon going to China, till it happened. There is an unseen event waiting, that will result in China suddenly accomplishing all the other elements needed to become a reserve currency.
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Doug78
Doug78
1 year ago
Reply to  RonJ
It takes time and there is a lot of competition. You are alluding to an unseen event suddenly that makes China fulfilling the necessary criteria allowing the renminbi to become the world’s reserve currency. That event would necessitate China to all at once acquire the characteristics that other countries took decades and even centuries to obtain. Tell me what type of event do you expect to happen and please make your case that it would result in what you say will happen.
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xbizo
xbizo
1 year ago
Reply to  RonJ
I think China would have to at least partially abandon communism and let markets go ‘unregulated’, but there would always be the threat of nationalization if the government remained communist. So, could happen, but it would have to be a completely different China.
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Captain Ahab
Captain Ahab
1 year ago
Reply to  Doug78
Let us address two of the requirements: a credible central bank and rule of law.
Is this the same central bank that has flooded the world with faux debt, supports a government that falls short $2 trillion each year in its budget, that induces inflation by zero interest rates, bails out big banks on the pretext of saving the world from calamity????
Now, the rule of law. You are talking about a legal system that does not punish Hunter Biden, or Joe Biden for provable corruption, that impeaches a president for doing what DOJ and Dept of State failed to do, that weapaonizes government departments for political purposes, turns a blind eye to vandalism, murders, and mayhem in the streets, that allows untold millions across the border illegally…
GIVE ME A BREAK
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Doug78
Doug78
1 year ago
Reply to  Captain Ahab
You think it has to be perfect? You have to be less worse than everyone else and a track record of being less worse because that is what counts. China’s debt is far worse plus they have built a lot of real estate, trains and pharaonic projects that don’t make money and are a money hole to maintain. The Chinese government is way more spend happy than we ever were. As for rule of law there isn’t any in China. The ruler makes the laws and changes them at a whim and since everyone knows it now (lots of examples). They are another country with a president for life and you talk to me about rule of law? If Xi decides he wants your company he takes it and puts his own people in. Again we have recent examples.
You complain that Biden or Hunter are not in jail. Your impatience is evidence that you do not believe in due process which takes time and is what the rule of law means. As for immigration people are coming because they prefer to come here rather than China, Iran or Russia. No one emigrates there. People are not going in and people and money are going out. You should be asking yourself why.
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Mike 2112
Mike 2112
1 year ago
Reply to  Doug78
A currency union without a political union is destined to fail.
And when the US is no longer the World’s Policeman these Euro countries will have to spend more money on defense making their overall deficits even worse.
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Doug78
Doug78
1 year ago
Reply to  Mike 2112
That is a problem for Europe. It’s more like a confederacy rather than a federal system. Russia’s invasion of Ukraine has provoked a lot of tightening up between the member states. The media love to talk about the personal problems of the various presidents and prime ministers but the real work is being done underneath in the strengthening of EU institutions. Faced with an existential threat Europe is rising to the challenge much to my surprise. The success of the energy and sanctions measures this past year are only the tip of the iceberg. Much more is going on.
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Mike 2112
Mike 2112
1 year ago
Reply to  Doug78
Do you think higher energy costs and more military spending is going to help France deal with their pension issues?
On the contrary.
Macron said out loud what many Euro leaders and citizens are thinking when it comes to the proxy war we started in their backyard while we sit an ocean away from the fray.
If the Euro outlasts the dollar it will be b/c they pivot economically towards China, Russia, India, Brazil etc bloc and stop being a US vassal.
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Doug78
Doug78
1 year ago
Reply to  Mike 2112
Macron was being Macron and he didn’t say anything from what every French has said before. There is widespread support for Ukraine and nobody is even thinking about pivoting to Russia and China. If Putin thinks that will save him then he is wrong again. Being wrong is a habit for him now. Not even the Russians believe Europe will pivot towards them anymore.
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jivefive98
jivefive98
1 year ago
If we just end up with the same thing we have now, except India of all places replaces China … thats fine. Half a win is better than no win at all. America is very happy dancing with the devil with its cheap Chinese plastic wading pools and salad shooters … and India is no battel of laughs, but at least it is progress away from dictatorship and more of an embrace for something that kinda sorta looks like democracy. If they are gonna simply refuse to have America do nothing but borrow and spend, I’d rather India be our mommy.
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vanderlyn
vanderlyn
1 year ago
Reply to  jivefive98
ha ha. funny point to contemplate.
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Zardoz
Zardoz
1 year ago
Reply to  jivefive98
India actually makes more sense… their English is pretty good. The whole caste thing is pretty gross, and they are pretty rapey over there, but I suppose that doesn’t affect production.
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PapaDave
PapaDave
1 year ago
Long term investment is indeed a tell. If companies are increasing their domestic investments at the expense of foreign investment then perhaps globalization will decline eventually. Time will tell.
A similar tell is in long term energy investments by the oil and gas industry, which have been well below normal for most of the last decade. Which means a lack of supply eventually.
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RonJ
RonJ
1 year ago
“We see global fragmentation as the biggest of the foreseeable structural economic risks the world economy is facing right now.”
Locking down the global economy over a virus wasn’t a very good idea. Neither is the Green New Deal global climate agenda, which is very disruptive.
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RonJ
RonJ
1 year ago
“A Costly De-Globalization is Underway”
Cycles are driven to invert. Both globalization and de-globalization have a cost. Goods became cheaper, but U.S. industry was hollowed out, costing a lot of good paying jobs. From production to financialization and skyrocketing debt. Eventually, an inflection point is reached.
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vanderlyn
vanderlyn
1 year ago
Reply to  RonJ
good point. with a sound money in place, those trade deficits of goods would have been self regulating.
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Zardoz
Zardoz
1 year ago
Reply to  vanderlyn
But would the masses have remained docile without the rest of that discount outlet merchandise?
The French riot over pensions. I think Americans don’t because most of us, even the old, don’t really grasp the concept that we, personally, are going to get old and die.
What Americans understand is stuff. We build our lives out of it. Stuffed in closets, garages, attics, spare rooms, sheds, or strewn about the acreage like an airplane wreckage field. The vast majority of it is used a few times, then buried under more stuff, until there’s no more room for stuff and they haul the old stuff to the dump and buy containers to put what they keep in. Next cycle, the containers go to the dump with the stuff in them. Weekends wasted shifting stuff to the dump and storage building. All for that hit of dopamine at purchase time.
Even hobos… you’ll see them piloting a triple stacked shopping cart down the sidewalk, filled with stuff that serves absolutely no purpose, but they’ll cut you to defend it.
Stuff is the opiate of the masses. Keeps them docile, indebted, and stationary. Take it away and you have a governance problem.
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Captain Ahab
Captain Ahab
1 year ago
Reply to  Zardoz
I much prefer the Roman opiate for the masses. Forget baseball and football. Bring back gladiators fighting rabid pit-bulls and slaughtering child abusers, sure to be popular in most states. /sarc
About stuff… when stuff is the primary sign of success, what else would you expect? It is not just Americans–having more ‘wealth’ gives them the resources to acquire more stuff. The only way to change that is to change the values and beliefs of the populace–a depression might achieve that.
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xbizo
xbizo
1 year ago
Reply to  RonJ
Globalization is part of the wealth concentration problem. I think we can afford not to make every last dollar of profit to rebuild middle class jobs and protect ourselves from those that would do us harm. Do you know that China makes practically all the loading dock cranes used in our ports, and that each one has a camera surveying our logistics and transmitting that information back to the homeland? The infiltration is scary.
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Captain Ahab
Captain Ahab
1 year ago
Reply to  RonJ
But Adam Smith says….
Globalization effected a ‘relative’ transfer of wealth between nations, generally from west to east. It remains to be seen if this is reversible. If it does reverse, it will not be because of socialism/wokeism. The nation that leads in innovation and competition will dominate.
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8dots
8dots
1 year ago
The clock is ticking : ticktock, ticktock. Inflation will pop if barbie doll Shi impose an embargo on us. ARAMCO produced oil, replaced by new oil fields, but China produce everything we cannot live without. China might cause high inflation that will start a global recession. The want of dollar will rise, oil and gold will slump, because China will pay it’s Eurodollar debt by dumping gold.
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FromBrussels2
FromBrussels2
1 year ago
Reply to  8dots
Why would China even pay its Eurodollar debt when push comes to shove within the context of a global economic demise ?
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8dots
8dots
1 year ago
Reply to  FromBrussels2
If they don’t they will default.
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FromBrussels2
FromBrussels2
1 year ago
Reply to  8dots
The list of countries having defaulted is considerable ….and they still exist ….
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Maximus_Minimus
Maximus_Minimus
1 year ago
Reply to  8dots
What is China’s net Eurodollar debt?
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Captain Ahab
Captain Ahab
1 year ago
Reply to  8dots
Alternatively, the Eurodollar declines in purchasing value. IMHO the west has positioned itself poorly. Beating Russia into submission is a lose-lose outcome.
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Avery
Avery
1 year ago
“…at what cost?
Less crap made in China going to the landfills every week.
Short Republic and Waste Management.
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FromBrussels2
FromBrussels2
1 year ago
Don t take my word for it , but without smooth economic trade among countries and mutual financial benefits there will be war, no doubt about it , history will merely repeat itself and in view of recent events it is obvious that mankind is just as primitive like 10K years ago despite all sophisticated technological cr$p etc….
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TheWindowCleaner
TheWindowCleaner
1 year ago
The only thing that will stop globalization and foster re-industrialization of the west is a 50% discount/rebate policy at retail sale which will double individual purchasing power without adding cost to the economy (equal debits/discounts and credits/rebates sum to no additional costs. Stop thinking/regurgitating dogmas and just look at the numerous beneficial effects of that single policy. Or don’t and remain an erudite dunce.
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HippyDippy
HippyDippy
1 year ago
Reply to  TheWindowCleaner
A 50% rebate? Easy! Just get rid of taxes. But we can’t have none of that prosperity.
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TheWindowCleaner
TheWindowCleaner
1 year ago
Reply to  HippyDippy
I’m with you on that. With a 50% discount at retail sale that macro-economically resigns inflation to the dust bin of history and a $1000/mo. universal dividend to everyone 18 and older…what do you need the payroll taxes for welfare, unemployment insurance and even for social security??? The policies of the new monetary and financial paradigm resolve the deepest problems of modern economies. How many times do I have to mathematically show that here before it crashes through to full consciousness with the orthodox conservatives???
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Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  TheWindowCleaner
You just don’t get it.
120% rebate.
Free stuff and some spare change in your pocket.
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Captain Ahab
Captain Ahab
1 year ago
Reply to  TheWindowCleaner
Fiddling with prices will not foster re-industrialization if the ‘rebate’ is spent buying foreign made goods.
In the long term, what is needed is a revamped/restructured economy that is more competitive, NOT MORE FREEBIES that stifle motivation, not a crappy education system that spews woke theories, more efficient government…..
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StukiMoi
StukiMoi
1 year ago
Intra-Asian trade is growing. Ditto Asian trade with Africa, The Middle East and Latin America and Russia…… As well as between the Middle East and Africa and Latin America.
Nothing “de”-anything about any of that. Nor about Belt and Road. Given that China is increasingly the only place making anything, any real de-globalisation would by necessity mean “China” was reducing oil imports and goods export…. The whole “de-globalisation” meme, is little more than a bunch of navel-gazing has-beens demonstrating that women seem wicked \ when you’re unwanted
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atryingshepherd
atryingshepherd
1 year ago
Reply to  StukiMoi
faces look ugly when you’re alone
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Yup
Yup
1 year ago
Reply to  StukiMoi
You are correct Sir “Made in India iPhones triple, as Apple shifts more production from China”
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Maximus_Minimus
Maximus_Minimus
1 year ago
Reply to  StukiMoi
Huawei Technologies Co has replaced more than 13,000 components in its range of products with local substitutes and redesigned over 4,000 circuit boards in the past three years, founder Ren Zhengfei said, offering a glimpse of its efforts to overcome years of US sanctions.
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