One of the biggest economic surprises of the coronacrisis was the relatively fast recovery of world trade. In June, global trade was already 25% higher than at its lowest point during the pandemic and is now higher than ever. Of course, leisure and tourism did not recover so fast (and are still lagging), but everything else rebounded.
This swift rebound - see our Advanced Economies Outlook - strongly contrasts with the discussions about resilience during the pandemic and some of the discourses on the link between sustainability and international trade. There are those who believe that the only way an economy can be sustainable is by making it more local, by limiting international trade. Others think the only route to prosperity for all is free international trade, to alleviate people from poverty as they become part of the global economy - see our Emerging Markets Outlook. As always, the truth lies somewhere in the middle.
Fruits of globalisation have turned bitter
Economists are generally in favour of free trade. The simplest version of their argument is that by trading both sides benefit from comparative advantages, specialisation, competition, and economies of scale. However, what is by now also common sense in economics is that when globalisation turns into hyper-globalisation, things go wrong. If globalisation goes to the extreme, eliminating essentially all barriers to the movement of goods and money around the world, it will undermine the ability of countries to govern themselves, and allow multinational corporations to set the rules for the economy. This is what Dani Rodrik calls the globalisation paradox: it is impossible to attain full economic globalisation, national sovereignty and democracy simultaneously.
And this is exactly what happened before COVID-19 struck. Companies set and influence rules: they produce there where labour is cheap, and unions are weak. Where environmental regulations are absent or enforcement limited, they pollute the most. Where taxes are lowest, they have their head office. The result of this hyper-globalisation is more inequality, more environmental damage. Moving all those containers around the world in ships, planes and trucks makes up a large part of our carbon emission problem. And what COVID-19 has shown us, apart from viruses traveling fast in a hyper-globalised world, is that efficient supply chains are also highly vulnerable supply chains. Small wonder that the idea of putting a brake on international trade seems so attractive as a sustainable solution.
A sustainable golden mean
This is way too simple, however. Deglobalising means less production in emerging economies, hence less income, and subsequently more global inequality. Less international trade means less shared knowledge, less efficiency.
Here we must find the sustainable golden mean: local where we can, global where it is most beneficial. We may expect more globalisation in sectors regarding information flows, research cooperation, governance, virtualisation of communications, and coordination (especially in the healthcare sector). At the same time, we will see deglobalisation tendencies, such as the slowing down of international trade, the elimination of unnecessary trade flows, bringing back home certain manufacturing (reindustrialisation) and food production by restructuring global value chains, and maybe even ’nationalisation’ of the production of health products, medicines (vaccine nationalism) - as part of an enhanced economic nationalism.
This is not the route to escape the globalisation paradox. But it is a good attempt to make international trade a little more sustainable.
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