NYT

By Peter Coy

April 11, 2022

Globalization Isn’t Over. It’s

Changing.
“Deglobalization” is a word on many people’s lips these days — and understandably so.
Russia has been largely cut off from the West for its appalling invasion of Ukraine. The
economic marriage of convenience between China and the United States (“Chimerica”)
is unraveling. And there’s more and more talk about reshoring — producing more stuff
at home — either for national security reasons or to avoid future supply-chain
disruptions such as those caused by the Covid-19 pandemic.

“Rather than the cheapest, easiest and greenest sources, there’ll probably be more of a
premium put on the safest and surest,” Howard Marks, a co-founder of the investment
firm Oaktree Capital Management, wrote to shareholders recently.

Wait, though. Maybe globalization isn’t dead after all. I talked to experts on both sides of
the debate over “globalization: dead or alive?” and came away with the impression that
globalization is changing shape but not going away. For example, the bottlenecks at the
ports of Los Angeles and Long Beach, Calif., have been caused largely by enormous
demand for imports — a conspicuous sign that globalization is very much still at work.

Jeffrey Kleintop, the chief global investment strategist at Charles Schwab, is among
those who argue that globalization remains by and large healthy. I interviewed him last
week after seeing a provocative Twitter post of his: “The ‘End of Globalization.’ Where
have I heard that before?” His post featured various books and magazine covers going
back to 2016 that warned of deglobalization — displayed against a backdrop of a chart
showing generally rising volumes of world trade.
I reproduced Kleintop’s chart below, but starting in 2000 rather than 2015 and
extending the vertical axis down to zero. The figures come from the Central Planning
Bureau of the Netherlands, a respected authority on global trade.
The chart shows that the volume of world trade is higher than ever. To be sure, the
global economy is also bigger than ever. To account for that, the following chart
measures world exports as a share of output. It shows that globalization has been flat in
recent years and dipped sharply in the pandemic year of 2020 but is still well above its
level of a few decades ago.
Another aspect of globalization is foreign direct investment, which is cross-border
purchases of factories, real estate, companies and so on and excludes portfolio
investment such as purchases of stocks and bonds. The chart below shows that it
rebounded in the first half of last year, after a soft period.

I exchanged emails about the degree of financial globalization with Geert Bekaert of
Columbia Business School. He wrote that “firms are still financing themselves in
international capital markets, there are still massive capital flows across countries and
financial market returns still seem highly interconnected.”

China, in particular, is more embedded in the global economy than ever, despite efforts
by the U.S. government to decouple the American economy from China’s. According to
the Organization for Economic Cooperation and Development, China was the No. 1
recipient of foreign direct investment in the first half of 2021, with the United States
second and Britain third. The O.E.C.D.’s information is consistent with what Bekaert
argues. If there is any slackening of financial globalization, he wrote to me, it’s in the
financial flows among the developed economies.

Assaf Razin, an economist at Tel Aviv University in Israel, told me, “Globalization is
always getting reorganized, and it had to go through disruptions, but the disruptions
didn’t really move it away from the trends.” Like Bekaert, Razin said that the rise of
China has been and remains a driving force in the globalization of trade and investment.

Alicia García Herrero, a senior fellow at Bruegel, a think tank based in Brussels, was the
most skeptical person I interviewed about globalization. For one thing, she said, China
is reducing its reliance on foreign parts for the products it makes. It’s still dependent on
trade, but more of the value of what it sells is being generated at home, she said. China
has faced criticism from other countries, including the United States, for its “Made in
China” 2025 self-sufficiency initiative and has played down use of the phrase in recent
years. But García Herrero said the effort continues.
She added that in financial statements and calls with analysts, more company executives
are saying they want to emphasize safety and reliability in their sourcing, switching from
“just in time” to “just in case.”

That’s true, but it doesn’t mean globalization is passé. International migration and
travel, which are another form of globalization, are still on the rise. And if countries
reshore production, they may need more immigrants to do the additional work,
especially if they have low population growth, García Herrero said. While companies
and countries are trying to wean themselves off overdependence on distant suppliers,
especially ones in possibly unfriendly countries, “it doesn’t mean it’s all coming home,”
Kleintop said. What was once made in China might be supplied instead by Mexico, for
example, he said.
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A year ago, when I was writing for Bloomberg Businessweek, I cited a similar argument
by Peter Williamson, an honorary professor of international management at Cambridge
Judge Business School. Our headline then: “Talk of Deglobalization Is Fashionable but
Wrong.”

There will always be forces pushing countries apart. But there are equally strong forces
pulling them together: Companies and countries have a strong motivation to trade
because they can make more money by focusing on doing what they’re best at and
buying the things they’re not so good at from others. (Globalization can also be harmful
at times: It hurts workers and the planet when companies ship jobs to countries that pay
lower wages or have poorer environmental protections.)

Even though globalization has its problems, the current fad for reshoring production is
likely to run into some limits. As someone pointed out soon after the imposition of
sanctions on Russia: If cutting the Russian economy off from the rest of the world and
forcing it to produce everything it needs at home is a punishment for Russia, why would
it be a good thing for the United States to try to become self-sufficient? Answer: It
wouldn’t.