Slowbalization, de-globalization, or a return to strong globalization - An important theme for 2021

 

The Economist coined the term "slowbalization" in 2019 to describe the slow growth in world trade after a period of hyper-globalization. Others have used the word de-globalization. Some of those negative on globalization have focused on the increased populism and China-US trade tensions over the last four years, but the trade slowdown problem started earlier. A good paper describing the history of the globalization and its slowdown over the last few decades has been written this month by Pol Antràs of Harvard University, “De-Globalization? Global Value Chains in the Post-COVID-19 Age”. It is worth a close read. 

One of the important macro themes for 2021 will be whether the slowbalization will be arrested with the new US president. A longer-term trade growth slowdown is not the same as a cyclical trade slowdown associated with a global recession. A longer-term decline is associated with slowdowns in the structural reasons for strong trade growth like information and communication technology, trade costs, trade policy changes, and geopolitical developments.

Right now the latest global trade numbers from the CPB Netherlands Bureau of Economic Policy showed a 12.5% increase in the third quarter, the largest increase since the index was started in 2000. This is consistent with the rebound in GDP for many countries. The issue is whether this increase is just an immediate business cycle reversal. The US trade deficit has exploded from consumer buying, a marked difference from the last recession. Container shipments from China have surged well ahead of numbers from the beginning of the year.

The impact of a continued slow world trade growth or a return to strong globalization will have big effect on all equity and bond markets arounds the world. Trade sensitive equities in both developed and EM markets will improve with a return to the trend of hyper-globalization. A return to higher trade will hurt more localized firms. 

We will not see a change in trade trend numbers until the COVID shock passes, but 2021 changes in the trade environment will determine whether there be a slight uptick or a return to the 1990-2007 trend.