We need to think about large and important economic era beyond the business cycle to truly understand what may happen to international returns. There have been three great eras of globalization that have changed the world, and we are in another period of transition which can be described as the fourth great globalization.
First great globalization (1.0) - the period of the last quarter of the 19th century until the beginning of WWI. The combination of the industrial revolution with cheap transportation, and a growing financial banking sector allowed for the transfer of manufactured goods and commodities around the world. This abruptly ended with the Great War in Europe. Trade growth did not return until the end of WWII.
Second great globalization (2.0) - The period from the end of WWII until the end of the 1980's. The regrowth of Europe coupled with lowering of tariffs and dollar-based currency system allowed for strong increases in trade among countries.
Third great globalization (3.0) - The period from 1990 until 2008 and the great financial crisis. In the third era, manufacturing was sent to the cheapest source of labor and the modern supply chain management was used to integrate economies around the globe. Capital was moved around the world based on growing diversification of sourcing of goods and services.
The possible fourth globalization (4.0) - This is what we are living in today. The post-GFC period and the search for new trade relations. There is growing regional trade across blocks with also a change in tariff and sanction dynamics. The cost of trade has increased, and the flows capital and goods have moved with a growing belief in on-shoring and friend-shoring. This cuts some the financial and trade links that were present during the third globalization.
No comments:
Post a Comment