The Future of the World Economy If De-globalization Continues


The interdependence and integration between certain units all over the world has led to globalization. But what would the world economy look like without this integration? Would business and growth still be the same? Is the decline in trade between and among countries likely to cause more harm than good? These are some of the factors that we will need to focus on going forward in this article.

Measuring Globalization and De-globalization

The global economy is at the moment going through several challenges. Some are emanating from wars such as what we see between Ukraine and Russia. The economy has slowed down to a snail’s speed over recent times. So much that it has become alarming according to many economists.

Still, countries need to continue trading and managing business under the ever increasing de-globalization. So, how do you measure these two?

According to pundits and experts in this field, measuring de-globalization involves checking the trade imbalance, populism, political pressure, trade tensions, and the high rate of unemployment. Measuring globalization is the opposite of these factors.

The reduced movement of goods and services between countries has been a major reason for de-globalization. And the coronavirus pandemic together with the war in Ukraine have contributed largely to this.

There’s a high chance of a depression taking place within the world economy. It is interesting to try and learn whether this current de-globalization will carry on to the coming years or not.

What is the World in a Period of De-globalization?

De-globalization will lead to a less-connected world. And this will be characterized by potent nation states, border controls, and local solutions. All these will be in place of free movement, treaties, and global institutions.

The world in a period of de-globalization would be characterized by the erosion of international treaties and the reduction of trading activities between countries. And this would considerably affect the economy of the world.

Democratic backsliding will also be a factor that we’d have to contend with when de-globalization becomes more widespread.

What are the Benefits?

Is there anything good that can come out of de-globalization? It is often an alternative that the developing countries would prefer. De-globalization isn’t a paradigm that wouldn’t be relevant in our day and age. Some of its greatest benefits include:

  1. It encourages production for the domestic market, rather than focusing all attention on the foreign market.
  2. It helps to preserve the domestic community rather than focusing mostly on the external community.
  3. Trade policies such as using tariffs and quotas help to protect the domestic economy from the effects of foreign –subsidized commodities that have an artificially low pricing, effectively .
  4. Industrial policies such as tariffs, trade, and subsidies strengthen and rejuvenate the manufacturing sector.
  5. There’ll be an active and well-performing internal market that would support the country and produce local financial resources to be used for investment.
  6. Rather than focusing too much on growth, de-globalization focuses on improving the quality of life, and increasing equity.
  7. Democratic discussions and choices on the allocation of funds to different sectors of the economy.
  8. Some of the centralized global bodies such as the World Bank and IMF will be replaced by regional bodies that run on free trade and capital mobility.

What are the Risks?

As you’ve seen above, de-globalization has its fair share of advantages/benefits. But the question is, are there any risks that can emanate from this paradigm shift?

  1. Lower concentration on growth due to the focus on improving the quality of life.
  2. A decline in the real GDP.
  3. Smaller or developing countries can easily face huge economic risks.
  4. It could lead to a higher inflation and higher interest rates.

What if De-globalization Continues

If the de-globalization trend keeps on moving as it is, then this could easily lead to a supply side shock. Together with shortages, the lack of global competition, and a long-term reduction in trade can easily lead to inflation pressure. Innovation cycles can also easily go down, as the long-term GDP growth goes down.

Corporate Sector to Raise Funds at Relatively Higher Costs

Due to the higher interest rates that are brought about by de-globalization, the corporate sector is more likely to witness relatively higher costs for raising funds for their businesses.

Rise in Luxury Items

Luxury items will become rare due to de-globalization. Thus, this scarcity will lead to the rise in pricing for luxury items. Mined diamonds will become rarer. As a result, alternatives such as lab grown diamonds will become more in demand.

Deal with Complicated and Independent Regulatory Systems

De-globalization will definitely see more independent regulatory systems. Hence, there’ll be a need for ways to deal with their complications.

Final Thoughts

De-globalization is both a good and bad affair. It just matters how you view it and on which side of the table you’re standing.

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Kevin

Kevin is a finance savvy millennial living and working in New Jersey as a real estate consultant. He blogs about real estate, mortgages and interior design.

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