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The end of globalisation as we know it?
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The period of hyperglobalisation that began in the early 1990s may be drawing to a close. Should deglobalisation come to pass, it could have far-reaching consequences for countries, corporations, and investors.

Loosely defined as the free flow of trade, capital, people, technology and ideas across national borders and regions, globalisation has long been associated with economic development, increased opportunity, and progress. Now, however, it is increasingly viewed as a threat. Indeed, anti-globalisation sentiment was a significant contributor to the two major ballot box surprises of 2016: the UK’s vote to leave the European Union, and the election of Donald Trump as President of the US.

Factors driving hyperglobalisation

Modern globalisation has gone well beyond the trade of goods, as technology allowed for transfer of know-how and skills.

Source: Barclays Research

Analyst: Christian Keller - Head of Economics Research, Barclays

A globalisation timeline

Since globalisation began in the middle of the 1800s, it has been through several different cycles.  Now it appears to have reached yet another turning point.

Globalisation cycles

Only recently has globalisation matched the heights it reached before World War I.

Note: Trade openness calculated as exports + imports as % of GDP for 17 economies.
Source: NBER Macrohistory Database.

 

First wave of globalisation (1850s to 1914): The first ‘Golden Age’ of globalisation, characterised by industrialisation, urbanisation, relative peace, new transportation and communications technologies, and a stable monetary system based on the gold standard. Global trade reached 38% of global GDP by 1914.

Protectionism (1914 to 1945): World War I brought on a sharp decline in global trade, followed by the end of the gold standard as an international currency system and the introduction of protectionist and isolationist policies. Global trade fell to just 7% of GDP by the end of World War II.

Second wave of globalisation (1945 to 1990): Global trade grew rapidly with the post-war economic recovery, and again in the 1970s. The Bretton Woods accord stabilized the global monetary system, along with new institutions and agreements such as the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade. Improved transportation (commercial aviation, container shipping) reduced trading costs. Global trade rose to 30% of GDP by 1980.

Hyperglobalisation (1990 to present): The fall of the Soviet Union, privatisation, deregulation, and huge advances in information and communications technology (ICT) ushered in a new era of rapid growth in global trade and investment. New trade agreements included the World Trade Organisation, joined by China in 2001, the North American Free Trade Agreement and the European Union’s Maastricht Treaty.

Among the clear beneficiaries of hyperglobalisation are the emerging economies, which have become increasingly integrated into more and more complex global value chains. Their role in processing raw materials, and in value-added manufacturing and services has grown rapidly.
 

North vs. South

Hyperglobalisation has powered the rise of emerging market economies.

Source: World Economics, Barclays Research

The rise of protectionism

The first signs of opposition to hyperglobalisation emerged amid major demonstrations at the 1999 meeting of the World Trade Organization in Seattle. Concerns mounted in the wake of the 2008-09 financial crisis and subsequent global recession, reflected more recently in public resistance to trade and investment agreements such as the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership.

At the same time, governments have tended to enact a variety of protectionist measures and (non-tariff) trade barriers that have only exacerbated the recent global slump in trade. The International Monetary Fund and other international bodies continue to advocate global integration as a means of reinvigorating global growth, yet politicians have been reluctant to follow through in light of growing public opposition.

Stifling trade

Discriminatory protectionist tariffs and trade measures are on the rise.

Note: Measures recorded by Global Trade Alert
Source: IMF (2016), Barclays Research

 

Winners and losers

Just how powerful a force deglobalisation could be is by no means clear. What is clear is that how it affects different countries and corporations will depend on their position within their respective global value chains.

Emerging markets:
  • Increasing protectionism would be felt most harshly by the very same emerging market economies that have gained the most from the past three decades of hyperglobalisation.
  • Countries whose emerging market economies are driven primarily by the upstream export of commodities and raw materials to downstream producers would find it easier to maintain their role in global trade, since their exports will continue to be in demand.

Developed economies:
  • Deglobalisation could negatively affect advanced economies as well. If the US, for example, decided to force the ‘re-onshoring’ of manufacturing jobs from China and Mexico through tariffs or other measures, the rise in US labour costs would immediately make production there significantly more expensive. Without offsetting productivity gains, this could create stagflationary tendencies. Over time, it is likely to increase corporations’ efforts to replace labour with capital, such as robots and automation).
     
Within the EM universe, economies in Asia look most exposed to Global Value Chains (GVC) disruptions.
Corporations:
  • Large multinational corporations arguably benefitted most from hyperglobalisation because it gave them access to new markets, cheaper labour and favourable regulatory and tax environments. Smaller domestic firms without such international reach were in a weaker position.
  • If future policies were to focus on tariffs and international taxation, the large multinationals may have to stop outsourcing and instead produce goods at higher costs back home. This could generate more opportunities for smaller local companies.

Source: UNCTAD, Barclays Research

Slowing growth, rising volatility

Clearly, the post-World War II globalisation narrative is being rewritten. While the risks of increased volatility and economic stagnation are already apparent, it is important to note that the forces against globalisation have largely manifested themselves as part of democratic and peaceful processes—in contrast to the deglobalisation associated with the very destructive period between 1914-1945. From this perspective, the current opposition to globalisation may also be seen as providing a valuable opportunity to pause and reflect on the unresolved challenges created by hyperglobalisation. Just how powerful the trend toward deglobalisation becomes remains to be seen.

Read the full report

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For further information about Barclays Research offering, please contact barclayslive@barclays.com.
 

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About the analysts

Durukal Gun works as a strategist in Emerging Markets Research. Durukal joined from Barclays' equity research team where he was a banking analyst covering Turkey. Prior to Barclays, Durukal was an equity strategist at UniCredit within the EME Equity Strategy team, based in London. During his five years with UniCredit Group, Durukal also worked as a bank analyst/equity strategist in Istanbul. Durukal completed his BA in Economics at Bilkent University, Turkey, followed by a TEV-British Chevening scholarship for a Masters of Science in Finance and Economics at Manchester Business School.

Christian Keller is a Managing Director and Head of Economics Research at Barclays, leading the coverage of both developed and emerging markets. Mr. Keller is based in London and joined Barclays in 2007 from the International Monetary Fund (IMF) where he had been the Resident Representative in Turkey since 2005. Prior to that, he was based at the IMF headquarters in Washington D.C., working on IMF programs with emerging market economies in Europe, Latin America and Asia. Mr. Keller graduated with a PhD in Economics from University of Köln, Germany, and holds a joint-MA in Economics and Finance from University of Köln and HEC, Paris.

Sree Kochugovindan is a Vice President and Global Asset Allocation Strategist at Barclays, based in London. Global Asset Allocation Research is responsible for developing in-depth views on key macro issues and identifying tactical and strategic investing opportunities across all asset classes and regions. Ms. Kochugovindan is responsible for developing quantitative models for various asset classes. She is also a co-author of Barclays’ Equity Gilt Study. Prior to joining Barclays, Ms. Kochugovindan worked at State Street Bank and Trust in the Foreign Exchange Research department. Ms. Kochugovindan received her Ph.D. in Economics from the University of London. Whilst completing her thesis, she also worked as a lecturer teaching Economics.

Tomasz Wieladek is currently a Senior International Economist at Barclays, covering Poland, Hungary, Germany and wider European issues. Prior to joining Barclays, Tomasz spent seven years at the Bank of England working on financial stability and monetary policy issues. His financial stability work focused on the causes of the 2008-09 global financial crises and the design of macroprudential policy. As an adviser to the Monetary Policy Committee, he examined the economic effects of the unconventional monetary policies adopted by the Bank of England, including Quantitative Easing, Forward Guidance and the Funding for Lending Scheme. He also played a vital part in building the Bank of England’s new research hub. He holds a PhD in International Economics from the Graduate Institute, Geneva and an MPhil from the University of Cambridge, UK. His research has been published in outlets such as The Journal of the European Economic Association, The Journal of Finance, The Journal of Monetary Economics and The Journal of Money, Credit and Banking.

Disclosures

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