Globalization is Still Vitally Important

There are often unexpected similarities between conservatives and progressives. One in particular, are the growing numbers who no longer believe in globalization. Might they get their wish for considerable losses in this regard? If so, what might such a reality consist of?

For one, deglobalization would bring about sudden losses in overall wealth - losses that would doubtless prove devastating in unexpected ways. For instance, few would be prepared for the financial fallout that would occur. In the meantime, the COVID-19 pandemic continues to disrupt global networks which were already impacted by the trade wars. Recently, Kenneth Rogoff expressed his concerns about this circumstance, and I've highlighted a good portion of the relevant Project Syndicate article in this post:

Even if the United States turns a blind eye to deglobalization's effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared. 

Also from the introduction:

The post-pandemic world economy seems likely to be a far less globalized economy, with political leaders and publics rejecting openness in a matter unlike anything seen since the tariff wars and competitive devaluations of the 1930s. And the byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified economies.

He adds:

The US has more to lose from deglobalization than some of its politicians, on both the right and the left seem to realize...In particular, many of the benign factors that today allow the US government and American corporations to borrow vastly more than any other country are likely tied to the dollar's role at the center of the system. And a wide array of economic models show that as tariffs and trade frictions increase, financial globalization decreases at least proportionately. This not only implies a sharp fall in both multinationals' profits and stock-market wealth (which is probably fine with some), but could also mean a significant drop in foreign demand for US debt.

That would hardly be ideal at a time when the US needs to borrow massively in order to preserve social, economic, and political stability. Just as globalization has been a major driver of today's low inflation and interest rates, shifting the process into reverse could eventually push prices and rates in the other direction, especially given what appears to be a lasting adverse supply shock from COVID-19.

As Rogoff noted, globalization has especially been important for dollar assets. This globalization benefit helped build our strong services economy, and greatly increased income potential in the U.S. as well. Yet some among the wealthy may already realize, the extent to which their basic and augmented income sources could soon change. By way of example: Even as lower income levels restore earlier spending levels, the rich have not really begun to do so. Should they suspect long term income changes in the foreseeable future, there may be good reason. Even though the basic wealth of today's rich is largely correlated with human capital and national redistribution, globalized wealth contributed an additional layer to their income (via personal investments) which to some extent may be lost.

Nevertheless: Among the reasons globalization is now threatened, is that too many investment opportunities don't accrue to individuals who lack the base "requirement" of educationally enhanced human capital. And there are other important reasons why many citizens aren't impressed with the wealth of globalization. Chief among these, are the high costs of today's non tradable sectors - costs which particularly impact lower income levels. In all of this, many local economies still lack constructive ways to reach out to local citizens, after a decades long process of lost local manufacturing employment. Before many citizens become willing to embrace globalization, they would need new opportunities in economic participation - opportunities which are also linked with the resources of time, place, and community.

Should nations find the courage to recreate non tradable sector participation, the losses of globalization would not have to be so extensive. Production reforms could also provide means for nations to better manage their debt burdens. By not relying so heavily on debt for services generation, nations could lessen their chances of defaulting on earlier debt accumulation. Perhaps there is still time to restore confidence in globalization, by giving citizens the chance to recreate more abundant non tradable sector wealth, close to home.