Could the winds of globalization be changing course? It’s probably too early to tell, but there are some pretty striking statistics that suggest the global trade climate may be changing.
The global economy has never before been so tightly interwoven between countries, and the current recession is clearly anything but typical. As consumers around the world tighten their belts, producers naturally trim their output. This scenario is playing out in nearly all countries, but the rate of change between exports and imports varies greatly from country to country. The magnitude and direction of these changes could have drastic implications for the future of globalization.
Consider some recent news stories. Export-reliant Japan posted its worst ever trade deficit, coming in at just under $10 billion. China’s own lagging exports have led to speculation that their government’s tremendous appetite for U.S. treasury bonds could be waning. The United States announced yesterday a 9.7% decline in the nation’s notoriously large trade deficit. United Kingdom Prime Minister Gordon Brown and U.S. President Barack Obama recently agreed on the need to avoid protectionism on the road to recovery - though both countries have been accused of protectionism in recent weeks. Each of these events (and many more) point towards a sharp decline in globalization.
But is the decline more cyclical or structural? Is it just temporary as nations attempt to curb domestic job losses in the short term? Or, will countries attempt to prevent subsequent foreign crises from becoming their own, resulting in a permanent decline of globalization? Believers in the Adam Smith school of economics are certainly hoping that it’s just cyclical.