Is Globalization in Crisis? – A Brief Analysis

Is Globalization in Crisis? Why many Claim so? What is Globalization? This article explores these questions and let’s start with reverse order.

What is Globalization?

Globalization is a term which is defined in differnt ways in different contexts. Today, the concept is so famous that even a commoner speaks about it in day-to-day life.

The General Definition of Globalization is the process of integration & interaction of Governments, people & companies across the globe. Globalization depicts how it has made the world’s trade & technology more connected & interdependent. The Socio-Economic changes is also happening across the world due to globalization. A free trade movement & interdependence of the nations across the globe is also known as Globalization.

Is Globalization In Crisis? Why Many Claim So?

Many researchers and analyst claims that globalization era is over and regionalization era has started. They state that Global trade slowed down even before the COVID crisis. But, many may not be aware that after the 2008-09 Global Financial Crisis (GFC), merchandise trade slowed down and was unable to reach the previous trend of growth.

After the Financial Crisis of 2008, there are some evidences of de-globalization, and they are

1. Protectionism – Developed economies protecting their interest at the cost of developing economies. One of the main causes of decreased investments and less technological innovations. This affects global trade for all economies but especially for developing economies.
2. The flow of Capital – Increased protectionism affects flow of capital.
3. Immigration Control – Developed economies have tightened immigration control over the years.
4. Brexit Movement – Complete change in trade and investment uncertainty has happened due to Brexit

US is one of the prominent country which has benefitted from this Global trade phenomenon. There are views and studies that supports the view of rapid de-globalization. 

There is a research study by RSM US LLP which states that “Rapidly fading is an era defined by insufficient aggregate demand, when consumers enjoyed low-cost goods produced in low-wage regions and delivered in tight-knit supply networks. In its place will be a period defined by insufficient aggregate supply, supply shocks and persistent geopolitical tension.”

And went on to state that

“Globalization, as we have known it, is ending.”

Here is a chart explanation from the research study

The Report further shows that 

The study report states that “As both the American & global economies adjust to higher input costs & risk around purchasng debt as inflation remains elevated, both the policy rate set by central banks & longer term interest rates determined by the private sector will reset higher.”

Also states that “In the end, the result is a higher cost of doing business for all firms.”

There are other studies suppots this view and states that the globalization era has already ended & US has entered supply bottle necks, which will be followed with inflation, higher interest to control inflation & will affect growth rate.

US Economy’s Inflation & Daily Federal Funds Effective Rate (DFFE)

Now let us have a look at the inflation (rates) movement & Daily Federal Funds Effective Rate (DFFE) over the past few years (which is place below in the table & graph (based the table below).

The inflation level has climbed up drastically from 2.7% in March, 2021 to reach the highest of 9.0% in June, 2022.  This is the largest and highest inflation rate in USA in 40 years (previous inflation was 9.1% in November, 1981).

Let us now look at how Federal Funds Effective Rate has moved over the same periods. 

Source: Graph is drawn based on the data from Fred Economic Data on Federal Funds Effective Rates

The Federal Funds Effective Rate are almost in tandem with inflation. At present inflation rate is at 8 percent and Daily FFR is at 3.78 percent (in November). 

The reasons for the above graph is that USA is doing it level best to address inflation. Inflation has started climbing post-COVID in USA. This is majorly due to supply chain problem. The supply and demand are not yet balanced. There are still Supply disruptions or say Supply chain problems. 

But the inflation has dropped from 9.0% in June, 2022 to 7.1% in November, 2022. This shows that inflation is easing slowly as well as in a steady phase. 

This also means supply chain problems are also slowly settling down and the global trade may pick up by the end of next year. Though, it is too early to say such a statement as everyone is talking about global recession is coming next year or already started in the global economy. It is pertinent to see how the policymakers handle their policies to tackle economic problems.

Conclusion

In conclusion, the future of globalization looks uncertain & multi-faceted. There are arguments to suggest that we may be seeing the end of the era of globalization, with increasing protectionism & the uprise of nationalist movements in many countries. However, other factors such as technology & the ongoing integrtion of global economies may continue to drive further globalization. The COVID-19 pandemic has had significant impact on the global economy, and it has led to changes in the way goods & services are produced, traded, and consumed. This has led to an increase in localization, which can be considered as a step toward less globalization. Overall, it’s important to recognize that globalization is a complex and dynamic process that is shaped by a variety of factors, & its future evolution is not easy to predict.

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