Deglobalization Is Political, Not Economic

The "end of globalization" is a phrase that has come up a lot lately. Stories written about deglobalization have hit a fevered pitch with the war in Ukraine. But they began to heat up six years ago as that summer's Brexit referendum resulted in the British voting to leave the European Union. As you can see in the chart of "deglobalization" appearing in major news stories below, authors have attributed the potential end of world trade growth to:

  • Brexit in 2016;
  • President Trump's trade policy in 2017;
  • The rise of Nationalism in 2018;
  • The pandemic in 2020;
  • The war in Ukraine in 2022.

Yet, none of these have led to a decline in world trade. In fact, global trade hit a new all-time high this year after climbing steadily throughout the past six years despite the brief "V"-shaped disruption in response to the pandemic lockdowns.

Hot topic

Source: Charles Schwab, CPB Netherlands Bureau for Economic Policy Analysis, Bloomberg data and news search of major publications as of 4/8/2022.

Politics vs. economics

For decades, globalization described an economic concept, but more recently it has become blurred with a political concept. Separating the two ideas is important to understand the impact on investors.

Now, making such a distinction may not apply to Russia, since the country has decoupled from the rest of the world both politically and economically. But that is the exception. The U.S. and China, who have seen significant political decoupling, remain tightly intertwined economically. Brexit was primarily a political decoupling of the U.K. from the EU, not an economic one—as highlighted by U.K. imports from the EU recently hit their second-highest-ever level in January 2022 (the latest data point available). Even though the pandemic prompted politicians in major economies to tout new sources of domestic supplies of goods deemed essential, the trends in cross-border trade in vaccines, personal protection equipment, and ventilators remain largely unaltered.