Is the Global Economy Deglobalizing ? And If So, Why? And What Is Next?

Data on global trade as well as capital and labor flows indicate a slowdown, but notreversal, of globalization post the 2008–09 financial crisis. Yet profound changes in the policy environment andpublic sentiment in the largest economies over the past five years suggest the beginning of a new era. Increasing anxietyabout the labor market effects of import competition from low-wage countries, especially China, laid the groundwork,but was not the catalyst for the reversal in attitudes towards globalization. Similarly, the COVID pandemicprovided novel arguments against free trade based on global supply chain resilience, but neither the pandemic nor shortrun policy response had enduring effects on trade flows. Global trade was remarkably resilient during the pandemicand that supply shortages would likely have been more severe in the absence of international trade. After a temporarydecline in 2020, global trade in goods and services increased sharply in 2021. Russia’s invasion of Ukraineraised new concerns about national security and the exposure of supply chains to geopolitical risk. This was followed bydemands to diversify away from “non-friendly” countries and to the employment of trade policy, export restrictions inparticular, to halt China’s technological development. The future of globalization is highly uncertain at this point,but these new policies will likely slow global growth, innovation, and poverty reduction even if they benefitcertain industries in certain countries. Regarding resilience, the main goal of recent trade policy changes,measures of trade volatility or concentration can be helpful, but resilience will be elusive as long as we lackbenchmarks against which policy performance can be measured.