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May 30, 2020

RIP Globalisation: welcome Snowbalisation

RIP Globalisation : welcome Snobalization :

Even before the pandemic, globalisation was in trouble. The open system of trade that had dominated the world economy for decades had been damaged by the financial crash and the Sino-American trade war. Now it is reeling from its third bodyblow in a dozen years as lockdowns have sealed borders and disrupted commerce

The number of passengers at Heathrow has dropped by 97% year-on-year; Mexican car exports fell by 90% in April; 21% of transpacific container-sailings in May have been cancelled. The pandemic has already politicised travel and migration and entrenched an inward looking nationalism towards self-reliance which is bound to leave the economy vulnerable and spread geopolitical instability.

The world has had several epochs of integration, but the trading system that emerged in the 1990s went further than ever before. China became the world’s factory and borders opened to people, goods, capital and information

After Lehman Brothers collapsed in 2008 most banks and some multinational firms pulled back. Trade and foreign investment stagnated relative to gdp, a process which economist magazine called snowbalisation.

The flow of capital is also suffering, as longterm investment sinks. Chinese venture-capital investment in America dropped to $400m in the first quarter of this year, 60% below its level two years ago. Multinational firms may cut their cross-border investment by a third this year. America has just instructed its main federal pension fund to stop buying Chinese shares, and so far this year countries representing 59% of world gdp have tightened their rules on foreign investment. As governments try to pay down their new debts by taxing firms and investors, some countries may be tempted to further restrict the flow of capital across borders ( source : economist )