Threats to Globalization in 2017

EghtesadOnline: Globalization is changing and is slowly being replaced by a multipolar world, research by Credit Suisse Research Institute revealed.

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24 January 2017

In its recent Globalization report, CSRI explained that multipolarity involves the shift of power in terms of trade, GDP, foreign direct investment, budget size and population. These powers will be less concentrated in a specific region and will be shared across different regions, Fin24 reported.

The election of Donald Trump as US president as well as the UK voting to leave the European Union signals that the world is moving away from globalization. This is raising questions over future trade agreements.

The report highlighted 10 trends that pose a threat to globalization in 2017, according to Financial Tribune.

1. The health of trade: The Trans Pacific Partnership between the US, Japan and a group of Asian countries as well as the Transatlantic Trade and Investment Partnership between the US and the EU may not be approved. Trade obstructions across the world are also growing.

2. Debt: Zero and negative interest rates means that more debt can be taken on. However, now that rates appear to be rising, this may put pressure on companies and countries, especially considering debt levels are at record highs since 2007.

3. Immigration: Immigration is a key issue especially in Europe and is one of the contributing factors that led to the UK voting to leave the EU.

4. When will be the next recession? In Credit Suisse’s view, the next recession may not be “far away” given high debt levels in China and low corporate margins.

5. Military confrontation by accident or design: The South China Sea is frequently mentioned by commentators as a theater for large power confrontation, stated the report. Other areas may also spark conflict, this includes Japan and Syria, where the conflict is becoming more complex.

6. Stealth attacks or cyber war: Cyber-attacks on companies are becoming more common and they may start having more far-reaching effects.

7. Central banking accidents: A policy move causes a central bank to lose credibility. For example, if a central bank pushes too hard for inflation, it may see the currency exchange increase.

8. People tired of consumerism: The Credit Suisse emerging consumer surveys have highlighted the decline in consumer demands and changing preferences. Difficult labor market conditions in some countries, like South Africa where consumers were less optimistic about their income outlook, and growing wealth inequalities may reduce consumer demand for material acquisitions.

9. Multipolar jurisdictions harden: In order to maintain geopolitical and economic power, more countries may ignore international law. Different regions may start adopting “their own way of doing things” to the detriment of trade and potentially human rights.

10. Climate events: The year 2016 was the hottest year since 1880, the repeat of this may strain farms, food supply chains and could provoke a humanitarian crisis.

Hefty Blows

Globalization, the path that the world economy has largely followed for decades, took some hefty blows in 2016.

The election of Donald Trump and Britain's decision to leave the EU have raised questions over the future of tariff-free trade and companies' freedom to move production to lower-cost countries. Borders are back in vogue. Economic nationalism is paying political dividends.

As the world's second-largest economy, China is playing a bigger role in the functioning of the global economy. Nowhere was that more evident than in the early months of 2016, when jitters over the scale of the slowdown in China caused wild swings in financial markets. Stocks took a pounding while commodities tanked, with oil skidding to 13-year lows, as traders factored in lower demand from resource-hungry China.

The slump in commodities weighed heavily on economies like Australia that are big exporters of raw materials. China's economy seemingly ended the year in relatively good health as authorities try to pivot the economy's focus from manufacturing to more consumer spending.

But Trump's promises to take a tough stance in trade will be of concern to Beijing.