End of the Era of Hyperglobalisation

Feb 1, 2024
Globalisation

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Context (IE): The era of hyper-globalisation seems to end.

War and Economy

Economic impossibility: In 1910, a book argued that the sheer extent of financial and commercial interdependence between countries made conflict futile.
World War I (1914): The theory was proven wrong and ended the first “golden age” of globalisation.
Between 1870 and 1914, world trade in goods surged from 9% to 16% of GDP. This was a period of internationalisation of economic and social life, referred to as the golden age of globalisation.
World War II: In 1939, the share of merchandise trade in global GDP collapsed to 5.5%.

Theories of International Manufacturing

Absolute advantage: Adam Smith, in Wealth of Nations, argued that if a foreign country can supply us with a commodity cheaper than we can make it, we better buy it from them with some part of the produce of our industry, employed in a way in which we have some advantage”.
Comparative advantage: Ricardo argued countries could even produce things in which they had no “absolute advantage” but were relatively less specialised. He argued that each country should devote its resources “to such employments as are most beneficial to each”.
Belief in comparative advantage is what also propelled the second golden age – of “hyperglobalisation” – after 1990.

Era of Hyperglobalisation

Between 1990 and 2008, global trade in goods soared from 15.3% to 25.2% of world GDP.
Inclusive of trade in services, the increase was from 18.8% to 31.7%.
In this era, China emerged as the “world’s factory” and a “mega-trader”.
It was an era of trust, where American iPhones were produced in China, and Russia supplied 40% of European gas consumption(2021).
Two wars reversed the trend: Protectionism (China-US trade war and semiconductor chip restrictions) and the Russia-Ukraine war reversed the trend.
That world – “happy age”, as Keynes would have called it – came to an end in 2022 with two wars, upending the assumption of “doux commerce”.

The “doux commerce” thesis holds that commerce acts as a civilising force, contributing to the advancement and well-being of societies by inculcating certain core moral values in individuals (such as honesty, tolerance, and fair dealing).

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