If 2016 is the year that ‘broke’ globalization, then 2017 will see the makings of a more multipolar world, and a threat of a break-down in trade, according to the Credit Suisse Research Institutes report, “Getting over Globalization.”
CSRI flags ten issues to watch in this context:
The health of trade: With the Trans Pacific Partnership (TPP) between the US, Japan and a group of Asian countries, and the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU now looking like they will not be ratified, and trade obstructionist measures growing, the pace and health of trade is perhaps the key variable to watch.
Debt: Zero and negative rates meant that the world could ignore debt, and in many cases take on more of it. But rates are now rising, and this may put pressure on certain companies and countries. The Bank for International Settlements rightly warns that world debt levels are now higher than they were in 2007.
Immigration: Immigration is perhaps the hottest political topic in Europe, and was a key reason why many in the UK voted for Brexit. The EU needs a plan to deal with immigration in the sense that all of its members buy into this and that it ceases to become a controversial political issue.
When is the next recession? In the last seven years, markets have arguably priced in about four recessions. With debt levels in China very stretched and corporate margins low, and the US recovery beginning to perk up, the next natural recession cannot be too far away.
‘Strangelove scenario’ – military confrontation by accident or design: The South China Sea is frequently mentioned by commentators as a theatre for large power confrontation, but with Syria’s war becoming ever more complex, there are other areas that could spark a military conflict.
Stealth attacks or cyber war: Cyber attacks on companies are more common place now, but for obvious reasons less is heard about attacks on states by other states. It may simply be a matter of time before one of these goes badly wrong, or elicits a robust response.
Central banking accident: A policy move could cause a central bank to lose credibility – imagine for example the Bank of Japan trying too hard to push inflation upwards, and the yen then rallying.
People tire of consumerism: Consumerism has been a hallmark of globalization, notably now in many emerging markets. However, difficult labor market conditions in some countries (in 2015 consumers in Russia, South Africa and Turkey were pessimistic or less optimistic on their income outlook), growing wealth inequalities and indeed a shrinking middle class may dull the lure of aspirational lifestyles and the acquisition of material well-being.
Multipolar jurisdictions harden: Some states may feel that, in the comfort of their status as a geopolitical or economic power, they can afford to ignore international law. Thus, different regions increasingly adopt their own ‘way of doing things’ to the detriment of trade and potentially human rights.
Climate event: Climate change is an integral part of globalization both in terms of the effect that globalization has had on the climate and also in terms of the remedies (regulatory and technological) that have evolved to try to reverse this. 2016 was the hottest year on record and a repeat of this will strain many farms, food supply chains and could provoke humanitarian crises.
Globalization, stalling at high altitude
CSRI’s measure for tracking globalization – made up of flows of trade, finance, services and people – has ebbed in the past year, and over the course of the past three years has slipped backwards to drop below the levels reached in 2012-2013, and at about the same level as crisis ridden 2009-2010.
Perhaps the most basic representation of globalization is trade. An examination of trade in goods and services as a proportion of world GDP shows that trade activity is flattish, though again at a high level.
In the course of the last six years, trade has rebounded from the global financial crisis and again attained the level reached in 2008/2009, which historically is the highest level of at least the last fifty years. This leads to the impression that trade, and by extension globalization, has reached its upper limit.
Mapping out the multipolar world
CSRI sees multipolarity evolving in a number of ways, not only with regard to economic power, but notably also in the areas of military power, political and cyber freedom, technological sophistication, financial sector growth and in a greater sense of cultural prerogative and confidence. Many of these variables are not as easily measured as economic multipolarity, but some clear strands are emerging.
The multipolar world that CSRI references is based on the emergence of three significant poles: the US or more broadly the Americas; Europe; and China-centric Asia
The analysis shows that legacy power players such as the US, the UK and Japan continue to dominate, scoring relatively higher on most indicators. However, Japan is increasingly seen as losing its steam here, given that the country continues to be challenged by a massive and tough economic rebalancing effort.
The performance of the small developed countries group is noteworthy, plausibly offering competition to larger powers. Larger growing emerging markets (Russia, India, Brazil, Chile and South Africa) are identified as poles that are significant but yet to realize their full potential.