Globalization has been a fact of life for decades, but how long will it continue in its current form? A new report from the Credit Suisse Research Institute (CSRI) considers three potential futures for our increasingly interconnected world.
The most dramatic (and unlikely) outcome is an outright reversal of current trends, with globalization trumped by nationalism. It’s happened before. It wasn’t that long after the Industrial Revolution ushered in a long wave of globalization in which European exports surged and more than 60 million Europeans migrated to North America that the U.S. and Europe began implementing restrictive tariffs on trade, and nationalism took hold. World War I ended a 44-year era of globalization.
But could it happen again? The CSRI compiled a scorecard of the most serious threats to globalization. Slowing economic growth, augmented by rising levels of central government debt, income inequality, and high levels of immigration, are important stressors. Others include trade protectionism, an increase in military spending, and a move away from democratic governance.
Some of these risks are indeed rising. The prevalence of non-tariff barriers to trade, such as import quotas, subsidies, and sanctions, has been increasing since 2005, while rising wealth inequality and high debt levels can be found in the developing and developed world alike. Democracy is nonexistent in China and much of the Middle East, while so-called managed democracies, which are authoritarian governments in all but name, are becoming entrenched in some African countries and Russia.
Another alternative: Globalization continues to expand much as it has since the 1990s, with the United States remaining as the world’s lone financial and military superpower. Credit Suisse research shows that the U.S. stock market influences international markets more than activity on foreign exchanges influences the Dow and the S&P, and the dollar is far and away the world’s most important reserve currency, with 62 percent of known reserves held in dollars. Finally, U.S. military spending is larger than that of the next nine highest-spending countries combined. In this scenario, the CSRI says we can expect to see more international trade, more powerful multinational (and mostly Western) corporations, the continued spread of democracy and the Internet economy, and more open immigration policies.
The most likely outcome: Neither a relatively unchecked expansion of globalization nor its collapse. Instead, the CSRI believes that the world is becoming more multipolar and more regionally focused. Regional trade agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership are in vogue, while global trade talks have largely stalled. China established the Asia Infrastructure Investment Bank in 2014 as a direct challenge to the World Bank’s hegemony, and the fact that Chinese e-commerce outfit Alibaba successfully completed the largest-ever initial public offering in January 2015 made it clear that western corporations need not dominate forever. Even the European Central Bank’s interventions to stabilize a debt crisis that threatened global financial markets show that the balance of global economic and financial power is becoming more diffuse.
Ultimately, the CSRI expects to see three major centers of world power in Asia, Europe, and the U.S., more regional institutions like the Asian Infrastructure Investment Bank, and immigration restrictions that lead to an increase in regional migration. The Research Institute also foresees more barriers to trade, and as a result, more companies focused on regional and domestic markets than global ones. While the nations of the world aren’t closing their doors to one another completely, they increasingly prefer letting only close neighbors in.
