This article was written by Yael Warman, Content Manager at Leverate.
I woke up this morning to the alarm sound of my iPhone, a handheld device comprised of pieces made in six different countries and assembled in yet another. I got out from under the Egyptian cotton sheets and into the shower and grabbed the German-made faucet to turn on the water. After getting dressed, I made myself a cup of Colombian coffee, grabbed my keys and drove my German-designed/China-assembled car to the office. As I type this, on a computer that probably has supplies from as many countries as it has parts, it dawns on me that it is only 9:30 am and I have been in contact with products made with parts from over a dozen different countries spanning the entire length and breadth of the earth. This is globalization at its best.
Globalization isn’t a concept of the past century. In fact, some historians attribute the first stages of globalization to the 15th century, however, the big bang of it came about when governments (lobbied by companies) realized that by lowering (or in some cases dropping) the national barriers, they could minimize the cost of manufacturing by taking advantage of inexpensive labor and reap the great rewards brought about by economic cooperation. With the jump in technology in recent decades, globalization was spurred on and international trade flourished.
Despite technology being a key component of geopolitics, the International Monetary Fund has reported a slowdown in economic growth and world trade in the last half a decade. Between 1980 and 2008, the IMF reported a 6% average annual growth in world trade volume, whereas between 2009 and 2016, the Fund reported a growth of only 3%.
If free trade and immigration have for years been the hallmark of world growth, why is globalization stagnating? Is this the end of an era?
Brexit is most certainly an indication of the world’s disenchantment with globalization. As Britain gets ready to move forward with its decoupling from the EU, a foot on the brakes will most likely be put on open trade and immigration. A similar sentiment is what may have gotten Donald Trump elected as the 45th President of the United States. Some of his main objections during his campaign were to free trade agreements and immigration policies that had an almost accepting nod of racism.
There are two main factors causing the slowdown of globalization. The first is a general realization that it is international corporations, the wealthy and skilled and highly educated workers that benefit the most from globalization, while working-class families struggle to live on stagnant or reduced wages and job losses. The growth of globalization has proven to be inversely proportionate to economic equality. The second factor is the advancement of automation, robotics and software-driven technology. These advancements bring about the possibility of a shorter supply chain, which will in turn reduce the amount of global trade as there are fewer countries needed to complete the production process of a given product.
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In order to manufacture a product, industrialized countries will no longer need to rely on far off places, but will rather take advantage of new advancements in technology and produce goods closer to home. The US for example may find it more cost-effective to manufacture products in neighboring Mexico – perhaps President Trump should put the construction of the wall on hold for a while.
So the world is most certainly having second thoughts about globalization, but is it really coming to an end? The definite answer may not be so black and white.