by Bill O’Grady | PDF
Words are important. They are a key tool to how we communicate, but they also can narrow meanings and lead to misunderstandings. Often, the term “deglobalization” has led pundits to suggest that this isn’t really happening by deploying something of a “straw man” argument. The writer will suggest that trade is still happening, therefore deglobalization isn’t really occurring.
Since we have argued that deglobalization is upon us, in light of various reports, it makes sense to provide our definition of terms. In reading these reports, we have some sympathy for their positions. We are seeing a change in how trade is conducted, but we don’t think that international trade will end. However, as we discuss below, in our analysis, the core concepts that have driven globalization are now at risk and will have lasting ramifications. The miscommunication risk of our position is that it is interpreted as global autarky. The risk of others suggesting deglobalization isn’t happening is that they fail to comprehend that the changes underway are so fundamental thereby the assumptions that have underpinned globalization no longer hold.
In this report, we begin with a framing of the reason globalization took on special characteristics after the Cold War ended. Next, we discuss the “end of history” argument and how it created the Washington Consensus. The next section examines how the “end of history” was not the end of geopolitics. We note the key geopolitical imperatives of China and Russia and examine how investing patterns in the Cold War era led to risky investment decisions. We also discuss the impact of the Washington Consensus on the U.S. economy. We close, as always, with market ramifications.