DEGLOBALIZATION

The economic arguments in favor of free trade are straightforward. Through comparative advantage, economies benefit from productivity gains from the international division of labor, and consumers benefit from lower prices. Indeed, the International Monetary Fund estimates that a one-point increase in measures of globalization is associated with an increase in global economic growth of 0.3%.¹

Trade helps smooth out volatility of business cycles. For example, exports as a share of Eurozone GDP more than doubled in the period from 2010 to 2014, when Europe was still contending with the lingering effects of the financial crisis. This increase helped prevent Europe from sinking deeper by accessing demand in parts of the world less impacted by the crisis like Asia.²

Following the second world war, there was an explosion in global trade, fuelled by falling communication and transportation costs.

Sectors of the U.S. and European economies, particularly middle- and working-class jobs, were hit hard by the movement of jobs to lower-cost centers of production in the first two decades of the century. As a result, median incomes in the advanced economies largely stagnated—leading to high levels of discontent. This in spite of the long and sustained deflationary impact on consumer prices that accompanied the trade gains in the 1990s and early 2000s, driving effective increases in standards of living for most consumers.

Since 2017 in particular, increased trade barriers and a generally less-hospitable environment for the free movement of goods, people, and ideas has prevailed—with few signs of subsiding. According to the Global Trade Alert, the number of protectionist undertakings has increased by 220% globally over the past four years³. And while the Trump administration famously took an anti-trade stance, the Biden administration has kept most of the policies intact. Similar protectionist policies have also been pursued by China, the European Union, the U.K., Brazil, and India.