Globalisation isn't over — but it will change | thearticle

Yes, the phase of globalisation that was characterised by the role of China as part of the international supply chain may be challenged, but I am not sure this translates as globalisation

being _over_. In any case, during the last decade, the scale of China’s role as a source of low-priced components and inputs for higher value added products had already changed greatly. A

major factor was the persistent rise in the value China’s currency in that period, and a significant increase in the wages of Chinese workers. Take the global auto industry, where the

ability to use China as a low cost source of the mass production of vehicles, which were then sold round the world, caused a boom in Chinese auto production. But more recently, this mass

production and export model has been replaced by the desire to satisfy the rapidly rising Chinese middle classes, many of whom now want to own a car. Unless China’s own economic challenges

now mean that the rise of the Chinese consumer is over, then it is pretty unlikely the world’s major auto companies will abandon this part of globalisation. The same is obviously true for so

many different industries. Until Covid-19 hit, the Chinese economy was growing at around 6 per cent, which translates into something more than $1 trillion every year, of which probably

around $500bn is down to the Chinese consumer. If the consumer slowly becomes 50 per cent of not just the annual increase in Chinese GDP but of all GDP, and their economy gets back to its

pre-Covid level, then the Chinese consumer will remain the biggest marginal growing consumer market in the world. Which countries will encourage their international firms to ignore this

market? And what international firm would want to miss out on this? “Globalisation” relates to goods and services, and the consumer is at the heart of it. Satisfying consumers, both in terms

of access to the best products, and at the most affordable prices desired is at the core. Otherwise, why has Germany been such an economic success post-World War 2? Most of it is based

around the fact that it makes and sells high-quality exports to the rest of the world, both in Europe and elsewhere. The US’s involvement in international trade is driven by its low savings

rate, and also by its investment rate, which is higher. Amongst the few things in economics that is not subjective is the balance of payments, which is an accounting measurement. If you have

a deficit in the current account side of the balance of payments, then you must have a surplus on the capital account and vice versa. In totality, the overall balance of payments equals

zero for all countries — and for the world as a whole. For the US, which lives on a low domestic savings rate, this is achievable as their deep financial markets and attractiveness to

foreign investors brings in foreign savings, which has meant for most of the past 50 years that the US has had a surplus in its capital account. This has meant a deficit in the current

account, of which trade is typically the major part. So the US is likely to remain a persistent net importer of traded goods and services, unless it raises its domestic savings rate,

relative to its investment needs. It could stop — if it were unwise enough — importing anything from China tomorrow, but it would simply import more from other countries instead, unless it

raised its domestic savings (and weakened its consumption).