Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
De-Globalisation - The Cycle Is Turning - Outside View by Nitin Gregory
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

De-Globalisation - The Cycle Is Turning
Dec 28, 2016

  • History doesn't repeat itself, but it often rhymes. - Attributed to Mark Twain

Globalisation refers to the economic, social, and political integration of nations. Economic globalisation can be seen in the exchange of goods - e.g. exports as a share of world GDP are estimated to have quadrupled in the last sixty years. It can also be seen in the rising movement of people and capital around the world.

A key narrative that supports globalisation is rising living standards. Increased integration has created more jobs in emerging markets, resulting in fast increases in per capita GDP in these countries. It has also resulted in cheaper goods in developed markets. A shirt manufactured in a low-cost country means more jobs there and a cheaper shirt in the developed market.

British economist David Ricardo explained this process in his theory of comparative advantage in 1817. Here is a simplified example: Assume two households, A and B, each have a piece of land to farm. Both households divide their time between farming and cooking. Household A is great at farming - they produce more output with less input (relative to B). Household B is great at cooking (relative to A). It would make a lot of sense for these two households to trade. A should farm both pieces of land and B should cook for both families. This allows the combined output (world GDP) to be much higher.

Time Capsule

Similar to the globalisation of the second half of the twentieth century, 1880 -1930 was a period of increased global integration. But the trend started to reverse with the Great Depression. We can call this reversal - deglobalisation. Several prominent countries including the UK resisted globalisation by rising tariffs. Far-right parties in Europe gained popularity in this atmosphere of financial weakness. A wealthy New Yorker was voted president of the United States in 1933.

The parallels are evident. You can replace the Great Depression with the Global Financial Crisis...the wealthy New Yorker with Donald trump. Globalisation and deglobalisation are opposing trends...opposite ends of a cycle. The cycle has happened before and the likelihood it will repeat is strong.

Globalisation - Bogeyman for Whom?

Just twenty years back, globalisation was viewed with suspicion in India. I remember significant opposition to various funding proposals from international institutions. There was - and to some extent, still is - a view that globalisation is a 'rich country conspiracy' to influence emerging markets.

But the dominant view today is a bit different. Globalisation has become a bogeyman for the developed world. The process of increased integration may have lifted a half a billion people out of poverty. But - it has also taken jobs away from developed economies.

Cracks in the Wall

Popular opinion against globalisation is evident. Large economic players - most notably the US and UK - are withdrawing from global markets. President-elect Trump recently appointed Peter Navarro, a known 'China hawk', as leader of a newly created trade council. Apart from trade, relations between the US and China are also showing signs of stress related to maritime territory (South China Sea) and political policy.

Then, of course, the UK voted for Brexit and against integration with the EU, and far-right parties in Europe are gaining popularity, most notably the National Front lead by Marine Le pen.

Meanwhile fate of the Trans-Pacific Partnership (TPP agreement) hangs in the balance as Mr Trump has promised to abandon the deal on his first day in office. The TPP is an trade agreement signed (but not yet ratified) by twelve countries accounting for 40% of global GDP and 33% of global trade. The landmark deal was slated to reduce tariffs and boost trade among the signatories. Disintegration of the agreement would a key marker of the trend reversal in the exchange of goods and economic globalisation.

Deglobalisation is further evident in economic factors including the movement of labour, the movement of capital, and politics. More on this coming soon...

This column is authored by Nitin Gregory. Nitin, who graduated from IIM-Calcutta, is currently pursuing a finance role with an automotive major. He has a deep interest in Macroeconomics and pens a blog at Gregonomics.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "De-Globalisation - The Cycle Is Turning". Click here!


More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

The Technological Marvel That is Ethereum (Outside View)

Feb 23, 2018

Have you been wondering what the hoopla about Ethereum is? It commands the second highest value among virtual currencies and its popularity is rivalled only by bitcoin. Let's break it down.

A New Quest for the Stock Market's MOST Profitable Ideas... (Smart Contrarian)

Feb 23, 2018

If you want to receive the best ideas in the Indian stick markets...you need to heed this important announcement.

Ramesh Damani is Bullish on Niche IT Stocks and I've Found One for You (The 5 Minute Wrapup)

Feb 23, 2018

This IT Company can be a huge wealth Creator for Smart Money Secret's Subscribers.

More Views on News

Most Popular

The Foundation for Sensex 100,000 is Laid(The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

India's Rs 1,66,276 Crore Problem(Vivek Kaul's Diary)

Feb 15, 2018

That's the loss, the government owned public sector enterprises are expected to make this year.

The Big Gamble(The Honest Truth)

Feb 15, 2018

Once you accept the fact that elections are round the corner and that this budget is geared to reach a 40% target, everything makes sense.

How I Beat the Index by 2x... And Why I Believe This Could Happen Again(Smart Contrarian)

Feb 12, 2018

Will Microcap Millionaires be able to replicate its past performance of beating the index by 2x?

NPAs Set to Rise Further with New RBI Rules(Chart Of The Day)

Feb 15, 2018

The RBI overhauls bad loan framework. Banks may come under additional pressure due to rising NPAs and increased provisioning.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 23, 2018 (Close)