For foreign trade-friendly countries in Latin America – such as Chile and Peru – trends in globalization can have a significant impact on their fates.
Intertwined trade and political tensions have bubbled during the past several years. These have been fueled by protectionist policy, supporting speculation of deglobalization.
The COVID-19 pandemic also fed concerns about global trade shifting into reverse gear.
But has the world deglobalized which, in turn, would leave some of Latin America’s small exporters exposed? According to experts, no.
“Today, it seems quite clear to me that it has not happened,” said Pol Antràs, professor of economics at Harvard University.
“More than deglobalization, there’s a process of ‘slowbalization’ or a slowdown in the process of globalization.”
The pace of globalization accelerated between the mid-1980s and into the first decade of the 2000s, powered by expansion of global value chains, rapid technological advances, supportive policy and developments such as the opening up of China.
The slowdown was inevitable as the pace was unsustainable, said Antrás during a seminar hosted by Fundación Chilena del Pacífico, an organization tasked with supporting Chile’s economic insertion into the Pacific basin.
This partially echoes comments made by UK research firm Capital Economics, which said the “technological drivers of globalization have faded.”
It added: “Complex supply chains have reached their limit. At the same time, advanced manufacturing techniques mean that the location of manufacturing no longer hinges on where labor costs are cheapest.”
Capital Economics said the worst fears of a wholesale retreat into deglobalization have receded but that a decoupling of powerhouses US and China may generate ripple effects.
Associated headwinds to globalization are developments such as Brexit and the watering down of the original US-Mexico-Canada trade deal, along with stagnation of global liberalization talks at the WTO level.
Developing countries could leverage opportunities in the export of services, rather than manufactured goods, said former Chilean finance minister Felipe Larraín, adding that there was finite space in the manufacturing sphere.
“In the case of Chile, I think there is significant space for the expansion of services exports along with our base of natural resources, and that, of course, is not to exclude … manufacturing,” said Larraín. “I don’t think the export of manufactured goods is the only avenue.”
He added that globalization could “function well” for some developing countries, “especially if we succeed in reducing barriers in the industrialized world for products that come from our countries.”
FDI
In terms of global FDI, however, a deglobalization trend has taken hold, Larraín said.
Levels spiked prior to the 2008 financial crisis and have since tended to go down.
RESHORING AND NEARSHORING
Antràs explored the area of reshoring and nearshoring production, which some analysts have forecast would be a trend over the coming years, potentially benefiting Latin America.
Citing the heavy investments companies make when building the likes of an overseas factory, Antràs said only sustained shocks would spur companies to up sticks.
Larraín said the shocks must also be above a certain magnitude.
He added that reshoring, particularly by Asian companies, constituted an opportunity for the region.
WHAT NOW?
Outlining challenges, Antràs highlighted diplomatic tensions as well as inequality and the specter of populism.
“It’s likely that the main challenge for the future of globalization is institutional and political in nature,” said Antràs.
This was echoed by Larraín.
“I think the issues of inequality, populism and protectionism are among those that are going to be with us for some time after this process of globalization which has experienced a slowdown, and the COVID-19 pandemic,” said Larraín.
In the US, inequality has grown on a similar trajectory as trade but Larraín urged against drawing simple cause-effect conclusions.
“Automation, technology and immigration could be behind this phenomenon of an increase in inequality,” Larraín said.
Antràs said what mattered is what people think. “For good or for bad, I think people tend to believe that globalization is the cause of their problems.”
Globally, inequality has fallen overall but within some countries it has risen. Data, once available, is expected to show the pandemic has aggravated the problem.
