A team of researchers led by former chief economic advisor (CEA) of India Arvind Subramanian has opined that a new era of global trade characterised by the deglobalisation of goods and the slower yet persistent globalisation of services has supplanted the era of hyperglobalisation. However, China and India will continue to expand their global footprint in manufacturing and services respectively for some time, they argue.
In a new working paper published by US-based Peterson Institute for International Economics (PIIE) the authors – Subramanian, a senior fellow at PIIE, Martin Kessler, executive director of the Finance for Development Lab and Emanuele Properzi , a researcher at the lab, examine the evolving landscape of global trade since the global financial crisis to arrive at this conclusion.
The working paper posits that the halt in manufacturing’s shrinking share in global value added may have mitigated even stronger deglobalisation caused by a number of influences such as slowing income convergence, financial deglobalisation, and more restrictive trade policies.
In the case of China and India, the working paper said that global trade responds to technology and continuing wage differentials and the two countries continue to expand their global footprints. “Bringing China and India into the trading system was the beginning of a process of trade responding to income differentials. Although these differentials have narrowed, they remain significant. China has moved up the value chain and become a major exporter of electric vehicles, out-competing Germany. India, which used to be a call centre and location for cheap programmers and coders, has moved up the services chain by becoming a global capability centre for international consulting and accounting firms. These dynamics will likely continue for some time”, it said.
The underlying assumption was that beginning in the 1990s, globalisation was significantly affected by the opening up of India and China and the incorporation of their vast labour pools into the global economy. Once that one-off event played out, trade was expected to stabilize or at least stop growing.
The researchers said that one of the several findings in the working paper was the undeniable fact that the two decade–long hyperglobalisation was coming to an end. Its successor is deglobalisation in goods and continuing albeit slower globalisation in services. The goods–services dichotomy, the report concludes, is evident across indicators, and offers a clue to understanding the post global financial crisis world.
