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The author is a contributing editor at FT and author of the Chartbook newsletter
It is widely acknowledged that in recent times, the concept of globalization has undergone significant changes. The assumption of continuous global integration has faded, and trade politics have become contentious. However, there is limited evidence of substantial shifts in trade flows. Instead of a clear new agenda, what we see now is a pervasive sense of cognitive dissonance.
From a macroeconomic perspective, the situation remains largely unchanged. The US continues to experience twin deficits in both government budget and trade accounts, supported by strong consumer demand and buoyant financial markets. In contrast, the EU and China maintain large export surpluses due to insufficient domestic demand. These imbalances have influenced the global trade landscape for years, with calls for rebalancing going unheeded. The focus has now shifted towards industrial competition and geopolitics, creating tensions within globalization.
The US trade deficit has raised concerns about its sustainability, but so far, it has been financed smoothly through the strength of the US dollar and Wall Street’s support. The pressure of global competition primarily affects America’s manufacturing sector, reflecting the shift from market access and trade liberalization towards protectionism and industrial rivalry since 2016.
Efforts to restore US industry’s competitiveness include discussions on currency devaluation and industrial subsidies. However, implementing such measures faces challenges, as they require significant policy changes and alignment of producer interests against financial powers.
Europe has also entered the debate, with concerns about falling behind the US in terms of industrial policy and competitiveness. While the EU aims to boost investment, fiscal consolidation remains a priority for many member states, potentially hindering growth.
The current dissonance between industrial and macroeconomic policies adds to the uncertainty in the global economy, highlighting the need for a coherent approach to address the challenges of modern globalization.