Globalization Has Been a Cycle, Not a Trend

It has become more and more apparent that we are now in a de-globalization era. From the end of WWII, the trend has been for trade and commerce to expand and become inclusive of virtually the whole world. Most countries have benefitted greatly from this movement. Post WWII, Europe and Japan recovered quickly from the ravages of one of the most destructive eras in history that included WWI and WWII, without even considering the impacts of other regional wars and disputes that occurred in other regions.

As with most overriding trends, there is a cycle pertaining to global expansion and trade. It would appear that this cycle is roughly forty years in duration, and it has a major impact on global economic growth.

The latter half of the nineteenth century saw a significant upturn in global economic growth, spurred by industrialization, better transportation, an expansion in global trade and migration.

This era came to a crashing halt at the beginning of the twentieth century as major wars in Asia and Africa were the forerunners of WWI and WWII and led to economic hardships and nationalistic jealousies that materially hurt economic growth and global living standards.

In the 1950s and 1960s many countries, especially in Europe and North America, experienced a period of rapid industrialization, population growth, and rising living standards. This was driven by rising consumer spending and technological advancements in areas such as transportation, communication, and automation. During this period, the United States emerged as the dominant economic power and became the engine of global growth.

After a period of stagflation in the seventies, the global economy underwent significant changes with the rise of globalization and the growth of new economic powers such as Japan, South Korea, and China. During this time, there was a trend towards liberalization of trade and investment, and the rise of new technologies and communication systems facilitated the growth of international trade and investment. Global poverty was significantly reduced and developed nations benefitted from low inflation rates and burgeoning markets. This era seems to have been two consecutive periods of increased globalization.

However, this period has now come to an end. The Great Financial Crisis of 2008 reversed the trend to greater globalization, and this has been exacerbated by the COVID pandemic which has exposed the risks of far-flung supply chains and of increasing political tensions around the world.

De-globalization could have a significant impact on the global economy, and the outcome will depend on a number of factors, including the policies and actions of governments and businesses. While there may be benefits to de-globalization, such as reduced income inequality and increased protection of domestic industries and jobs, the overall impact is likely to be negative, with slower economic growth and reduced living standards.

Investment products often warn that past performance may not reflect future outcomes.  The wise investor will heed this warning in other ways as well.  Just because globalization has been the only overriding theme that has existed in their lifetime, doesn’t mean that this will continue forever.

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