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Jakarta Post

Globalization's last gasp?

Jakarta   /   Fri, June 3, 2016   /  04:14 pm
Globalization's last gasp? More and more of our global trade is taking place as virtual trade in services — music, films, computer games and even books and magazines are all bought as services. (Shutterstock.com/ArthurStock )

The world economy is more integrated than ever before. Global trade as a share of gross domestic product ( GDP ) has hit a record high in real terms. Transactions zip back and forth across international borders at an unprecedented rate. However, global trade is changing and that is not going to be good for some economies.

The global trade in goods has not hit new highs — global trade in goods has stagnated as a share of global GDP. However in an increasingly virtual world we cannot look at trade in goods alone. Ten years ago buying music meant buying a compact disc — a good and recorded in the data as such. Nowadays my nieces think compact discs are shiny drinks’ mats. No one under the age of 16 can really comprehend buying music in physical form — music is downloaded ( legally or otherwise ). Downloading music from a foreign website is trade, but it is not trade in goods. Buying music has shifted from trade in goods to trade in services.

More and more of our global trade is taking place as virtual trade in services — music, films, computer games and even books and magazines are all bought as services. It is trade in goods and services that has hit record highs. This is not necessarily great news for shipping companies or ports that depend on physical trade. 

The move from compact disc to download is just the beginning. Technology like robotics and 3D printing will change supply chains. Much of the growth of globalization in the last 20 years came about because it was more cost efficient to shift parts of the production process to economies with low labor rates. This led to ever more links in the global supply chain; components made in one country, constructed in a second country, packaged in a third country, sold in a fourth country. 

The benefit of low labor rates outweighed the costs of transport and time delays. 

Now, robotics and other technological advantages challenge the advantages of low labor rates. In 2016 sports shoes can be printed using a 3D printer. The only global trade required is to import plastic powders — all other links in the global supply chain are erased. 

Production can be located close to the consumer, reducing transport costs. Robots replace the previously outsourced low rate labor. The ability to produce on demand reduces waste. This obliterates the long supply chains of modern trade and takes the world back to a more imperial model of trade — import raw materials and do everything else domestically.

Those who benefited from the inexorable march of globalization over the past 20 years should consider what this altered future might mean. Virtual trade and imperial trade will challenge transport companies and those countries that have benefitted from increasing trade volumes. Regions that have been the main beneficiaries of the old trade model might need to think about what the future holds. The golden age of global trade may be about to breathe its last gasp. 
 

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The writer is senior global economist, UBS Investment Bank, London. His latest book The Truth About Inflation was published by Routledge in April 2015.

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Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.