Relapse Into Protectionism Increasing
While the long era of globalization boosted economic growth, generated jobs, and produced other economic benefits for both industrialized countries and emerging markets, current trends point to a slow unraveling in that trend – with profound implications for investors. Regina Chi, vice-president and portfolio manager at AGF Investments, says major governments are increasingly relapsing into protectionism. China, the most important link in the current hyper-globalization network, has grown more forceful and less accommodating to Western goals. With its invasion of Ukraine, Russia has snubbed the so-called ‘new world order,’ further upsetting the already fragile global supply systems revealed by the pandemic. While it might be tempting to assume those are short-term trends, she says there is another possibility: that these are markers of a slow deglobalization that will mean higher inflation and a far less productive world for years to come. The fallout of deglobalization will be higher inflation. While multinational companies were previously able to raise productivity and profits by arbitraging tax rates, low tariffs, and low labour costs to EMs – including China – deglobalization threatens to undo those and other dynamics.