Below is a complimentary excerpt from a Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

Neil Howe: Is This The End Of Globalization? - 4 14 2020 10 22 34 AM

As international travel and commerce grind to a halt, some pundits are asking: Is this the end of globalization? The question is whether the COVID-19 pandemic, which may be triggering the sharpest decline in global trade we have ever seen in our lifetimes, is pointing us to the new normal. (The Wall Street Journal )

NH: In this WSJ Saturday essay, Zachary Karabell, author of The Leading Indicators: A Short History of the Numbers That Rule Our World, concedes that the global pandemic recession of 2020 will cause a near-term cratering in global trade. But longer term, he remains solidly optimistic about the prospect for ever-more global interdependence. As reasons, he cites all the positive-sum, comparative-advantage nostrums that no doubt still appeal to a disproportionate share of the WSJ readership. He concludes, "Is it possible that we are truly at the end? Yes, but not likely. Globalization is dead. Long live globalization."

To be sure, a lot depends on how we define "longer term." Karabell seems to define it very broadly. At one point he says he refuses to believe that we are seeing "the collapse of a broad historical trend that has endured through the Great Depression, World War II, the Cold War and innumerable other crises..." OK, he's got me there: If I am compelled to regard the Great Depression and WWII as mere short-term blips, then it's hard for me to raise any serious objection. In this case, Karabell is joining a constellation of other eminent authors who have sworn themselves to a creed of cosmic long-term optimism--the likes of Gregg Easterbrook, Matt Ridley, Steven Pinker, and Yuval Harari.

But if, by long term, we're talking about a more foreseeable timespan--say, the next 3 to 10 years, then I think he is very mistaken.

To begin with, Karabell never acknowledges that global trade already entered an era of regression over a decade ago. In 2008, on the eve of the GFC, global trade (exports plus imports, goods and services) peaked at 60.9% of global GDP. After falling hard as expected during the Great Recession, that quotient never regained its former level despite the longest global economic expansion in living memory. See the first chart below based on OECD data through 2018, updated with preliminary WTO data for 2019.

From 1970 to 2008, global trade to GDP rose on average by 8.8 percentage points per decade. From 2008 to 2019, it has fallen by 1.5 percentage points. Quite simply, the trend in globalization hit a major turning point long before COVID-19 arrived. And this turning point coincided with a sea change in public attitudes toward globalization. (See our note on this seven years ago, "Globalism in Retreat.")

What happened, at an economic level, is that most of the easy gains that came from forty years of tariff cutting (under GATT and WTO) came to an end when the average tariff rates on products approached zero. The remaining non-tariff (regulatory) barriers to trade have proven to be much harder to liberalize since most of them embody national differences in "acceptable" goods and services or political capture by favored firms. Since the Uruguay Round of WTO agreements, which went into effect in the late 1990s, the global momentum for trade liberalization has collapsed. See the second chart below.

Meanwhile, at an ideological level, globalization as an ideal lost its luster on all fronts. On the left, "free trade" has been increasingly blamed for offshoring work, firing domestic labor, deregulating the workplace, breaking up communities, spoiling the environment, and enriching multinationals. On the right, "globalism" threatens to undermine national sovereignty, overrule regional values, subject societies to faceless "globacrats," and make us all "citizens of nowhere." In the middle, moderates came to agree that extended multinational supply chains can render any organization (like a business) vulnerable in case of any sort of unexpected disruption. The moderates didn't talk about right and wrong--but rather about complexity theory and tipping points.

Eventually, all these arguments came to overlap each other. Thirty years ago, during U.S. presidential campaigns, every major candidate favored new trade deals. By 2016, every major candidate--Donald Trump, Bernie Sanders, and (eventually) even Hillary Clinton--opposed new trade deals.

Now here comes the pandemic recession of 2020. And on top of the supply and demand shocks, which alone are sure to pull down hard on global exports and imports, here come the policy aftershocks that bolster anti-globalization rhetoric on every side. The left favors measures to protect the wages of domestic workers and to enhance the pandemic-fighting powers of national authorities. The right favors raising tall new walls against travel and trade across national borders. Even in progressive western Europe, the "free movement" Schengen Area is now honeycombed with new barriers.

Both sides point with alarm to how quickly, in an emergency, nations will indeed prioritize their own interests. Medical equipment is being "hoarded" by national authorities. Entire industries have been paralyzed by global supply chain dependencies. Today's anti-fragile company is one with domestic-only suppliers and large inventories. These are painful lessons, and both sides seem to agree (see "From Globalization to Regionalization" in The Nation and "Globalization Bleeding" in The National Review) that they won't be forgotten any time soon. In the middle of the spectrum, see this essay in Foreign Policy: "The Coronavirus Is Killing Globalization as We Know It."

IMO, they're right. Even more than in the last "great" recession, this new hit to globalization will endure long after the current "pandemic" recession ends--whenever that happens. In fact, I expect the historical headwind against global trade and cooperation that we first noticed in 2008 will probably last all the way until the end of the 2020s. As such, the turn against globalism--or, alternatively, the turn toward national populism and community solidarity--will coincide pretty exactly with the beginning and the end of the "Fourth Turning" in America, in Europe, and in South and East Asia.

One more reflection. As I pointed out in an earlier note (see "How Epidemics Change History"), great eras of prosperity, mobility, and openness are often terminated by great epidemics. A devastating plague put an end to the Roman age of the Antonines in the 2nd century AD. And to the (Eastern) imperial resurgence under Justinian in the 6th century AD. And to the European high Middle Ages with the opening of the silk road to China in the mid-14th century AD. The Spanish Influenza of 1918-19, perhaps as much as World War I, turned the 1920s into a decade of isolationism and xenophobia--paving the way for the raging nationalist and authoritarian currents of the 1930s and 1940s.

Most Fourth Turnings in history are not preceded or accompanied by a severe epidemic. Yet when it happens, the timing is rarely accidental. We all know that accelerating human mobility promotes political and economic innovation. Yet (as historian William McNeil points out in his classic Plagues and Peoples) we forget that it also promotes microbial innovation. The resulting pandemics typically end one era and begin another. Pandemics don't cause Fourth Turnings. But they can certainly become a mood accelerator.

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Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.

A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.

Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."

Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.

Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.

Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.