Peak Globalization

What is 'Peak Globalization'

Peak globalization is a theoretical point at which the trend towards more integrated world economies reverses or halts. Peak globalization is a conceptual cousin to peak oil, which is the point where global oil production enters a permanent decline. Unlike oil, globalization is an economic trend rather than a commodity, so there are no hard physical limits on the level of globalization in the world. Instead, peak globalization would be caused by a collection of factors including domestic pushback against the loss of jobs in export hurt industries, increased nationalism and overall anger at unfair trade practices like dumping and currency manipulation.

BREAKING DOWN 'Peak Globalization'

Peak globalization has been discussed more often since Brexit and the mounting challenges facing bilateral and multinational trade deals. Although globalization has a net positive effect for people on average, the uneven distribution of the gains provides many opportunities for resentment. The fact that you can buy a $10 foreign manufactured t-shirt at your local store may not seem so great if you are a laid-off because the textiles factory you worked for was forced to shut down by that same international competition. The pattern of labor-intensive manufacturing migrating to the regions of the world where labor is the cheapest has left no shortage of disaffected populations.

Peak Globalization as Part of Politics

Along with the economic pain that comes from offshoring in a globalized world, there is the sensitive issue of immigration that gets tied in with globalization. In 2016, Donald Trump became the presidential nominee for the Republican Party by playing to the idea of unfair trade deals destroying jobs and immigration is hurting America. Trump’s success in gaining the nomination in addition to Brexit and other nationalist movements have some calling peak globalization with the expectation that we will see the trend of freer trade reverse sooner than later.

International trade is an easy mark for many politicians, as more and more businesses operate in a global labor market rather than a local one. From an investor’s point of view, you want a company you invest in to find the most cost effective ways of providing goods or services. Increasingly this has meant moving production and services – and the jobs that go with them – to regions where labor comes cheap. From a politician's point of view, anything that moves jobs out of your district, whether it is to the next state or another country, is bad and an easy target to stir up anger towards. When global economic growth is strong, the regional politics stay regional because opportunities are created even as others move across borders. When we see a global slowdown, like the one unfolding since 2015, then the regional politics become national. So peak globalization, if it indeed has come to pass, will be as a result of politics rather than economics.