In this period of hyper-globalisation since the late-1980s, economic downturns have invariably raised questions about the future of globalisation. The questions became more intense following the “Great Recession” of 2008, and the continued impact of this downturn well into the next decade came to be described, perhaps unsurprisingly, as "slowbalisation".
This was so as the underpinnings of the process of globalisation, namely, trade integration, which, in turn, supported the supply chains in some of the more economically dynamic regions such as East Asia, were beginning to look unhinged. Doubts were expressed about the resilience of the supply chains as economic uncertainties disrupted the “just-in-time” deliveries.
There were tell-tale signs that global trade was decelerating. During 2011–19, global export volumes grew discernibly slower at an annual rate of 3% compared to nearly 7% during 2000–07, the immediate pre-depression years.
Individual countries witnessed a more pronounced slowdown in exports. For instance, China’s annual export volumes, which were expanding by 24% in the pre-depression years, decelerated to below 5% in the previous decade.
In contrast, India’s exports, which had expanded at well over 14% annually during 2000–07, grew by less than 5% during 2011–19.
Yet another indication of the partial decoupling of the major economies from the global economy was their sharply falling trade-to-GDP ratios. China, the largest trader, saw a drop in its trade-to-GDP ratio from 57% in 2008 to below 37% during the past decade, while India saw its trade to GDP ratio fall from 53% to 40%.
The post-pandemic recovery had excellent news for global trade as all major economies, for which comparable data are available, experienced significant increases in merchandise trade. Several major economies showed strong recovery of trade-to-GDP ratios, reversing the downward trend seen in the previous decade. The European Union (EU) recorded its highest ever trade to GDP ratio of 94%, while India and China also saw significant increases, reversing their declining trends that began in 2014.
However, it is unclear whether the rebound in trade witnessed in 2021 was because of the stimulus provided by most governments in the aftermath of the pandemic or if it is an indication of a new phase of sustained growth in global trade.
The second possibility seems unlikely, especially because many countries are seemingly inward-oriented after adopting industrial policies. The Reserve Bank of India has recently pointed out that “make it domestic” policies have been adopted by more than 100 countries accounting for 90% of global GDP. These include the advanced economies that had not only debunked industrial policy during the current phase of globalisation, but were also able to influence the governments in the developing world to allow market forces to guide the process of industrialisation. These countries have wholly reversed their antipathy towards industrial policies and embraced them with open arms.
In fact, the EU member states and the United States began to adopt industrial policy instruments while trying to recover from the 2008 downturn. The former adopted “an integrated industrial policy for the globalisation era” in 2010, which underlined the importance of revival of the manufacturing sector in the EU.
The US also emphasised the need for reviving domestic industries as part of the overall strategy for reviving the economy post-2008 financial crisis. The US seemed somewhat wary of announcing adopting the “industrial policy”. However, President Barack Obama had signed a number of “Make It in America” legislations to provide direct support to the manufacturing sector to help it grow.
The adverse impact of the Covid-pandemic on supply chains seems to have swung the pendulum towards adopting industrial policy in the US quite decisively. Over the past year, the US Congress passed two legislations with bipartisan support, the “United States Innovation and Competition Act” and “America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022”.
Importantly, the central component of both legislations is “Creating Helpful Incentives to Produce Semiconductors Act” (CHIPS)”. It is a $52 billion subsidy programme supporting private enterprises that build semiconductor production facilities in the United States.
Not to be left too far behind, the European Commission proposed a regulation a few months back to establish a framework of measures for strengthening Europe’s semiconductor ecosystem, better known as “a Chips Act for Europe”. The proposal seeks to mobilise more than 43 billion euros of public and private investments and to adopt measures to “prepare, anticipate and swiftly respond to any future supply chain disruptions”.
Over the past three decades, the electronics sector provided momentum to the process of globalisation by establishing extensive supply chains transcending national boundaries. As the Chips Acts in the US and the EU seek to establish domestic semiconductor production by hedging against supply chain disruptions, globalisation’s future seems uncertain.
Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU