The war on globalisation is in full swing… at least, in the developed world.
We talk a lot here about U.S. President Donald Trump’s “Fortress America” approach to global trade. Trump has led the U.S. into a sharp shift away from globalisation – for example, by promising to build a wall on the U.S./Mexico border and making it more difficult for people from certain countries that happen to be majority Muslim (while conveniently omitting from the black list those countries with which the Trump family has extensive business interests) to enter the U.S.
One of Trump’s first acts as president was to pull the U.S. out of the Trans-Pacific Partnership (TPP) – a 12-country deal that would encompass around 40 percent of total global output.
Trump called TPP “a terrible deal”.
Trump could also soon withdraw from the North America Free Trade Agreement (NAFTA) – the trade agreement between the U.S., Canada and Mexico. He’s called it “the worst trade deal in the history of the country.” It’s been the foundation of trade in North America for the past two decades, with two of the most important trade partners of the U.S.
And as we showed you recently, tensions between China and the U.S. are ramping up… which could lead to an all-out trade war.
But it’s not just the U.S. turning inward…
Britain’s vote to exit the European Union similarly signaled a shift inward.
And throughout much of Europe, the rise of right-wing nationalist parties, who tend to equate globalisation and open trade with the refugee crisis and terrorism, is putting the unity of the European Union under pressure. In short, many developed, western countries view globalisation as a threat to their future.
But the sentiment is different in Asia…
Asia embraces globalisation
While developed countries are shying away from globalisation, Asia is increasing regional and global ties.
For example, trade agreements such as the ASEAN Economic Community (AEC) are helping to bring the region together.
The AEC was designed to promote economic, political and cultural cooperation between the Association of Southeast Asian Nations (ASEAN) – which includes 10 member states. This agreement was founded on four pillars – creating a single market, creating an economically competitive region, ensuring fair economic development and integrating ASEAN into the global economy.
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The Asian Infrastructure Investment Bank (AIIB) was also launched in 2016, as a counterweight to the western-dominated IMF and World Bank. The AIIB has 77 countries as members including Russia, Australia and Brazil (but not the United States, which opposed its creation).
And sentiment around globalisation in Asia far outweighs western sentiment.
The graph below shows a country’s sentiment on globalisation and its GDP per capita growth.
As shown in the graph above, over 90 percent of respondents in Vietnam agree with the statement “globalisation is a force for good”. India and other big Asian economies including the Philippines, Indonesia and Thailand aren’t far behind, with over 70 percent of respondents agreeing with the statement. Hong Kong and Singapore aren’t far behind.
And although there are a lot of moving parts to an economy, it looks like there’s a correlation between sentiment towards globalisation and economic growth. The Philippines and Vietnam both saw GDP growth of almost 30 percent between 2011 and 2015. India’s was even more impressive… surpassing 30 percent over the same period.
Meanwhile, less than 50 percent of people in developed markets like France, the United Kingdom and Australia think that globalisation is a good thing. In the U.S. it’s closer to 40 percent. It’s not much better in Finland, Sweden or Germany… where fewer than 65 percent of people agree with the statement.
These developed economies have seen slower GDP growth over this period. Both Norway and Finland saw less than 5 percent growth between 2011 and 2015… while France, the U.S. and the UK all saw between 10 and 15 percent.
Now, I’m not saying that globalisation is driving all of the growth in developing markets. There are a lot of reasons these markets are growing faster than developed markets. (And some people would say that these markets are growing fast despite globalisation.)
For starters, developing markets are starting at a much lower base than developed, wealthy countries. It’s a lot easier to see 30 percent growth when your GDP per capita is US$5,000 than when it’s US$50,000. And as I wrote here, a youthful and fast-growing working age population – like in some fast-growing economies in Asia – can also drive economic growth. But globalisation certainly isn’t hurting.
Asia’s globalisation is just getting started
As developed nations continue to turn inward, we’ll likely see developing countries embrace globalisation more and more.
For example, after the dissolution of the TPP at the hands of the U.S., at least two other proposed trade deals, the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP), could help bind Asia more tightly together, as the continent’s economies move closer together.
China is taking the lead on these, as it makes big moves to take on the mantle of globalisation.
Through its One Belt One Road (OBOR) initiative – a massive US$4 trillion investment and development program – China is building infrastructure projects in 60 countries around the world. Soon, China will have strategic interests across huge swathes of Africa, Central Asia and Eastern Europe.
China sees the OBOR initiative as a means of announcing its place on the global stage, stepping into a leadership role that it sees the U.S. abandoning, and creating deep regional economic ties.
And it’s just one of the ways we’re seeing a slow but inexorable shift of the global political and economic centre, from west to east. (We’ve written more about this shift here.)
Publisher, Stansberry Churchouse Research