Economic Development

The cost of de-globalising world trade: Economic scenarios for the world’s turn inwards

January 21, 2021

Global

The cost of de-globalising world trade

January 21, 2021

Global
Michael Frank
Project Manager, The Economist Intelligence Unit

Michael Frank is a Senior Analyst with EIU Public Policy based in Hong Kong, working with Asia-based clients in support of their public policy-related strategic initiatives.
Michael designs and manages both internal and public research programmes for clients in need of policy advocacy, thought leadership, strategy and analysis. His recent research has focused on technology and public policy, including themes such as the economic impact of emergent technologies; international best practices and influence in technology policymaking; and the roles of infrastructure, human capital and industry connectivity in advancing digital transformation in Asia. He also monitors global and regional trends such as geopolitical conflict, trade policy, and regulatory politics.
Michael also serves as Vice Chair of the Financial Services Committee at The American Chamber of Commerce in Hong Kong. He holds a Master’s degree in public policy from the University of Chicago, where he served as Editor-in-Chief of the Chicago Policy Review, and a BA in international relations and economics from Colgate University.

Economic scenarios for the world’s turn inwards

After decades of propelling global economic growth through the international flow of goods, services, people and ideas, globalisation is in crisis. Already under pressure from geopolitical tensions and the rise of populist politics, the covid-19 pandemic has caused even the most free-marketoriented economies to question their reliance on global supply chains and trumpet the value of self-sufficiency.

This report aims to highlight the potential economic losses resulting from “de-globalising” the world economy, focusing on international trade. The potential impact of emerging obstacles to trade is simulated using a Computable General Equilibrium model, focusing on three distinct scenarios for the coming decade.

As countries continue to wrestle with covid-19, The Economist Intelligence Unit expects global GDP to contract by 4.7% in 2020, while global trade is likely to shrink by 10.6%. Although a rebound is expected to begin in 2021, large amounts of debt accumulated during the pandemic will make for a fragile recovery. This report presents three scenarios that highlight downside risks to the already pessimistic baseline global economic outlook:

  • Full decoupling: Rising geopolitical tensions culminate in deliberate trade decoupling of China and the Five Eyes countries (Australia, Canada, New Zealand, the UK and the US). Tariffs of 100% are applied on all goods and services, except in strategically important sectors (pharmaceuticals; ferrous metals; metal products; computer, electronic and optical products; utilities; and communications) where the countries institute embargos.
  • Local necessities: Trade blocs and large countries adopt protection measures in an attempt to ensure domestic supply and boost self-sufficiency in essential goods, including food and medicine. Those implementing tariffs to protect domestic industry, as well as export taxes to encourage stockpiling, include the US, Mexico and Canada (under the USMCA agreement); the EU; the Mercosur countries; China; India; Japan; and South Korea.
  • Shorter runways: The disruptive impact of covid-19 on supply chains leads to higher trade costs across all countries. More complex supply chains that are spread over multiple countries face greater disruption.

This report is built on a research programme undertaken by The Economist Intelligence Unit between August and December 2020 and commissioned by Huawei. The EIU research team included Alexander van Kemenade, Michael Frank, Christopher Clague, Shreyansh Jain and Yanning Jin. Badri Narayanan Gopalakrishnan served as an advisor on the Global Trade Analysis Project (GTAP) model. The EIU bears sole responsibility for the content of this report. The findings and views expressed do not necessarily reflect the views of Huawei.

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