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Globalization In The Future

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ABSTRACT

The objective of this paper is to contribute to the article written by Barry Eichengreen in the Prospect Magazine on whether we about to witness another backlash against globalization. The recent events like Brexit or Donald Trump’s revamp of trade agreements send a signal that globalization might be on the retreat. Besides the resurgence of nationalist parties, also other challenges are emerging. A threat of another economic and financial downturn, as many economists and investors stated, might trigger a critical reevaluation of globalization. Simultaneously, technology will continue to make the way how we produce goods and current supply chains obsolete. Given the growing inequality together with technological unemployment, authorities have started contemplating a certain form of a Universal Basic Income. The impact such a basic income will have on globalization is, however, still uncertain. Nonetheless, all of these are the factors with tremendous potential to rattle global trade patterns.

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INTRODUCTION

This following paper is drafted in response to the article “Is globalization going to unravel?” written by Eichengreen with the aim to address the question and further elaborate on several of the author’s arguments. Over the course of the years, there has been a lot of discontent with regards to globalization. The unfair distribution of gains from cross-country trade has led people to perceive that the current system left them behind. This dissatisfaction has fueled the recent wave of right-wing nationalist parties around the globe and has consequently suggested the reversed trend of global connection. Besides the prevalent concerns, the future outlooks on globalization do not look optimistic either. Technological unemployment or a threat of an economic downturn will also have consequences on people’s view towards global interconnectedness. The next section will elaborate on these in more depth.

ON THE VERGE OF ANOTHER ECONOMIC AND FINANCIAL DOWNTURN

As argued in the paper by Eichengreen, one of the conditions that needs to be met in order to avoid a retreat from globalization is the avoidance of another period of economic and financial instability of a similar or even greater magnitude than that of the Great Depression (Eichengreen). The 2008 financial crisis, the most severe crisis since the Great Depression, triggered a fierce discussion on the merits of globalization. As a result, regulations and supervision of the financial sector have been reinforced to minimize the risk of another severe crisis. The widespread emergence of stress tests, increased capital cushions, and the reduced global capital flows suggest that the financial system is more resilient than a decade ago (Financial Times). Nonetheless, despite being in one of the historically longest periods of economic expansions, there are growing concerns from many investors and economists about the next economic downturn (CNBC).

According to Ray Dalio, a billionaire investor and hedge fund manager, the US economy is about two years from another economic downturn (Time). As he later explained, the next recession will be triggered by the both the rising interest rates as well as the mounting costs of healthcare and pension obligations which will subsequently put pressure on the budget (Time). To finance the deficit, the government will print money, causing the US dollar to depreciate (Time). However, Dalio further explained that the next recession can entail more severe consequences. That is due to the fact that interest rates are hitting the bottom, limiting the policymakers’ ability to respond (Bloomberg). Secondly, the growing level of inequality will generate a more serious internal conflict (Bloomberg). If such expectations and concerns will be met, the level of cross-border transactions will likely to reduce.

HOW WILL NEW TECH TRENDS DISRUPT GLOBAL TRADE

The rapid tech innovations pose a threat to global trade and have the potential to negatively impact the level of globalization. In the 21st century, manufacturing industry has featured several trends that dictate success for manufacturers such as infrastructure productivity, or responsiveness in supply chains. Nevertheless, the rampant era of continual technological improvements implies that a large majority of global trade could be ceased as a result of several tech trends (CNBC). For instance, in 3D printing, one of the tech trends, considerable progress has revolutionized the possible ways in which products are manufactured and distributed (Delloite). 3D printing process insinuates that companies no longer need to confide to just-in-time shipping as the tech allows to manufacture parts locally at a lower cost. Despite the fact that 3D printing is still in its infancy, a considerable number of manufacturers have started to adopt this technology in order to gain a competitive advantage, a requisite for the success in turbulent industries, such as automotive industry or aviation, with high degree of responsiveness and perpetual improvement.

As of now, North America experiences the highest penetration rate of 3D printing technology with Europe and Asia slightly lagging behind (Marketsandmarkets). Nonetheless, the prospects look favorable as the expiration of key patents and declining prices of 3D printers could further lure both manufacturers and consumers and thus accelerate demand (Marketsandmarkets). Assuming that the projections will be reached, such improvements in 3D printing will have major implications for global trade. A 2017 ING report forecasts that 3D printing technology could cut one-quarter of world trade by 2060 with 50 per cent of manufacturing goods being printed over the next two decades (ING). Besides that, the report further suggests that the direction of flows in the key 3D printing industries will reduce US trade deficits with countries such as Mexico, Germany, and China (ING). Therefore, as the estimations suggest, the haltered trade will improve negative bilateral balances and countries like the US will import significantly less. Although 3D printing technology is not the sole tech innovation, it will certainly play a part in shaping the manufacturing industry and inevitably alter global trade patterns.

UNIVERSAL BASIC INCOME AND GLOBALIZATION

Given the aforementioned challenges, trends and dysfunctionalities such as the squeezed middle class, poverty, distrust in governments, and rising sharing economy, there has been a growing body of research and pilot studies on the idea of giving every resident of a country money for free, a proposal called a universal basic income (UBI). As the name suggests, the idea lies in providing basic income to everyone regardless of sex, age, race, or social status. The most important question is as follows: why adopt such an impactful policy change that would fundamentally reshape the nature of work as we know it today? Perhaps the most prominent argument for a UBI deals with technological unemployment. According to the grim outlooks of the World Economic Forum, over the course of the next five years roughly 7. 1 million jobs are susceptible to elimination due to automation (World Economic Forum).

A universal basic income would provide economic security, independence, and an opportunity for the poor to participate in the economy. On the other hand, in order to finance a universal basic income, government expenditures would have to dramatically increase (Scientific American). As the argument goes, with a smaller pool of workers for taxable income, governments would be required to compensate it by setting higher taxes, which will eventually decrease productivity, slow down economy, and force the rich to flee offshore to find more favorable business environment. Despite that, both the advocates and opponents seem to agree that some form of a basic income is just a matter of time. Having outlined the pros and cons of such a policy, it appears prudent to also polemize how would a universal basic income affect globalization. As a UBI would work as a form of a safety net, it would lessen the impact of wealth inequality and bridge the gap between the rich and the destitute. For instance, a cash transfer of $100 to the impoverished citizens of India could reduce the country’s absolute poverty from 22 per cent to less than 1 per cent (Annie Lowrey). That said, multinational corporations would find it more difficult to extract wealth from the poorest countries.

On the other hand, the backlash against globalization is generally associated with a lack of job opportunities in home countries. With free extra cash from the government, people might no longer view globalization as a threat and blame it for their income deficiency. Conclusion To summarize, the aim of this paper was to provide several arguments on why we might witness the demise of globalization. The first reason to believe that globalization is coming to an end is the increasing likelihood of another financial crisis. Secondly, the era of automation and technological innovations are expected to completely transform the workplace. The inevitable transition from obsolete supply chain to new technologies will increase the self-sufficiency of nations and this will continue to negatively impact global trade patterns. Thirdly, as we are slowly approaching an era of joblessness and hope for a better future, the prospect of a universal basic income is beginning to look more realistic. While the UBI finds itself in an extraordinary apex, its effects on globalization are still uncertain. Lastly, as far as globalization is concerned, I am of the opinion that the combination of the aforementioned arguments is likely to trigger a sedate demise of globalization. All in all, the current economic situation, digital disruption in the workplace, and the increasing need for a basic income are the main reasons why I remain pessimistic about globalization in the future.

29 April 2020

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