Page 8 - ISQ October 2022

INVESTMENT STRATEGY QUARTERLY

Deglobalisation: A Double-Edged Sword

Giampiero Fuentes, CFP®, Economist, Raymond James

Globalisation has accelerated the world’s economic growth,
furthered by technological and transportation advances Globalisation has allowed developing countries to grow
that allowed the integration of international markets. Since faster, increase their living standards, and lifted millions
1950, the world’s trade volume has increased by 40 times, of people out of poverty. Developed economies have
reaching a record value of $28.5 trillion in 2021. A key enjoyed lower inflation for decades, as companies
benefited from outsourcing production to areas with
component that makes all this possible is robust and lower costs of materials and labour.
complex supply chains that allow goods produced by a
country to be transported elsewhere in the world. However,
exposing the world to just how much nations truly rely on one
trade as a percentage of world gross domestic product another for basic needs, with energy prices spiking at one point to
(GDP), has been declining since the Great Recession. In fact, the highest level since 2008, and food shortage concerns being top
over the last few years, these global supply chains have of mind for many countries.
faced a variety of headwinds, ranging from economic Whether it’s a pandemic, a war, or any other unpredictable event,
nationalism, a pandemic-induced shutdown, and most they’re likely to have severe consequences, and the world could
recently, a major geopolitical conflict. potentially be hit by another “black swan” event at any point.
However, there is a common denominator among these events,
The relatively mild consequences of the tariffs imposed by and that is the interdependence among countries that years of
President Trump on China in 2018 were just a tiny sample of the globalisation has brought to the world. Unquestionably,
shambles brought by the COVID-19 pandemic to what seemed to be globalisation has allowed developing countries to grow faster,
a perfectly efficient working model. In fact, the volume of world increase their living standards, and has lifted millions of people out
trade declined by almost 20% in a matter of months, causing a of poverty. Developed economies have enjoyed lower inflation for
collapse of a similar magnitude to that of the Great Recession. This decades, as companies benefited from outsourcing production to
year’s war between Russia and Ukraine only widened the cracks, areas with lower costs of materials and labour. However, the events
mentioned above could start pushing nations and companies to
begin to prioritise security over efficiency and lower costs.

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