What this lesson teaches
I can define globalisation as rising trade and flows of capital and labour, and explain what drives it.
Syllabus 9570, 3.3.1(a). Globalisation, International Trade and Economic Co-operation: Globalisation as the increased trade of goods and services, and flows of capital and labour between countries; Factors affecting globalisation
Make a guess
After COVID-19 supply chain disruptions, many firms add suppliers in more countries and move some production closer to home. What does this show?
- Globalisation can slow when risks rise.
- Globalisation only ever increases, whatever firms face.
- Trade has stopped mattering to most firms.
Show the answer
Globalisation can slow when risks rise.
Firms trade some cost savings for safety. Moving production home is one sign of deglobalisation.
Cheaper transport and communication and lower trade barriers drove globalisation; tensions and supply risks are now pushing some of it back.
Technology: container shipping, air freight and the internet cut the cost of moving goods and information, so firms can split production across countries in global supply chains.
Policy: lower tariffs and trade agreements made trade cheaper and more predictable. Countries also opened up to foreign investment.
Deglobalisation: recently, some countries have raised barriers. Examples include US tariffs on China from 2018, export bans on food and minerals, and firms moving production closer to home to reduce risk after the COVID-19 disruptions.
For Singapore, deglobalisation is a serious risk, because its growth depends on open trade.
- Drivers
- Cheaper transport and communication; lower barriers.
- Deglobalisation
- Tariffs, export bans, moving production home.
Worked example: Faster customs, then a disrupted route
An importer benefits from an electronic customs system that cuts delays. Later, disruption to a key shipping route leads it to add suppliers in two other countries.
- Faster customs: technology lowers the cost of trade, a driver of globalisation.
- The disruption: shows the risk of relying on one route or supplier.
- Adding suppliers: diversification to reduce risk, which can mean higher costs.
Watch out for this
Globalisation only ever increases.
It can slow or reverse when countries raise barriers or firms bring production home to reduce risk.
Check your understanding
Which is a driver of deglobalisation?
- New trade agreements that set common rules for members.
- Cheaper container shipping on the busiest routes.
- Rising tariffs between major economies.
Show the answer
Rising tariffs between major economies.
Right. Higher barriers reduce trade.