JohnMauldinContributor

Iwriteabouthowyoucanmakesenseofunpredictablemarkets.
OpinionsexpressedbyForbesContributorsaretheirown.

INVESTING

8/11/2016@4:00 1,208views

Globalization2.0IsComingToAnEnd
Imnottheonlyfreetraderwhoishavingsecondthoughts
aboutglobalization.StephenRoach,formerlychiefeconomistat
MorganStanley,wrote:
Recenttrendsinglobaltradearealsoflashingwarningsigns.
AccordingtotheInternationalMonetaryFund,annualgrowth
inthevolumeofworldtradehasaveragedjust3%overthe
20092016periodhalfthe6%ratefrom1980to2008.This
trendreflectsnotonlytheGreatRecession,butalsoan
unusuallyanemicrecovery.Withworldtradeshiftingtoa
decidedlylowertrajectory,politicalresistancetoglobalization
hasonlyintensified.
Ofcourse,thisisntthefirsttimethatglobalizationhasruninto
trouble.Globalization1.0thesurgeinglobaltradeand
internationalcapitalflowsthatoccurredinthelatenineteenth
andearlytwentiethcenturiesmetitsdemisebetweenWorld
WarIandtheGreatDepression.Globaltradefellbysome60%
from1929to1932,asmajoreconomiesturnedinwardand
embracedprotectionisttradepolicies,suchasAmericas
infamousSmootHawleyTariffActof1930.
Butthestakesmaybegreateriftodaysmorepowerful
globalizationweretomeetasimilarfate.Incontrastto
Globalization1.0,whichwaslargelyconfinedtothecross
borderexchangeoftangible(manufactured)goods,thescopeof
Globalization2.0isfarbroader,includinggrowingtradein
manysocalledintangiblesoncenontradableservices.
Similarly,themeansofGlobalization2.0arefarmore
sophisticatedthanthoseofitsantecedent.Theconnectivityof
Globalization1.0occurredviashipsandeventuallyrailroads
andmotorvehicles.Today,thesetransportationsystemsarefar
moreadvancedaugmentedbytheInternetandits
enhancementofglobalsupplychains.TheInternethasalso
enabledinstantaneouscrossborderdisseminationof
knowledgebasedservicessuchassoftwareprogramming,
engineeringanddesign,medicalscreening,andaccounting,
legal,andconsultingwork.
Globalization2.0isdisplacingworkers
Globalization2.0,asRoachcallsit,ismovingmuchfasterthan
theoriginal.Someofthisisduetotechnology,buttrade
agreementslikeNAFTAareimportant,too.

Nationsremovedbarrierstospeeduptradeandeconomic
growth.That,inturn,boostedtherateatwhichworkersbecame
displaced.
Thisdisplacementisahugeproblem.Butmanyeconomistsand
policymakersdontevenrecognizeit.HeresRoachagain:
Sadly,theeconomicsprofessionhasfailedtograsptheinherent
problemswithglobalization.Infixatingonanantiquated
theory,theyhaveallbutignoredthehereandnowofa
mountingworkerbacklash.Yetthebreadthandspeedof
Globalization2.0demandnewapproachestocushiontheblows
ofthisdisruption.
Ouch.Thathurts,butitsimportant.Thefutureisnotmuch
comforttothosewhoexperiencedisruptionhereandnow.The
futuredoesntpaythisweeksbills.
Freetradedoesntservethemasses
Inademocracy(whichfornowwestillhave),theunprotected
andthedisruptedhaveexperiencedthedarksideof
globalization.Theywontjustsitbackandwaitforbettertimes.
Theyrehurtingnow,andtheyrenothurtingquietly.Theycant
affordtowait.
Thedevotiontotranscendingbordersandimposingcommon
standardsiscausingglobalizationtojumptheshark.Itfliesin
thefaceofhumannature.
Wearesocialcreatureswhonaturallyarrangeourselvesinto
families,neighborhoods,cities,states,andnations.Werespect
lawsandstandardsmorereadilywhentheyarecreatedand
enforcedatthelowestpossiblelevelofthathierarchy.
Globalismseekstobypassnaturallaw.Topdownrulesareoften
negotiatedinsecretandthenpresentedforrubberstamp
legislativeapprovalinonegiant,takeitorleaveitpackage.
IntheUS,wecallthisfasttrack.Thepresidenthasthe
authority(grantedbytheCongress)tonegotiateinternational
agreements.Congresscanapproveordenyitbutcannotamend
orfilibuster.
Soeconomicintegration(asdefinedinmoderntrade
agreements)isincompatiblewithnationalsovereignty(as
definedbypopulistpoliticiansandvoters).
Secondthoughtsandregretsarestartingtosurface
Makenomistakeaboutit:TheBrexitvotewasveryclose.The
issuewasnotdecidedbyabroadconsensus.
Onthissideofthepond,wetendtothinkofBrexitasan
overwhelmingmovement.Infact,itbarelysucceeded.
ManyofourownUSpresidentialelectionshavebeenquite
close,ifyoulookattheactualvotecountasopposedtothe
ElectoralCollegecount.

InEuropeancountries,partiesoftenfailtowinenoughvotesto
winamajority.So,coalitionsamongrivalpartieshavetobe
cobbledtogethertorunacountry.
Thatsdemocracyforyou.
AGlimpseoftheFutureinAug.23FreeQ&ASession
withJohnMauldin
Clickheretoregisterforthecallandtosubmityourquestions.
RECOMMENDED BY FORBES

MoreCitiesWillLookLikeDetroitIfPropertyTaxesAreUsed
ToPayForPension...
AFormerFedChairmanMayHaveGivenJapanTheAnswerTo
ItsDebtProblems
TheFedIsPreparingForNegativeRatesHere'sTheSign
EveryoneMissed
Don'tBeSoSureThatStatesCan'tGoBankrupt
TheRichestPersonInEveryState
6ReasonsToBuyAn'XboxOneS'InsteadOfA'PS4Pro'
TheMostExpensiveHomeListinginEveryState2016
Apple'sNewiPhone7:NoHeadphoneJack,ButAwesome
Camera

Thisarticleisavailableonlineat:

2016Forbes.comLLCAllRightsReserved