I exchanged emails about the degree of financial globalization with Geert Bekaert of Columbia Business School. He wrote that “firms are still financing themselves in international capital markets, there are still massive capital flows across countries and financial market returns still seem highly interconnected.”
China, in particular, is more embedded in the global economy than ever despite efforts by the U.S. government to decouple its economy from China’s. According to the Organization for Economic Cooperation and Development, China was the No. 1 recipient of foreign direct investment in the first half of 2021, with the United States second and the United Kingdom third. The O.E.C.D.’s information is consistent with what Bekaert argues. If there is any slackening of financial globalization, he wrote to me, it’s in the financial flows between the developed economies.
Assaf Razin, an economist at Tel Aviv University in Israel, told me that “globalization is always getting reorganized and it had to go through disruptions but the disruptions didn’t really move it away from the trends.” Like Bekaert, Razin said that the rise of China has been and remains a driving force in the globalization of trade and investment.
Alicia García Herrero, a senior fellow at Bruegel, a think tank based in Brussels, was the most skeptical person I interviewed about globalization. For one thing, she said, China is reducing its reliance on foreign parts for the products it makes. It’s still dependent on trade, but more of the value of what it sells is being generated at home, she said. China has faced criticism from other countries, including the United States, for its “Made in China” 2025 self-sufficiency initiative and has played down use of the phrase in recent years. But García Herrero said the effort continues.
She added that in financial statements and calls with analysts, more company executives are saying they want to emphasize safety and reliability in their sourcing, switching from “just in time” to “just in case.”
That’s true, but it doesn’t mean globalization is passé. International migration and travel, which are another form of globalization, are still on the rise. And if countries re-shore production they may need more immigrants to do the additional work, especially if they have low population growth, García Herrero said. While companies and countries are trying to wean themselves off over-dependence on distant suppliers, especially ones in possibly unfriendly countries, “it doesn’t mean it’s all coming home,” Kleintop said. What was once made in China might be supplied instead by Mexico, for example, he said.