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The Third Wave Of Globalization Has Ended

November 2, 2019

The Third Wave Of Globalization Has Ended

The global economy is certainly at crossroads. Protectionism and nationalism, a well-matched marriage of global chaos at the moment, has threatened to end the third wave of globalization that began in the late 1980s. 

Capital Economics has published a compelling research note, titled “The end of globalization,” specifying how 150 years of globalization could’ve put in a significant peak in the last several years, all thanks to President Trump’s trade war with China. 

The third wave of globalization began in the late 1980s, mostly driven by technological advancements and shifting labor and capital around the world to the most cost-effective regions. 

While the Western hemisphere consumed for three decades, the Eastern hemisphere manufactured the goods (which produced rising inequality in the West and thus how protectionism and nationalism were sparked), but the status quo of how supply chains are organized around the world could be changing as world trade volumes have hit a significant wall. 

U.S. Economy Grew at 1.9% Pace in Third-Quarter

In terms of the Elliott wave principle, a third wave eventually gives out to a corrective fourth wave. Capital Economics believes the world is headed towards a period of de-globalization, or as history will call it a fourth corrective wave.  

“It is possible that this is just a temporary hiatus and that an unforeseen technological breakthrough will trigger a new wave of globalisation. But such waves are rare. In fact, there are several reasons – even before we consider the trade war – why globalisation has peaked. First, all the major steps to integrate the global system have been taken. Second, advanced manufacturing techniques mean that the location of manufacturing no longer hinges on where labour costs are cheapest. Third, complex supply chains have reached their limit. Fourth, China is unlikely to open up its capital markets significantly.

 …click on the above link to read the rest of the article…

UBS Warns Trump’s Trade Fights Are ‘Reversing 15-Years Of Global Progress’ 

October 25, 2018

UBS Warns Trump’s Trade Fights Are ‘Reversing 15-Years Of Global Progress’ 

Protectionism has cross-party support in the U.S., and nationalist parties continue to gain traction in Europe. Where there is inequality, there is a surge in protectionism; a risk that could trigger the next global economic crisis sometime around 2020.

The Trump administration’s trade war and a hard Brexit could send tariffs to levels not seen in 15 years, according to UBS economist, as per Market Watch.

The Swiss bank views the U.S. tariffs, along with retaliatory measures (tit-for-tat with China), as the most significant factors boosting the metric. Second, are fears of a hard Brexit, which refers to the potential split between the U.K. and the European Union.

“Combined, these two would add 142 [basis points] to the average global import tariff, essentially reversing 15 years of progress in global tariff reduction,” said UBS chief economist, Arend Kapteyn, in a recent note.

The first chart shows how the U.S. significantly outpaces the U.K. in the bank’s report of “which tariff wall if bigger.” In other words, the next global economic crisis could be triggered by President Trump’s trade war.

The next chart reveals how the average global tariff could skyrocket to levels not seen since the early days of George W. Bush’s first presidential term.

Kapteyn then warns that trade wars and a hard Brexit could be the perfect cocktail to stymie global growth. “We wanted to give some sense of the jump in trade disruptions.” 

* * *

BofA’s Michael Hartnett sings a similar tune of the coming turmoil. He warns U.S. fiscal easing and protectionism late in the economic cycle could cause trouble.

In the chart below, controls on trade, capital, and labor are likely to soar to levels not seen since the 1940s, effectively wiping out more than a half-century of progress under globalism.

…click on the above link to read the rest of the article…

Former Fed Governor Warns Of “Several Decade Cold War” With China

October 7, 2018

Former Fed Governor Warns Of “Several Decade Cold War” With China

Former Fed governor Kevin Warsh warned on Thursday that the US-China relationship is “probably as poor as” it has ever been since former President Richard Nixon and Henry Kissinger developed strategic relations between both countries in the early 1970s.

“We’re at the risk of a real cold war” between the world’s two largest economies, said Warsh who had been on President Trump’s list for Fed chairman before Jerome Powell was chosen. “The last 30 years we’ve been living and breathing globalization as if it’s an inevitable force,” but now, it seems the six-decade-long bubble has finally popped.

Bank of Americas says trade wars and deteriorating relations with China have been some of the reasons for the decline in globalism. Especially, US tariff duties collected, % of total imports have surged under the Trump administration.

“Protectionism has cross-party support in the US, and nationalist parties continue to gain in Europe. Further action on China ($200bn), autos ($350bn), NAFTA ($690bn) could raise US tariff revenue as % total imports to levels not seen since 1946,” said BofA.

During the CNBC interview, Wash used the term “cold war” to describe the economic standoff, not the decades-long “mutually assured destruction” nuclear stalemate with Russia.

“We are probably on the precipice of a brand new relationship with the Chinese,” Wash told CNBC.

He asked: “Could we be at the beginning of a 10- or 20-year cold war?” If so, an economic cold war between the countries could have major implications for the global economy like causing a global growth scare and repricing risk assets.

What is next? 

The return of a bipolar world: “Five or 10 years from now we might see two poles: a Chinese-centric world and an American-centric world. And the [other global] economies and countries will have to plug into one or both,” he said.

…click on the above link to read the rest of the article…

China Vows To “Firmly Attack” Trump Tariffs “To The End At Any Cost”

April 6, 2018

China Vows To “Firmly Attack” Trump Tariffs “To The End At Any Cost”

China has responded to President Trump’s calls for an additional $100 billion in tariffs, saying that it would counter U.S. protectionism “to the end, and at any cost.”

“The Chinese side will follow suit to the end and at any cost, and will firmly attack, using new comprehensive countermeasures, to firmly defend the interest of the nation and its people,” the Commerce Ministry said in a statement on its website on Friday.

“We don’t want a trade war, but we are not afraid of one.”

President Trump’s decision to push for a more trade tariffs may well be the tipping point for the US dollar as global reserve currency since it leaves Beijing with limited tit-for-tat retaliation… forcing the cornered nation to ‘get creative’.

As Bloomberg reports, China acted swiftly this week to announce reciprocal tariffs on $50 billion worth of American imports, unveiling a match for the Trump administration’s move against Chinese imports less than 12 hours before.

Now that U.S. President Donald Trump has ordered a review of measures on $100 billion of additional Chinese goods, China will have to get creative to keep up the like-for-like rhetoric.

There aren’t enough American goods imports to target…

Of course, China could still take other measures – like curbing package tours or student transfers to the U.S., or steps against American companies’ operations in China; or the final threat of ‘going nuclear’ by withdrawing from US Treasury auctions, devaluing its currency (think Aug 2015 turmoil), or a more petrodollar-focused retaliation.

As Petromatrix managing director Olivier Jakob wrote in a recent reports, if the trade war between U.S. and China continues “there is a risk for oil prices that China uses the bazooka option it has on U.S. crude oil exports,”which would be to curb shipments from America.

 

…click on the above link to read the rest of the article…

3 Economic Fallacies That Just Won’t Die

March 6, 2018

3 Economic Fallacies That Just Won’t Die

Henry Hazlitt discussed, dissected, and debunked 22 economic sophisms in his classic work ‘Economics in One Lesson.’
In any academic discipline, one can find two types of experts: those who are incapable of explaining complex ideas in a simple manner; and those capable of making the difficult look easy. This year marks the 25th anniversary of the death Henry Hazlitt, one of the few economists who belongs to the second group.

Born in Philadelphia in 1894, Hazlitt developed his career as a journalist in the most influential newspapers and magazines of the country, starting at The Wall Street Journal as a typographer in 1914. During the 1920s, he wrote for several printed media outlets, including The New York Evening Post and The Nation, of which he was appointed literary director.

Hazlitt pointed out that short-sighted economic policies aimed at satisfying the claims of particular groups end up reducing the welfare of the majority.

In 1934, Hazlitt became the chief editorial writer of The New York Times, where he gained a reputation for writing about economics and finance from a free-market perspective. His outspoken opposition to the Bretton Woods Agreement had him fired after 12 successful years at the most important newspaper of the Big Apple. Yet he continued to be dedicated to his passion for writing until his death in 1993.

Despite his lack of formal academic training, Hazlitt showed a deep interest in the field of economics, which led him to write several books on the topic. In 1946, he published one of the best introductory texts on economics ever written: Economics in One Lesson.

Following the steps of the 19th-century French economist Frédéric Bastiat, Hazlitt pointed out that short-sighted economic policies aimed at satisfying the claims of particular groups inevitably end up reducing the welfare of the majority of the population. In his own words,

…click on the above link to read the rest of the article…

Not Nearly Enough Growth To Keep Growing

February 18, 2017

Not Nearly Enough Growth To Keep Growing

 


Jackson Pollock Shooting Star 1947

It’s amusing to see how views start to converge, at the same time that it’s tiresome to see how long that takes. It’s a good thing that more and more people ‘discover’ how and why austerity, especially in Europe, is such a losing and damaging strategy. It’s just a shame that this happens only after the horses have left the barn and the cows have come home, been fed, bathed, put on lipstick and gone back out to pasture again. Along the same lines, it’s beneficial that the recognition that for a long time economic growth has not been what ‘we’ think it should be, is spreading.

But we lost so much time that we could have used to adapt to the consequences. The stronger parties in all this, the governments, companies, richer individuals, may be wrong, but they have no reason to correct their wrongs: the system appears to work fine for them. They actually make good money because all corrections, all policies and all efforts to hide the negative effects of the gross ‘mistakes’, honest or not, made in economic and political circles are geared towards making them ‘whole’.

The faith in the absurd notion of trickle down ‘economics’ allows them to siphon off future resources from the lower rungs of society, towards themselves in the present. It will take a while for the lower rungs to figure this out. The St. Louis Fed laid it out so clearly this week that I wrote to Nicole saying ‘We’ve been vindicated by the Fed itself.’ That is, the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s.

…click on the above link to read the rest of the article…

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