Deglobalization Will Hurt Growth Everywhere - Rogoff
June 14, 2020
3/June/2020 Kenneth Rogoff:
If deglobalization goes too far, no country will be spared.... Even the US, with its highly diversified economy, world-leading technology, and strong natural-resource base, could suffer a significant decline in real GDP as a result of deglobalization.
The post-pandemic world economy seems likely to be a far less globalized economy, with political leaders and publics rejecting openness in a manner unlike anything seen since the tariff wars and competitive devaluations of the 1930s. And the byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified economies.
Today, the COVID-19 pandemic appears to be accelerating another withdrawal from globalization.
The risk today of a debilitating 1930s-style overshoot in deglobalization is massive
Outside of the advanced economies – where 86% of the world’s population lives – global capitalism has lifted billions of people out of desperate poverty.
The US has more to lose from deglobalization than some of its politicians, on both the right and the left, seem to realize. ..... Aside from its political ramifications, deglobalization also poses economic risks to America. ..... This not only implies a sharp fall in both multinationals’ profits and stock-market wealth (which is probably fine with some), but also could mean a significant drop in foreign demand for US debt. That would hardly be ideal at a time when the US needs to borrow massively in order to preserve social, economic, and political stability.
'The paper argues that when "gross external debt reaches 60 percent of GDP", a country's annual growth declined by two percent, and "for levels of external debt in excess of 90 percent" GDP growth was "roughly cut in half." '
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