There is no such thing as deglobalisation, and the reshaping of global trade amidst increasing protectionism is simply globalisation taking a different form, according to the chief economist at the asset management arm of two-century-old Swiss bank Pictet.
Patrick Zweifel, speaking at the Fiduciary Investors Symposium in Singapore, said this new form of globalisation would send huge benefits to Asia and see regional trade and GDP grow faster than the rest of the world.
Trade in goods as a proportion of GDP rose globally from the 19th century to finally peak in 2008, before this ratio began to decline. This falling trend is likely to continue, even if there was a rebound in 2022, Zweifel said. But at the same time there has been a booming increase in services which are growing at a faster pace than goods.
“That’s just the beginning of a new trend,” Zweifel said. “The new wave of globalisation is precisely on services.”
There is no real need any more for these services to be delivered face-to-face, owing to technological improvements that were catalysed by the pandemic, he said. This will send opportunities in many services sectors to lower-cost markets around the world, just as goods production was outsourced globally from the 1970s.
Limits to re-shoring
There are limits to the re-shoring that is happening currently as companies seek to shore up their supply chains and guard critical technology, Zweifel said, arguing he is “a strong believer that the principle of competitive advantage will prevail.”
“Companies will continue forever to find places where they can benefit from lower wages,” Zweifel said. “I’m not sure [re-shoring] is a long-lasting process.”
Globalisation of services will be positive for the Asia region which has already benefited hugely from global outsourcing of manufacturing, he said. Asia is highly connected through various free trade agreements, most recently the Regional Comprehensive Economic Partnership which will increase trade across the region.
It also is highly diverse, with wealthy countries with ageing populations–such as Australia, New Zealand, Taiwan, South Korea and Japan–providing capital to the more dynamic, younger populations in South-East Asia and South Asia. India is already the world’s biggest exporter of business services but other countries in the region are also growing their offerings quickly.
Asian markets should, and will be, much more reflected in global indices in the years to come, he said.
And China’s Renminbi will rise in dominance, he said, pointing to the fundamental factors that existed when the US Dollar overpassed the Sterling, including size of GDP, size of the market, and relatively low volatility.
Looking at this history, the Renminbi has “all the fundamentals that can make it a reserve currency,” and “should already be 18% of FX reserves,” Zweifel said.
But this has not happened because “the Renminbi is not fully convertible, there are lots of capital controls, and these need to be removed to see it developing as a more international currency.”