Globalization Dented, not Derailed

(Export Development Canada – Stephen S. Poloz)

Globalization always rubs some people the wrong way, but this is especially the case during recessions. This one is worse than usual, because many blame globalization for the contagion that brought the U.S. financial crisis and economic downturn to their shores.

Protectionist rhetoric and practice is on the rise, and there has been a sharp decline in international trade flows. With transportation costs creeping higher, and some predicting an eventual return to sky-high energy costs, it would seem that globalization faces its own perfect storm.

Obviously, there is more than one way to look at this, but let’s begin by carefully defining globalization. Most would agree that globalization refers to the emergence of borderless business.

One manifestation of this trend is the development of global supply chains, where companies fragment their production processes just as they would if they were in a single building, but instead locate each process in a specialized facility located anywhere in the world that makes good business sense. The processes are then connected by international trade, rather than by a conveyor belt – our trade dependence rises.

That’s a good definition, but not the whole picture. A second manifestation of globalization is cross-border investment, as some companies replicate their operations in their target sales markets. To illustrate, Canadian companies have levels of sales from their foreign-based affiliates that are about the same order of magnitude as total Canadian exports. These sales do not show up in our basic trade statistics, but they are very important to Canadian incomes and to the sustainability of our companies. Read the article or view the video here.