{"id":192074,"date":"2025-09-01T18:13:19","date_gmt":"2025-09-01T18:13:19","guid":{"rendered":"https:\/\/www.europesays.com\/us\/192074\/"},"modified":"2025-09-01T18:13:19","modified_gmt":"2025-09-01T18:13:19","slug":"why-the-global-economy-is-headed-back-to-the-1930s","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/192074\/","title":{"rendered":"Why the Global Economy Is Headed Back to the 1930s"},"content":{"rendered":"

On this episode of The Long View<\/a>, Neil Shearing, Group Chief Economist at Capital Economics and author, breaks down why he believes that the world is not deglobalizing, what he sees for the US and China in the global markets, and more insights from his new book The Fractured Age: How the Return of Geopolitics Will Splinter the Global Economy.<\/p>\n

Listen to the full episode of The Long View Neil Shearing: The World Isn\u2019t Deglobalizing; It\u2019s Fracturing <\/p>\n

Economist Neil Shearing ponders shifting global trade patterns, inflation, the dollar, and more.<\/p>\n

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Here are a few highlights from Shearing\u2019s conversation<\/a> with Morningstar\u2019s Dan Lefkovitz<\/a>.<\/p>\n

Why the Global Economy Is Headed Back to the 1930s<\/p>\n

Dan Lefkovitz<\/b>: So, in terms of the thesis, you do say that the globalization era has ended, but the world is not necessarily deglobalizing. Can you parse that distinction for us?<\/p>\n

Neil Shearing<\/b>: Yes. So, let\u2019s start by what do we mean by globalization?<\/p>\n

Lefkovitz<\/b>: Yeah.<\/p>\n

Shearing<\/b>: Now, obviously it\u2019s about the integration of global supply chains and that was perhaps the most evident way that we saw the world integrate in the 1990s and 2000s, but it\u2019s not just about trade. Trading goods, it\u2019s trading services, too, of course, as an expansion of services trade in the \u201990s and 2000s. That now accounts for about one-quarter of global trade is services, and importantly, not tariffed, of course, but also the integration of global capital markets. That was a really salient feature of the period of globalization that reshaped the world in the 1990s and 2000s, and it wasn\u2019t so much a feature of previous ways of globalization. And of course, the integration of labor markets. It was as much about immigration and the migration of people as it was the integration of goods markets through trade and global capital markets through cross-border investment flows.<\/p>\n

So, globalization, I think, is not just about the fact that we buy iPhones that contain parts from umpteen different countries. It\u2019s about the integration of capital markets so we can choose to invest our pensions, our 401(k), all over the world. It\u2019s about the integration of labor markets, too, and of course the cross-border sharing of technology. And so, that came together in this post-Cold War era, shaped, of course, by the Washington consensus, which promoted the openness and created what I call this period of hyper-globalization. And hyper because, A, the world integrated at a pace that was never seen previously, but also, we saw integration not just of goods markets, but services and of capital markets and of labor markets, as I\u2019ve just said. So, it was a very broad-based period of integration.<\/p>\n

That all came together, completely reshaped the global economy in China\u2019s rise, but also, we saw rapid growth in India, rapid growth in parts of Latin America, in central and Eastern Europe, the rapid growth in places like Poland and Hungary and the Czech Republic to escape middle income and become high-income countries. None of that would have been possible without the integration of markets in Europe.<\/p>\n

And then came the global financial crisis. Of course, that did two things. One is it started to reveal some of the vulnerabilities that had been allowed to build within the global system during the 2000s. And it meant that in the West we had this incredibly painful period of recovery. It took a long time for GDP to get back to its precrisis levels, and we\u2019ve never got back to its precrisis trend. If you look across Europe, if you look across the UK, if you look across the US, GDP is still some way short of its pre-GFC trend. And alongside that, we had a period of where China grew rapidly after the GFC and then in 2012 the accession to the Chinese leadership of President Xi. And with it, this sense that China was going to start to challenge the US hegemony abroad and also reassert the primacy of the party at home.<\/p>\n

All of that came together and created this inflection point where the world really stopped integrating. We started to get pushback against globalization in the West on two grounds. One is it became a convenient scapegoat for some of the frailties, vulnerabilities that were made evident by the global financial crisis. But also, on geostrategic and geopolitical grounds because suddenly, rather than becoming a vehicle for spreading peace and prosperity, globalization had actually brought China into the global fold. And China was saying, actually, we\u2019re not going to become more Western; we\u2019re going to start to challenge US superpower status and US hegemony. And so that you\u2019ve got to push back against integration certainly in Washington, increasingly in Europe on the grounds that it was starting to compromise strategic interests.<\/p>\n

Now, that doesn\u2019t necessarily mean, though, that the world is deglobalizing. I think too often people conflate the idea that globalization has reached perhaps a natural limit with the notion that somehow countries will therefore retrench, turn inward. That, of course, is possible. And the tariffs that have been imposed by President Trump are certainly not how I would be advising him to devise US trade policy. However, I don\u2019t think it\u2019s necessarily the case that the world is going to deglobalize either. In other words, that we\u2019re going to see big falls in global trade flows, global capital flows, or in deglobal migration flows. And that\u2019s what the data is telling us as well, by the way, still close to record highs. So, I think that the key theme that runs through the book is that the idea that the global economy is fracturing, splitting into these two blocks rather than countries are turning inward, trade flows are falling, and we\u2019re going back to the 1930s.<\/p>\n

How the Western Reaction to Huawei Ushered in the Next Phase of the Global Economy<\/p>\n

Lefkovitz<\/b>: In the book you tell the story of the Chinese company, Huawei, emblematic of how globalization has evolved through these different phases. Can you talk about why you think the company is a good metaphor?<\/p>\n

Shearing<\/b>: Yes, I think it\u2019s a great metaphor. When you look into the history of Huawei and lots of really good books have been written on it, I would recommend all listeners to have a read. It\u2019s interesting insofar as it charts the course of the Chinese economy in some sense, through the 1980s, the period of opening up, then in the 1990s, dominance within China in the 1990s, and increasingly expanding overseas in the 2000s to become this symbol really of Chinese openness, openness to the world. And it started in relatively low-tech products, switched gears and so on and so forth that we find in our telecom\u2019s infrastructure, and then increasingly became this manufacturer of high-end, high-tech, advanced technology goods.<\/p>\n

And it was only really in the mid-2010s that we started to get a bit of a pushback in the West to Huawei. Up until that point it had been the symbol of China\u2019s integration into the global economy and indeed its ability to push the limits of the technological frontier. But then we started to get security concerns. In particular, of course, concerns about allowing Huawei and products and items produced by Huawei into global telecoms systems and 5G systems in particular. People tend to think, it\u2019s remembered as the US leading this pushback against Huawei\u2019s involvement in 5G networks and compelling other countries to take similar action, but actually it was Australia that first cut Huawei from its 5G networks. Then the US followed suit and then started to put pressure on its traditional allies, if you like, the UK and then countries in Europe, in France, in Germany, Italy to set out timetables to remove components produced by Huawei from their telecoms\u2019 infrastructure.<\/p>\n

So, I think it neatly charts the idea that both China\u2019s rise and integration into the global economy, its preeminence as a global manufacturer through the 1990s, 2000s and then the early part of the 2010s. And then suddenly these concerns about China\u2019s emergence as a geostrategic national security threat, having component parts produced by potentially your geopolitical rival in your telecoms\u2019 infrastructure. Suddenly Western capitals are thinking that\u2019s not a good idea, leading a push to remove them, and this new phase of the global economy based around superpower rivalry and geostrategic interests.<\/p>\n

Why This Economist Doubts China Could Overtake US in Their Economic Rivalry<\/p>\n

Lefkovitz<\/b>: So, in talking about the rivalry between the US and China and fracturing, you do say that you\u2019re doubtful that China will overtake the US as the world\u2019s largest economy. Why?<\/p>\n

Shearing<\/b>: Well, I think it\u2019s important to understand exactly how the global economy is fracturing and who is aligning, and how different countries are aligning on either side of that fracturing divide. In the book I set out different ways in which this could play out. But I think the central scenario, a reasonable base case, is that fracturing will be contained to areas that are of great strategic importance to economies. Anything that compromises supply chain security, national security, and technological leadership\u2014I think that\u2019s going to be the battleground of fracturing.<\/p>\n

Of course, we don\u2019t know exactly how this is going to play out. As I say, there\u2019s many other ways it could play out, and I chart those in the book. But I think that\u2019s a reasonable base case for how things will shape up. And so, they\u2019re the fault lines.<\/p>\n

And then the key issue then is to think about well and how the different countries align. Now, my sense is that for all the heated rhetoric between Washington and Western capitals over the past six months or so in the second Trump administration, most European countries in capitals will still align with the US over China. Indeed, it\u2019s striking that we\u2019ve seen increasing pushback against China from Europe over the past few months. That should not be taken as given. We can get into how the US might see some of its advantage in this fractured world by pushing away its allies. It\u2019s a really big risk. But I think most advanced countries, most Western countries, still align primarily with the US.<\/p>\n

And so, when you look at the breakdown of this globalized world, you have on the US side\u2014and at Capital Economics we\u2019ve done some work to back this up with some data on both economic data, but also political data\u2014you have countries in Europe, France, Germany, Italy, the UK, Spain. You have countries in Asia, Japan, Taiwan, Korea, the Philippines, Vietnam. India leans toward the US, although that\u2019s perhaps looking a bit more doubtful given recent developments with the US. Australia, Canada, Mexico. So, you get this really diverse group of countries that align with the US.<\/p>\n

Now, if you look at China, you really have just China dominates its block to a far greater extent than the US does its block. And most of the countries that tend to align with China both economically and importantly politically are either autocracies or commodity producers or both. So, Russia being the most obvious, but also Iran, North Korea, Venezuela, large parts of sub-Saharan Africa, parts of Latin America. That gives China a lead when it comes to the race to secure critical minerals in this fractured world. But when you think about economic growth and technological development, which gets you back to your question about why does China not overtake the US? China\u2019s really having to do all of that itself. It\u2019s having to do a lot of this development of technology itself, particularly if the US starts to cut it out of Western technology.<\/p>\n

China will succeed in some of that. It\u2019s spending, according to our estimates, about 5% of GDP a year on industrial policy and subsidies. And that\u2019s helping create these national champions like Huawei, BYD, CATL, the big battery producer. It\u2019s having success at the technological frontier, but that industrial policy active as it is, it\u2019s also creating some pretty big downsides and problems for the Chinese economy and manifesting itself in slower productivity growth. So, you have soft loans going to companies that are essentially loss making as part of this industrial policy, and you\u2019re propping up companies that otherwise would go bust and that\u2019s bad for productivity growth.<\/p>\n

So, the fact that the US has a more diverse group of countries in its camp, in its block, and the fact that China is having to do this itself and it\u2019s having some success, but that success is coming at a cost, I think explains why the US probably still stays ahead of China in terms of GDP on a market exchange-rate basis.<\/p>\n","protected":false},"excerpt":{"rendered":"On this episode of The Long View, Neil Shearing, Group Chief Economist at Capital Economics and author, breaks…\n","protected":false},"author":3,"featured_media":192075,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[64,79,67,132,68],"class_list":{"0":"post-192074","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-united-states","11":"tag-unitedstates","12":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115130401038237403","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/192074","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=192074"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/192074\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/192075"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=192074"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=192074"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=192074"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}