Brexit, rising populism across Europe, the ascent of Republican presidential candidate Donald Trump in the US and the backlash against income inequality everywhere.
A slew of political and economic forces have nurtured a growing narrative that globalization is now on life support — a potential game-changer for global financial markets, which have staged a rapid expansion since the end of the Cold War thanks to unfettered cross-border flows.
No more: Trade volumes have stalled while the “politics of rage” has taken root in advanced economies, driven by a collapse in the perceived legitimacy of political and economic institutions, a new report from Barclays PLC said.
The result, the bank said, is an oncoming protectionist lurch — restrictions on the free movement of goods, services, labor and capital — combined with an erosion of support for supranational bodies, from the EU to the WTO.
“Even mild de-globalization likely will slow the pace of trend global growth,” Barclays head of European FX strategy Marvin Barth wrote in the report.
“A sense of economic and political disenfranchisement due to imperfect representation in national governments, and delegation of sovereignty to supranational and intergovernmental organizations” has generated the backlash, he said.
He cited as a major factor the collapse in support for centrist parties in advanced economies and added that the role of income inequality might be overstated.
The report echoes Harvard University economist Dani Rodrik’s earlier contention that democracy, sovereignty and globalization represent a “trilemma.” Expansion of cross-border trade links — and the attendant increase in the power of supranational authorities to adjudicate economic matters — is a direct threat to representative democracy, and vice-versa.
The veto on Monday of the EU’s free-trade deal with Canada by the Belgian region of Wallonia — whose leader said the deadline to secure backing for the deal was “not compatible with the exercise of democratic rights” — is a sharp illustration of this trilemma.
Barth paints a sweeping picture of the global investment landscape in this new era.
Barclays is not the first bank to paint this picture — Bank of America Merrill Lynch (BofA Merrill Lynch) earlier this month said that recent “events show nations are becoming less willing to cooperate, more willing to contest.”
Looser fiscal policy, trade protectionism and wealth redistribution could unleash a wave of inflation, BofA Merrill Lynch said, recommending that investors snap up real-economy assets to hedge against a “war on inequality.”
David McWilliams, a former economist for Ireland’s central bank, wrote in an Oct. 14 article that the backlash against globalization represents an especially major shift for the US Federal Reserve and its policies.
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