How to be a winner from ‘de-globalisation’

De-globalisation looks as though it’s happening. Calls for yet more sanctions on Russia after the horrifying images of dead bodies strewn across Ukrainian streets seem now to have every chance of success, with European nations possibly even prepared to inflict upon themselves the pain of an embargo on Russian energy imports. As the pandemic continues to disrupt supply chains, and geopolitical tensions between the US and China haven’t gone away, the need to shorten the flow of goods, services, components and raw materials and bring production home becomes acute.
Globalisation didn’t benefit everyone, and de-globalisation (or “slowbalisation”) needn’t hurt everyone. Some countries should benefit. But positioning to do so will take some effort.
Perhaps the most interesting case is Mexico. The country had a series of dramatic crises through the 1970s and 1980s, but has managed to survive without any financial implosion of its own making since the Tequila Crisis of 1994, which led to about half of banking assets being written off.
But while Mexico has worked out how to maintain stability (unlike other Latin American powers such as Brazil and Argentina), it hasn’t worked out how to grow.
Four decades ago, Mexican gross domestic product per capita was comfortably higher than South Korea’s and many multiples of China’s. Now, China has just overtaken Mexico, while South Korea’s wealth per person is almost four times greater.
After the 1994 crisis, Mexico aimed for economic orthodoxy, successfully squeezing out inflation, keeping budget deficits under control, and cannily playing international markets to get preferential funding. The country also sought to open up to the world through what was then Nafta (the North American Free Trade Agreement.) The problem was that it came just in time to be sideswiped by the rise of China, and then that nation’s accession to the World Trade Organization in 2001. A thriving industry of maquiladoras — assembly plants on the border that would take parts from the US, put them together into final products and send them back — helped spur growth, only to be priced out of the market by far cheaper Chinese labour.
President Donald Trump’s tariff war with China offered the maquiladoras a chance to regain some share. One study shows that the tariffs were a boon for Mexico, which benefited far more than countries with greater transport costs to the US. However, Mexico continued to lose ground to Vietnam and the rest of the world in products that the US hadn’t protected with tariffs.

—Bloomberg