The following is a summary of our recent interview with Reva Goujon, which can be listened to on our site here or on iTunes here.
With recent unexpected shocks such as the Brexit vote and Donald Trump’s win, many are wondering, what’s the outlook for 2017 and beyond? This time on FS Insider, we spoke with Reva Goujon, Vice President of Global Analysis at Stratfor, about her take on the forces set to influence the world economy in the coming year.
The Shifts Aren’t Transitory
Some commentators have suggested that we are overreaching if we link the vote for Brexit with Trump’s victory, and that these don’t point to a general trend against globalization. Goujon, however, doesn’t see it that way.
“I think this is very much a systemic shift that we’re seeing in the international system,” she said. “The politics that may be shocking to many people are really just a manifestation of something much deeper going on.”
There are larger forces at work globally, she pointed out. We’re seeing slower economic growth overall. Global trade growth figures basically plateaued in 2015, and since then we’ve had a protracted slump, which tells us something bigger is going on there.
The reasons are complicated but include aging demographics, technological advancement that is leading to labor displacement, and concerns about immigration. These factors combined are driving a rise in nationalism and protectionism, populism and nativism, Goujon stated.
“This is not a temporary blip,” she said. “This is something that’s going to endure, and it’s going to have second and third order effects that are going to reshape international systems.”
Demographics Eventually Matter
We talk about demographics very abstractly, Goujon pointed out, but we’re getting closer and closer to the 2030 to 2040 timeframe where a lot of developed countries with contracting populations will start to feel that demographic crunch.
As populations grow older, economic growth slows and labor productivity declines. This will have a tremendous impact, she added. It’s important to look at these challenges against the backdrop of China’s economic evolution.
“If we look at the past three decades, the world (has been) feeding off of China’s enormous growth cycle,” Goujon said. “Those days are over. China’s not going to repeat that rate of growth, and there’s no replacement for China on that scale.”
Everybody has to adjust to slower growth. We’re used to a hyper-globalized economy with long supply chains, but that’s also changing.
The rise of robotics and advanced manufacturing, where technologies are going to allow developed countries to compensate for their demographic shortages by becoming more efficient and producing goods closer to home, are altering the landscape.
“That entire trend is going to reshape how we trade, how we work, and how the world operates,” Goujon said.
What Does Trump’s Presidency Herald for Global Trade?
It’s always easy to blame presidents for economic conditions, but it’s not really accurate, Goujon pointed out.
“The fact of the matter is, economies operate in cycles,” she said. “A lot of it has to do with timing.”
Structural forces are extremely important to bear in mind, she noted and the power that a single political personality has to change these issues is limited.
Though promises of manufacturing jobs returning to the United States have wide support, the reality is more complicated.
“The fact of the matter is that the US isn’t producing a lot of the things that it imports in large numbers,” Goujon said. “So even if the US wanted to raise tariffs on Chinese imports, it’s not like there’s factory capacity ready at hand to start producing those things at home.”
If such tariffs were enacted, prices on those goods are going to go up. And it also means companies in the United States that still have their supply chains in Asia may have to turn to other countries in Southeast Asia, which we’ve already seen to a degree.
“I don’t think you’re going to see an across-the-board, huge tariff applied on all Chinese imports,” she said. “That’s extremely unlikely. But certainly more selective trade measures, anti-dumping measures, focused on steel, that’s far more likely.”
China is also shifting to a more consumption-based economic model, and is producing more intermediate goods and components with the intent of selling more to itself.
This is a huge priority for Beijing as it seeks to reduce its vulnerabilities and dependencies on its export markets.
“That is going to fundamentally change the face of global trade,” Goujon said. “And the United States is going to feel the brunt of that.”
Political Pressures Building
The reality is there’s rebalancing to do, and aging populations need to become more innovative. Economies are going to do more with less, which will drive tech and automation further.
“People are going to be left out in that process,” Goujon said. “It is the responsibility of governments, to some degree, and the private sector to ensure that the labor force is getting educated in more advanced industries and providing that opportunity to make sure that people are not left completely in the lurch with this transition.”
We need to understand these structural forces, rather than try to fight them, she noted. Overall, there’s a lot of potential for fireworks in 2017. It’s possible we’re witnessing a perfect storm brewing with problems in the Eurozone and persistent issues in China, she said. Also, the United States is hiking interest rates and preparing itself for another economic slowdown that is approaching sooner or later.
“Given all of these different variables that we’re watching globally, there’s still a lot of room for instability,” she said. “Pretty much everywhere we look, there’s a conflict zone that’s going to be grabbing the US’s attention.”
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