N2019 GCE A Level Case Study Q2f: End of Globalisation?

Using economic analysis and based on the evidence provided, discuss whether you agree with the view that globalisation is reversible?

Globalisation is defined as increasing connectedness and integration among countries through more intense trade, freer capital flows and increase availability of labour.

To some extent, globalisation is reversible when countries engage in trade war with the use of protectionism measures such as tariff and quota. Countries like the US uses measures such as tariff to raise the price of imports, encouraging domestic consumers to switch to consuming the relatively cheaper domestically produced goods and services. This reduces trade among countries with US, reversing the trend of globalisation. Also, as mentioned in extract 4, with the use of automation, manufacturing can become more local, unlike in the past where firms partake in the global value chains (GVCs) to optimise production process where mass products are produced at cheaper cost of production. With rising tastes and preference in consumers for personalised or customised products, they are willing to pay higher prices for goods produced in an expensive location. This allow firms to remain profitable without setting up the factory abroad. Hence, there can be less capital flows across countries, reversing globalisation.

However, the above applies more for developed countries such as US and Germany as they are economies who may not have gained from globalisation. On the other hand, Asian countries are keen to capitalise on the many gains from globalisation by engaging in mass investment into different regions e.g. ‘Belt and Road Initiative’ of China as well as the pursuit of free-trade deals in a bid to boost manufacturing exports to their trading partners. As shown in Table 2, Singapore, Malaysia, China and Japan are Asian economies that top the table for percentage of foreign inputs in their economy’s exports.

Hence, globalisation in this case for the Asian economies is accelerating as gains from globalisation such as an increase in investments and exports of the countries will increase in AD and LRAS of these countries, bringing about high sustained economic growth (increase in RNY from Y1 to Y2), healthy BOP, lower unemployment and low inflation.

Overall, it is unlikely for globalisation to be reversible especially in times of strong economic growth where there are strong demands goods and services worldwide, which will promote more trade among economies. Also, while some firms in the developed countries may manage with domestic production of goods and services, the gains from GVCs on producing on a larger scale for all economies far outweigh the benefits for producing local. Lastly, with many years of globalisation, many governments and firms have vast investments in many countries, should globalisation start to reverse, countries, corporations and investors will suffer large losses. Hence, it is unlikely for globalisation to be reversible.

Examiners Comments: Responses to this question were relatively weaker. In some cases, the response appeared rushed and incomplete. The weaker responses were often unbalanced and mostly considered only one view, with limited linking of the case study to the relevant of economic concepts underpinning the discussion. Stronger responses, however, considered the question from a variety of perspectives, making good use of economic concepts and theoretical frameworks. These responses gave a balanced view and came to a reasoned conclusion, using both economic analysis and the evidence provided in the data.