Charting Globalization’s Turn to Slowbalization After Global Financial Crisis

Looking back over a century and a half of data, the main phases of globalization are clearly visible using the trade openness metric—the sum of exports and imports of all economies relative to global gross domestic product. As this chart shows, globalization plateaued in the decade and a half since the global financial crisis. This latest era is often referred to as “slowbalization.”

Identifying Eras of Globalization

Each of the chart’s five main periods was characterized by different configurations of economic and financial powers, and different rules and mechanisms for economic and financial ties between countries, as we recently highlighted in a recent IMF staff note that discussed the impact of trade fragmentation as well as technological decoupling.

1. The Industrialization era was a period when global trade—dominated by Argentina, Australia, Canada, Europe, and the United States—was facilitated by the gold standard. It was largely driven by transportation advances that lowered trade costs and boosted trade volumes.
2. The Interwar era saw a dramatic reversal of globalization due to international conflicts and the rise of protectionism. Despite the League of Nations push for multilateral cooperation, trade became regionalized amid trade barriers and the breakdown of the gold standard into currency blocs.
3. The Bretton Woods era saw the United States emerge as the dominant economic power with the dollar, then pegged to gold, underpinning a system with other exchange rates pegged to the greenback. The post-war recovery and trade liberalization spurred rapid expansion in Europe, Japan, and developing economies, and many countries relaxed capital controls. But expansionary US fiscal and monetary policy driven by social and military spending ultimately made the system unsustainable. The United States ended dollar-gold convertibility in the early 1970s, and many countries switched to floating exchange rates.
4. The Liberalization era saw gradual removal of trade barriers in China and other large emerging market economies and unprecedented international economic cooperation, including the integration of the former Soviet bloc. Liberalization accounted for most of the increase in trade, and the World Trade Organization, established in 1995, became a new multilateral overseer of trade agreements, negotiations and dispute settlement. Cross-border capital flows surged, increasing the complexity and interconnectedness of the global financial system.
5. The “Slowbalization” that followed the global financial crisis has been characterized by a prolonged slowdown in the pace of trade reform, and weakening political support for open trade amid rising geopolitical tensions.