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Emerging fault lines in the global economy

David Skilling
Global Brief, August 2016

Emerging fault lines in the global economy August 2016

The norms, ideas and institutions that have provided the foundation for the global economic system for decades are under pressure. Consider the protectionist rhetoric in the US Presidential campaign; the increasing challenges facing European integration, most obviously in the Brexit vote; and the increasingly explicit role of geopolitics in shaping international commerce, including trade agreements such as the Trans-Pacific Partnership.

This may not yet amount to a reversal of globalisation, but it is a marked step away from the hyper- globalisation of the past 25 years – a period of very strong growth in cross-border trade and investment. To better understand the emerging fault lines in globalisation, and the potential for disruptive change, it is instructive to look at the experience of small advanced economies: countries such as New Zealand, Singapore, the Nordics, Switzerland and the Netherlands.

Small advanced economies illustrate the emergence of three fault lines in the global economy: increased domestic economic and political pressures from globalisation; challenges to existing models of regional economic integration; and a more explicit interaction between international economics and politics.

This essay describes the nature of these pressures, and the implications for the health and functioning of the global system. From a small economy perspective, the global economy is as complex and challenging as it has been in decades. It is a very different environment than that which prevailed in the decades prior to the global financial crisis, and will require new policy approaches.