Globalisation may have peaked, a big investment bank has declared, while predicting the 2020s could see the world split into two technology branches headed by China and the United States.
Globalisation may have peaked, a big investment bank has declared, while predicting the 2020s could see the world split into two technology branches headed by China and the United States.
Governments are making historic retreats from liberal trade and investment policies, and Bank of America Merrill Lynch has warned it could go much further, with reinstatement of capital controls in the developed world.
“The moment of ‘peak globalisation’ is likely behind us,” the bank said in its Transforming World: The 2020s report.
“The 1981-2016 era of unchecked flow of goods, people and capital is coming to an end, catalysed by the widespread recognition that while globalisation has meant lower consumer prices, it has also meant slower growth, precarious employment and social disruption.”
In that period, the portion of the world living in extreme poverty fell from 42 per cent to about 10 per cent in 2015.
There has been enormous growth in living standards in Australia too, with income per capita lifting from $US11,850 ($17,315) in 1981 (inflation adjusted) to $US53,190 in 2018.
The world has recently trended towards increased protectionism, with the United States lifting tariffs on imports, mostly from China.
Many other jurisdictions have continued with a free trade focus, including Australia, which under the leadership of former prime minister Malcolm Turnbull revived the Trans Pacific Partnership agreement in 2018.
Big countries will seek to exercise tighter controls over currency and financial markets, BAML said, and higher costs of business.
But the investment bank followed this with a surprising assertion.
“Subsequently, we expect this rebalancing will raise productivity and set the global economy on a path to higher, sustainable growth,” the report said.
BAML also predicts a dual tech eco-system will emerge, with concerns around cybersecurity at Chinese telco Huawei an example.
China will reduce reliance on US vendors.
“As of 2018, China imported $US300 billion of semiconductor products while producing $US24 billion domestically,” the report said.
“The 85 per cent deficit poses significant risks to China.”
The trade war will escalate into a tech war, with an arms race between the US and China in quantum computing, 5G and artificial intelligence.
“China's strategy is to ensure that 40 per cent of its mobile phone chips, 70 per cent of its industrial robots and 80 per cent of its renewable energy equipment is ‘Made in China’ by 2025,” BAML said.
“This China First strategy will be met head on by an America First strategy.
“Moreover, the US tech sector could be inhibited by increasing Occupy Silicon Valley sentiment and regulation policies to address inequality.
“Revenue-rich tech is the most lightly regulated (US) sector ... and tech and e-commerce companies currently account for almost a quarter of all US corporate profits, a level rarely exceeded, and often associated with bubble peaks.”
There is evidence for increasing competition in this space.
China now publishes almost the same portion of the top academic papers in artificial intelligence as the US, about 23 per cent each, BAML said.
In quantum computing, Chinese entities filed for 492 patents in 2018, while US businesses filed only 248.
“There could potentially be a bifurcation in tech standards by the end of the decade driven by a divergence in the rules and standards of the superpowers,” BAML said.
Regardless, technological change will have a profound impact.
“Up to 800 million world jobs could be at risk of replacement through automation by 2030-35,” the report said.
That would include retail work, with a survey of 352 machine learning experts cited by BAML suggesting there is a 50 per cent chance AI will exceed human performance in that industry by 2033.
