Globalisation and trade blocs

The word “globalisation” became popular in the 1980s because it seemed to capture the new world in which business was operating. Since then it is not just stock markets that have gone global. The economist Philippe Legrain has calculated that by 2010 China exported as much in six hours as it had in the whole of 1978.

That year is significant because it marked the start of the modern era of globalisation, with Deng Xiaoping’s reform and opening of the Chinese economy, beginning in December 1978.

Over the next 20 years, other countries took significant steps to facilitate globalisation and new regional trade blocs were formed.

The UK, under prime minister Margaret Thatcher, abolished exchange controls, laying the foundation for the rise of London as the pre-eminent global financial centre. The EU created a single market. The US, Canada and Mexico created the North American Free Trade Agreement, and Latin American countries such as Brazil and Argentina embraced the “Washington consensus” of market-driven reforms.

In 1989, the Berlin Wall came down, meaning the communist half of Europe could embrace global capitalism. And in 1991, India turned its back on inward-looking economic policies and embraced liberal economic reforms. In 1995, the World Trade Organization was formed to police the rapidly expanding global trade system.

But it was international business that gave globalisation meaning. Over the past 30 years, international trade has grown about twice as fast as the global economy. China has emerged as a new hub, both as a market and a maker. Yet one of the most striking facets of globalisation is the sheer complexity and geographical extent of global supply chains.

The next step will be the expansion of south-south trade and the rise of multinationals from former emerging markets, such as Brazil, India and China itself. Globalisation is becoming truly global.

Gideon Rachman