Trade is suffering as firms use up the inventories they had built up in anticipation of higher tariffs. Expect more of this in 2019. But what really matters is firms' long-term investment plans, as they begin to lower their exposure to countries and industries that carry high geopolitical risk or face unstable rules. There are now signs that an adjustment is beginning.
Chinese investment into Europe and America fell by 73% in 2018. The global value of cross-border investment by multinational companies sank by about 20% in 2018.
The new world will work differently. Slowbalisation will lead to deeper links within regional blocs. Supply chains in North America, Europe and Asia are sourcing more from closer to home. In Asia and Europe most trade is already intra-regional, and the share has risen since 2011.
Asian firms made more foreign sales within Asia than in America in 2017. As global rules decay, a fluid patchwork of regional deals and spheres of influence is asserting control over trade and investment.
The European Union is stamping its authority on banking, tech and foreign investment, for example. China hopes to agree on a regional trade deal this year, even as its tech firms expand across Asia.
Companies have $30trn of cross-border investment in the ground, some of which may need to be shifted, sold or shut. Fortunately, this need not be a disaster for living standards.
Continental-sized markets are large enough to prosper. Some 1.2billion people have lifted themselves out of extreme poverty since 1990, and there is no reason to think that the proportion of paupers will rise again.
Western consumers will continue to reap large net benefits from trade. In some cases, deeper integration will take place at a regional level than could have happened at a global one.
Yet slowbalisation has two big disadvantages. First, it creates new difficulties.
Between 1990-2010 most emerging countries were able to close some of the gap with developed ones. Now more willstruggle to trade their way to riches. And there is a tension between a more regional trading pattern and a global financial system in which Wall Street and theFederal Reserve set the pulse for markets everywhere. Most countries' interest rates will still be affected by America's evenas their trade patterns become less linked to it, leading to financial turbulence. The Fed is less likely to rescue foreigners by acting as a global lender of last resort, as it did a decade ago. Second,slowbalisation will not fix the problems that globalisation created. Automation means there will be no renaissance of blue-collar jobs in the West. Firms will hire unskilled workers in thecheapest places in each region.
Climate change, migration and tax-dodging will be even harder to solve without global co-operation. And far frommoderating and containing China, slowbalisation will help it secure regional hegemony yet faster.
Globalisation made the world a better place for almost everyone. But too little was done to mitigate its costs. The integrated world's neglected problems have now grown in the eyes of the public to the point where the benefits of theglobal order are easily forgotten. Yet the solution on offer is not really a fix at all.
Slowbalisation will be meaner and less stable than its predecessor. In the end it will only feed the discontent.