Post-attack economy is less global, as trade falters

The flow of goods and capital is slowing sharply. Now the war on terror poses fresh challenges for globalization.

A combination of a world economic slump and the terrorist attacks in the United States has dealt a sharp setback to the economic trend known as globalization.

Already this year, cross-border flows of goods and capital - two key ingredients of a trend that has altered the world from Italy to Indonesia - have slowed dramatically.

Foreign investment in "emerging" economies has been plummeting for several years. US exports will fall by about $100 billion this year. And trade worldwide may end the year down for the first time since 1982.

Most economists see the long-term rise of global trade and investment as unstoppable - sure to resume after the current economic slowdown. But if a retreat from globalization persists, it could portend slower economic growth for the world in coming years.

Against this backdrop, the new "war" against terrorism introduces a new element of uncertainty. Washington hopes it will strengthen global economic ties, as the US rallies other nations in the antiterror effort.

Within days of the Sept. 11 attacks, Federal Reserve Chairman Alan Greenspan broached just such a possibility, saying that a new global free-trade agreement "now seems more feasible."

But already, heightened security efforts at borders and in corporate mailrooms represent the equivalent of a substantial new tax on trade.

Moreover, if the US-led war comes to be perceived in some nations as heavy-handed and arrogant, it could exacerbate concerns about the social impacts of increasingly global corporations.

"In many parts of the world, people are becoming aware of the way their daily lives are affected" by globalization, says Lori Wallach, director of Public Citizen's Global Trade Watch in Washington. "Corporate globalism will be slowed down - unrelated to the terrorist attacks."

Ms. Wallach blames globalization for declining incomes, literacy, and health in many poor countries in recent years.

The causation she alleges is controversial and hard to prove. But rising commerce is often attended by shocks - from layoffs to loud marketing pitches - that rankle deeply in many parts of the world.

Globalization was largely the issue behind the massive, and partly riotous, demonstrations at the World Trade Organization's ministerial meeting in December 1999 in Seattle.

Huge demonstrations had been planned, too, for this month's annual meeting of the International Monetary Fund and World Bank in Washington. But the meeting was cancelled soon after Sept. 11.

Economists generally see expanded flows of trade and investment as healthy - benefiting all nations involved even while imposing some hardships.

"Globalism is an irreversible process," says Harald Malmgren, a Washington-based trade consultant.

Driven largely by multinational corporations, the trend has expanded markets, created jobs, and built new wealth. It has intermingled to a greater degree the economic and cultural fates of both industrial and developing nations.

Rise of global economy

Most economists expect globalization to pick up again, once the world economic slump has passed and new antiterrorism measures are well in place.

"It is the inevitable result of technology shrinking time and distance," says Clyde Prestowitz, Jr., president of the Economic Strategy Institute, a Washington think tank.

With the containerization of goods, shipping costs have fallen enormously. Communications costs have plunged. Falling trade barriers have stimulated international commerce.

By last year, global trade accounted for a record 26 percent of the world economy, according to Morgan Stanley, a New York investment firm. It amounted to 18 percent in 1990.

Now, the slowdown in the major economies of the world has caused trade of goods and services to slump. Last year, the volume of world trade grew 12.4 percent. This year it will rise a paltry 4 percent, predicts the IMF in Washington.

Others say the growth of trade could grind almost to a halt.

Though forecasting 3 percent growth, Stephen Roach, chief economist of Morgan Stanley in New York, writes that he wouldn't be surprised if trade shrinks this year for the first time in almost two decades.

The slowdown is visible from the docks of Singapore - one of the world's three busiest container ports. Conspicuous of late are ships at anchor, with rust-stained waterlines riding high.

"We're going to suffer if this [war against terrorism] goes on for long, you know," volunteers a cab driver about 30 seconds after picking up a passenger at the Singapore's Changi airport.

Post-attack adjustments

Indeed, the terrorist attacks are likely to slow trade further.

Stepped-up security has brought costly delays at the Canadian and Mexican borders. Ports have taken greater security measures. Insurance costs have jumped.

All this, Mr. Roach says, represents a "tax" on trade - and sand in the gears of globalization.

The extra costs, and the desire to avoid perceived risks, could prompt more firms to choose to make goods at home rather than abroad.

Even the use of just-in-time techniques for the delivery of components, such as from Canada or Mexico to US plants, may be modified somewhat. Companies may decide to keep at least a modest inventory of parts.

International investment, already curtailed after a series of financial crises beginning in Asia in 1997, now faces another setback: a decline in US stock prices. Companies often use stock to purchase other firms abroad, and this currency is worth less.

"The near-term outlook for financial flows to emerging markets is at its most sobering level since the difficult years of the debt crisis in the 1980s," says Charles Dallara, managing director of the Institute of International Finance.

That, he and others argue, means that developing countries will receive less of the new technologies, management techniques, and new jobs that can boost their prosperity in the long run.

A revival of international trade and investment is expected to occur once the US economy - accounting for 28 percent of world output - peps up. Many economists expect this to occur in the first half of 2000.

When the US demand for electronic goods picks up, that should boost the exports of Asian countries such as Singapore and Taiwan.

Europe will pick up with a lag of perhaps eight months.

The slowdown in international trade and investment is a "cyclical development - not a trend," says Frank Vargo, an economist with the National Association of Manufacturing in Washington. "The trend toward globalization is not halted."

Dan Murphy contributed to this article from Singapore.

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