Globalization is a complex concept that goes beyond international trade. It is an interconnectedness that spans continents, allowing each country to specialize in what it does best and rely on imports for products and services that would be less efficient to produce within their own borders. In theory, this global system ensures that resources, both natural and manmade, are used to their fullest potential.
The term ‘globalization’ has received much attention over the past century, though the concept is much older. Learning how globalization has evolved over the centuries can help leaders forecast the ways in which this interconnectedness could shape the future of business.
Silk Roads (1st Century BC – 5th Century AD)
Global trade was established as early as the 1st century BC when luxury goods from China began appearing in Rome. Mainly, the transactions that took place during this time consisted of extremely expensive items like silk and some spices. These trade routes involved many parties, from those that created the items, to those that transported them, and finally the buyers.
Eventually, the silk roads ceased operating when the respective empires fell. However, they reemerged in the late medieval time as the Mongols took control of the area and reestablished the trade routes.
Spice Routes (7th – 15th Centuries)
From the 7th to 15th centuries, spices made their way across Europe, Asia, and Northeast Africa. Primarily, the goods traded during this time were spices, like cloves, nutmeg, and mace which originated in the Maluku islands of Indonesia.
Like silk, spices were luxury items, and trade volume remained low. However, the spice trade was conducted via ship — adding a new aspect to international trade. With the advent of spice routes, the connection between the East and West was strengthened as new sea routes were established.
Age of Discovery (15th – 18th centuries)
Global trade began in earnest during the “Age of Discovery” when European merchants began seeking out new avenues for trade. The Americas were “discovered” during this time, and they opened the door for additional trade. Previously unavailable goods like potatoes, tomatoes, coffee, and chocolate were making their way to Europe during this time.
With the expansion of trade routes, previously exclusive goods like spices became more readily available with fewer middlemen to drive up prices. In addition, the scientific discoveries of the time furthered a trade in knowledge as well as goods. During the so-called “Scientific Revolution” major strides were made in the fields of mechanics, astronomy, and shipping, and this information followed trade routes to spread throughout the world.
While trade routes during this time connected continents, the global economy had not yet developed into the system we know today. Business ventures were heavily skewed toward wealthy Europeans and most trade was conducted between European countries and their colonies.
First Wave of Globalization (19th century – WW1)
During the 19th century, the industrial revolution was in full force – popularizing inventions like the steam engine. These new methods of transportation could move goods more quickly and inexpensively over long distances. In addition, other inventions like the cotton gin, harvesting equipment, assembly lines, and widespread access to electricity made the production of goods easier and less costly. Together, mass produced goods and superior modes of transportation fueled international trade.
As costs fell, imported goods became available to the masses and the volume of trade increased. With increased trade, financial systems also became increasingly interconnected. The rich could invest in foreign endeavors like railways, canals, and mines. These investment opportunities spurred globalization from merely an exchange of goods to the beginnings of a global economy.
While there were many positive effects of globalization during this time, there were also some that were less favorable. Most of the profitable ventures were confined to Western countries and other countries lacked access to the capital and technology to make globalization worthwhile. Additionally, many workers did not thrive under the harsh conditions required by industrialization and globalization.
Globalization During the World Wars
Until the world wars, globalization moved forward quickly. Then, when World War I began, countries were forced to use their resources for war rather than trade. The effects of the war were catastrophic, and many countries once again closed their borders. These factors slowed the spread of globalization.
In the years between the world wars, reconstruction took precedence over trade. In addition, the Great Depression in the U.S. had global ramifications due to the increasingly interconnected financial economy. During this time, bank failures destroyed the savings of many Americans, furthered the economic consequences of the Great Depression, and landed an additional blow to globalization efforts. In response, the FDIC was established in 1933 which provided consumers new confidence in the U.S. banking system, allowing global trade to reignite.
During World War II, countries once again closed their borders to trade and turned their resources to war. However, after the war globalization efforts made a comeback.
Globalization in the Modern Era
After WWII, the General Agreement on Tariffs and Trade [GATT] was established. This agreement held from 1948 to 1994 when it was replaced with the World Trade Organization [WTO]. Along with setting rules and mitigating disputes, GATT helped to lower tariffs across the globe. With lower costs, and a governing body to oversee trade, globalization once again thrived.
Free trade institutions like the European union further eroded nationalist trade agendas. After the Soviet Union collapsed and the wall dividing East and West Germany fell, global trade entered these areas. In 2001, China joined the WTO and became the world’s primary manufacturer.
The rise of the internet around the turn of the century helped to streamline global trade networks. With this new technology, businesses could conduct research in one country, source raw materials in another area of the world, manufacture their products in yet another country, and then distribute them across the globe. Once the internet became mainstream, the truest form of globalization was born.
The End of Globalization?
Following the 2016 election, a protectionist movement took hold in the United States. Many that had previously perceived globalization as a positive force now saw it as a threat to American jobs. In response to this movement, a “trade war” was launched in the U.S., and tariffs were added or increased between the United States and trade partners. This was the first setback for globalization in the 21st century.
The COVID-19 pandemic dealt another blow to globalization efforts. The lockdowns resulting from the pandemic had a significant impact on both manufacturing and transportation of goods. Supply chains were severely impacted, and some of these difficulties have lingered for more than two years. Both the rise of protectionism and the weaknesses exposed by the COVID-19 pandemic have threatened the future of globalization.
Follow us for More Valuable Insights
Stay up to date on current economic trends and developments by following the American Deposit Management Co. [ADM] on Twitter, Facebook, and LinkedIn. We help businesses react swiftly to changing market conditions by providing valuable insights, including interest rate analysis and coverage of FOMC Meetings.
In addition to our valuable insights, our company helps businesses achieve safety and competitive returns for their cash reserves. Our American Money Market Account™ – AMMA™ for short – delivers the ultimate protection for business cash and nationally competitive returns. To learn more, contact us.
*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.