De-globalization is unsustainable and bound to be only another unsuccessful attempt, after QE, to drive US domestic economic growth
As we mentioned last time that, while the sufficient liquidity and low interest rate that QE brought to the US economy help lower capital costs and thus improve corporate profits, they are still not able to offset the negative impact, on domestic businesses’ profitability, of declining domestic demand and increasing competition from EM, which are deeply rooted in some irreversible factors such as aging population and stagnant labor productivity relative to labor cost.
The focus thus was instinctively turned to tariffs and other measures such as minimum global corporate tax to help lift domestic product price competitiveness and maintain domestic investment, expecting that as domestic businesses are protected from global competition the resulting increase in domestic employment and labor income can offset the shrinking demand caused by the aging population.
Technically, all of those de-globalization measures will work much more directly and efficiently than QE in helping improve US domestic business profit and thus the domestic investment of the capital. However, these measures are not consistent with the long-term interest and pursuit of the majority of multiple-national capital.
The economic growth, on which investment returns heavily rely, comes primarily, beyond capital investment, from people who have demand for higher life quality and thus are eager to work. Our economic model indicates that the people including their demand and labor that de-globalization brought to the US domestic economy are apparently not comparable, in terms of the size and their incremental effect to the whole economic cycle, with those in EM countries that possess really potential labor and market for global capital investment.
Therefore, while we may have not seen for a while as a big government as we are seeing now, especially in pandemic and post-pandemic, we will not see more de-globalization going forward in a 3-5 years run given the nature, function, and competition of capital.