February 21, 2018

The More Integrated the Global Economy Is, the More Vulnerable It Is

Hilton Root

Senior Research Fellow
Summary

Global fractures may be where the next generation of economic opportunities are hiding.

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The theme of this year's World Economic Forum, "Creating a Shared Future in a Fractured World," echoed a lament that dominated the last few Davos meetings. The center does not hold; populism is tearing it apart by rejecting international cooperation.

A little chaos today might be what is needed to diffuse pressures that can cause a massive eruption later.

This year two developments mitigated pessimism at Davos. Global markets are buoyant, and populism seems less threatening. France's Emmanuel Macron and Germany's Angela Merkel have tamed populism in Europe. President Donald Trump – often considered a right-of-center populist himself – is taming some populist impulses in the United States by signing a targeted tax cut to attract investment and stimulate growth and attempting to foster a friendlier climate for American businesses.

Meanwhile, we're witnessing a coordinated global economic growth cycle whose scale is without precedent. The world's stock markets are more in sync than ever, and volatility has fallen to historic lows. So what is there to worry about?

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