Globalization took a hit in 2016

by Pan Pylas, The Associated Press

LONDON, UK—Globalization, the path that the world economy has largely followed for decades, took some hefty blows in 2016.

The election of Donald Trump as U.S. president and Britain’s decision to leave the European Union have raised questions over the future of tariff-free trade and companies’ freedom to move production to lower-cost countries.

Borders are back in vogue. Economic nationalism is paying political dividends.

“We want our country back” was the rallying cry of those backing Brexit, a sound bite that had echoes in Trump’s “Make America great again.”

The rise of Trump and the triumph of Brexit had their roots in the global financial crisis of 2008. Eight years later, the world economy has still not yet fully gotten past that shock to its confidence—people are nervous, some are angry, and many are seeking novel solutions to their problems. Next year, there’s scope for more uncertainty with elections in France and Germany.

Here’s a look at the year’s top business stories for 2016:

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BREXIT SHOCK

In what was a sign of things to come, Britain voted to leave the EU in a referendum in June. The decision came as a surprise—certainly to bookmakers and many pollsters who had consistently given the “remain” side the edge—and means Britain has to redefine itself after 43 years of EU membership. David Cameron resigned as prime minister after the vote and the new Conservative government led by Theresa May is planning to trigger the formal process by which Britain exits the EU early next year. There are many shades of potential Brexit, from an outright divorce that could put up tariffs on goods and services, to a more amicable parting that sees many of the current trading arrangements kept in place. The pound’s fall to a 31-year low below $1.20 at one point is testament to that uncertainty.


TRUMP CARD

Pollsters and bookmakers got it wrong again a few months later when Trump defeated Hillary Clinton in the U.S. presidential election. Whether he translates his “America First” platform into action following his inauguration in January will help shape the global economy for the next four years at least. Trump has railed against long-standing trading agreements, including the North American Free Trade Agreement, and vowed to punish China for the way it devalues its currency against the dollar and to tax U.S. firms that move jobs overseas. He has also laid out plans to bring America’s creaking infrastructure up to 21st-century standards, a new spending pitch that has the potential to boost jobs—but which could also lay the seeds of higher inflation.


MARKETS MARCH ON

Trump’s victory did not cause the bottom to fall out of the stock market rally that’s been largely in place since 2009, when the world economy started to first claw out of its deepest recession since World War II. In fact, both the Dow and the S&P 500 rallied to hit a series of record highs. Stocks have also benefited from a raft of big corporate deals this year—executives are seeing takeovers as a fast way to generate growth in a low-growth global economy disrupted by non-stop technological innovations. Notable deals in 2016 included the $85 billion merger of Time Warner and AT&T and the $57 billion takeover of Monsanto by Germany medicine and farm-chemical maker Bayer. The $100 billion takeover of SABMiller by Budweiser maker Anheuser-Busch InBev was also completed.


FED FINALLY DELIVERS

Trump’s victory did not cause the bottom to fall out of the stock market rally that’s been largely in place since 2009, when the world economy started to first claw out of its deepest recession since World War II. In fact, both the Dow and the S&P 500 rallied to hit a series of record highs. Stocks have also benefited from a raft of big corporate deals this year—executives are seeing takeovers as a fast way to generate growth in a low-growth global economy disrupted by non-stop technological innovations. Notable deals in 2016 included the $85 billion merger of Time Warner and AT&T and the $57 billion takeover of Monsanto by Germany medicine and farm-chemical maker Bayer. The $100 billion takeover of SABMiller by Budweiser maker Anheuser-Busch InBev was also completed.


CHINA’S KEY ROLE

As the world’s second-largest economy, China is playing a bigger role in the functioning of the global economy. Nowhere was that more evident than in the early months of 2016, when jitters over the scale of the slowdown in China caused wild swings in financial markets. Stocks took a pounding while commodities tanked, with oil skidding to 13-year lows, as traders factored in lower demand from resource-hungry China. The slump in commodities weighed heavily on economies like Australia that are big exporters of raw materials. China’s economy is ending the year in relatively good health as authorities try to pivot the economy’s focus from manufacturing to more consumer spending. But Trump’s promises to take a tough stance in trade will be of concern to Beijing.