Companies that produce goods or provide services want the largest possible markets for their outputs. But a structural expansion in supply chains, which boosted gross trade in the 1990s and early 2000s, started to slow even before the GFC.
A turn toward protectionism—government policies that favor domestic industries—over the last decade in the face of rising inequality in developed economies is likely to similarly tap the brakes on global trade.
We note that other aspects of globalization, including international capital flows, knowledge sharing, and geopolitics, carry potentially significant economic, societal, and environmental consequences. In our latest research, we focus on just one aspect of globalization that addresses a specific concern of investors: the trade of goods and services.
The concern is that slowing global trade growth may reduce corporate earnings and profit growth and, by extension, weigh on equity prices. After all, a globalization wave that began in the 1990s coincided with a sixfold increase in Standard & Poor’s 500 Index earnings per share and more than a doubling of profit margins, contributing to almost 90% of the index’s price return over most of three decades.1