Trends: Relocalization – an emerging undertow of globalization?

2011-12-30

Over the past two decades, there has been a persistent and substantial widening of the aggregate current account balance surpluses and deficits of the G20 countries. The growing G20 current account divergence has brought with it unhealthy excesses in terms of increasingly entrenched net creditor and net debtor nation developments as reflected primarily by China and the United States. 

Beyond the associated shifts in "national balance sheet" strengths and weaknesses, longstanding current account surpluses and deficits have also been correlated with destabilizing developments such as ever more concentrated asset allocations related to far-flung outsourcing/single sourcing, rising business disruption risks, undue dependence upon manufacturing facilities and transportation networks built on cheap fossil fuels, growing environmental degradation, and excessive currency fluctuations/ revaluations. Collectively, such issues have been known to lead to malinvestments, to create material investment uncertainty, and even to constrain optimal strategic investments/R&D in the trade-impacted industries. Ultimately, substantial national current account deficits are unsustainable, meaning they have to be reversed, much as over-indebted households or companies will eventually be denied additional creditor funding.

This article will examine why the pending "rebalancing" could also usher in a trend toward selective relocalization of output by net debtor nations, especially the US. Nations with ample energy-dense (fossil fuel) resources and/or high energy efficiency ought to also (once again) become progressively more attractive locations. Accordingly, strategic investors may be well served to consider "satellite investment diversification" in sectors standing to benefit from such trends.

 
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