NEW YORK: Whether the war in Ukraine is driving the final nail in the coffin of globalization is hotly debated in the West today, amid the shock inflicted by the conflict on the international economic order.
Those who debate the future of economic integration and interdependence in the world make a very important argument that has underpinned the rise of globalization. They claim that the West, and particularly the United States, views globalization as the cornerstone of the rules-based international order.
In the age of globalization, they say, countries united by trade and financial ties do not go to war. For them, globalization not only helps to prevent conflicts, but also to establish a world of cooperation and peace.
Although this argument has been challenged many times over the past seventy-six years, since the establishment of the current political and economic model after the Second World War, it continues to be the gold standard of globalization.
Some analysts consider that what we are witnessing now marks the end of this era of globalization. Nobel laureate in economics and New York Times columnist Paul Krugman fears a “repeat of the economic predicament of 1914, the year that ended what some economists call the ‘first wave of globalization'” . He predicts a new wave of de-globalization.
The debate is not whether globalization will be a casualty of the ongoing conflict between Russia and the West, but rather how badly the globalized economy will be affected once the war in Ukraine ends. That said, some see globalization as evolving, but doing well; others see it as a partial decline rather than the end.
Skeptics predict an accelerating decline in globalization and global economic integration. They say the decline has been more pronounced in the United States under former President Donald Trump and his “America First” policy, while his successor, Joe Biden, preserves the emphasis on prioritizing “Made in America”.
Mr. Biden’s foreign and economic policies are aimed at helping the American taxpayer. He wrote in a tweet posted this week: “Since day one, every action I take to rebuild our economy has been guided by one principle – Made in America. That means using products, parts, and materials made here in the United States. It’s about strengthening manufacturing jobs and building supply chains right here at home.”
President Biden wants to make the United States less dependent on Chinese imports and he is working to decouple the two countries economically. But Beijing has its own “Made in China 2025” self-sufficiency initiative and is working to reduce its dependence on foreign products in all areas.
This was the trend even before the war in Ukraine. Now, with the unprecedented sanctions imposed on Russia, both in volume and scope, China is certainly more willing to accelerate its drive for self-reliance.
Two weeks after the start of the war and the imposition of sanctions, companies and foreign investors were in a rush to leave Russia. Four hundred companies are reported to have pulled out of the country, including tech giant Apple, fashion designer Chanel and furniture retailer Ikea.
Russia has been cut off from international financial markets and the Swift messaging service, which includes more than eleven thousand financial institutions worldwide, while its assets have been confiscated in the United States and Europe.
However, it is not the fate of Russia that worries us, since it is the eleventh largest economy in the world. All eyes were on the second largest economy – China – where the news from its financial markets was troubling. China is more integrated and essential to the global economy than Russia. Reports point to an “unprecedented large-scale flight of capital from China”, following the war in Ukraine.
According to the Institute of International Finance (IIF), quoted by Bloomberg, investors have withdrawn their money from China at an unprecedented rate since Russia invaded Ukraine, causing a “very unusual change in global capital flows into emerging markets”. The report notes that there were no “similar leaks in the rest of emerging markets.”
The IIF’s chief economist, quoted by Bloomberg, says the timing of the funds outflow, which coincided with Russia’s invasion of Ukraine, “suggests investors are looking at China in a new light.” angle”. However, he cautions that it might be premature to say if this is a trend. Meanwhile, the war has instilled a palpable sense of urgency in Europe’s efforts to do without Russian oil and gas.
The lesson for investors and businesses from the war in Ukraine and the Covid-19 pandemic is that the era of low cost and efficiency cannot compete with reliability and security. Business leaders have learned, after disruptions to supply chains during the pandemic and the ongoing war, that reliability is cheaper than unpredictability.
“Russia’s invasion of Ukraine has ended the globalization we have known for the past three decades,” says Larry Fink, CEO of BlackRock, the world’s largest asset manager, in a letter sent to shareholders last month.
Mr Fink, whose company manages ten trillion dollars (1 dollar = 0.92 euro) in assets, says Russia’s isolation “will cause businesses and governments around the world to re-evaluate their dependencies and reanalyze their manufacturing and assembly footprints”.
Indeed, since the pandemic, many countries prefer to be independent rather than interdependent, putting sovereignty before free trade and globalization. Observers point to political polarization and fragmentation around the world and they see a similar economic trend that will mirror and amplify these divisions.
However, supporters of globalization believe that reports of his death are greatly exaggerated. They are convinced that what we are witnessing is only a readjustment to adapt to the new order. They argue that the interconnected world will never return to the fragmented economic blocs of the past, because the economic benefits of globalization cannot be replaced. They stress, moreover, that the world needs more globalization, not entrenchment.
According to the New York Times, Ngozi Okonjo-Iweala, director general of the World Trade Organization (WTO), would call for “reglobalization”. She told a conference, “Deeper and more diverse international markets remain our greatest asset for supply chain resilience.”
It is clear that we are witnessing the birth of a new era and a transformation that will reorient the global economy and guarantee the emergence of a redesigned economic order, driven by the repercussions of two major disruptions that we are witnessing currently: the Covid-19 pandemic and the war in Europe.
Depending on how the war ends, we could even see a new world political order replacing the one that has prevailed for more than three quarters of a century.
This text is the translation of an article published on Arabnews.com
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Will the war in Ukraine end global economic interdependence?
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