Globalization, which has both fans and detractors, is being tested like never before after the punch of Covid and war.
The pandemic had already raised questions about the world’s dependence on an economic model that broke trade barriers, but made countries heavily dependent on each other as production was offshored over the decades.
Companies are struggling to address major bottlenecks in the global supply chain.
Russia’s war in Ukraine has raised fears of further disruption, with everything from energy supplies to auto parts to wheat and commodity exports at risk.
Larry Fink, the boss of financial giant BlackRock, put it bluntly: “The Russian invasion of Ukraine ended the globalization that we have known for the past three decades.
“We had already seen the connectivity between nations, businesses and even people strained by two years of a pandemic,” Fink wrote in a letter to shareholders on Thursday.
But US Treasury Secretary Janet Yellen disagrees.
“I really have to push this away,” she told CNBC in an interview.
“We are deeply involved in the global economy. I expect that to remain, it is something that has brought benefits to the United States and many countries around the world.”
“An Evolving Animal”
Shortages of surgical masks at the start of the pandemic in 2020 have become a symbol of the world’s dependence on Chinese factories for all kinds of goods.
The conflict between Russia and Ukraine has raised concerns about global food shortages, as the two agricultural powers are among the world’s major breadbaskets.
It also shed light on Europe’s – and particularly Germany’s – heavy reliance on gas supplies from Russia, now a state under crippling sanctions.
“A number of vulnerabilities” have emerged that show the limits of having supply chains scattered across different locations, former World Trade Organization director-general Pascal Lamy told AFP.
Global trade tensions have prompted the European Union, for example, to seek “strategic autonomy” in critical sectors.
The production of semiconductors – microchips vital to industries ranging from video games to cars – is now a priority for Europe and the United States.
“The pandemic has not brought radical changes in terms of relocation (bringing business back from abroad),” said Ferdi De Ville, a professor at the Institute for International and European Studies in Ghent.
“But this time it might be different because (the conflict) will impact how companies think about their investment decisions, their supply chains,” he said.
“They have realized that what was perhaps unthinkable before last month has now become realistic, in terms of far-reaching sanctions,” said de Ville, author of an article on “The End of Globalization as We know her”.
The goal now is to redirect strategic dependency to allies, which he called “friend-shoring” instead of “off-shoring.”
An agreement between the United States and the EU on Friday to create a task force to wean Europe from its dependence on Russian fossil fuels is the most recent example of friendship.
For Lamy, this shows “that there is no de-globalization”.
Globalization, he said, is “a very evolving animal”.
Decoupling with China
Globalization had already faced an existential crisis when former US President Donald Trump launched a trade war with China in 2018, triggering a punitive tariff swap.
His successor, Joe Biden, invoked the need to “buy American” in his sweeping investment plan to “rebuild America”.
“We’ll buy American to make sure everything from the deck of an aircraft carrier to the steel in highway guardrails is made in America,” he said in his state of the art address. ‘Union.
A concept that emerged during the Trump years was “decoupling” – the idea of untangling the US and Chinese economies.
The threat has not diminished, especially with China’s refusal to condemn the Russian invasion of Ukraine.
The United States has warned that the world’s second-largest economy will face “consequences” if it gives material support to Russia in its war in Ukraine.
China already had other contentious issues with the West, such as Taiwan, the self-governing democracy that Beijing has vowed to seize one day, by force if necessary.
“It is not in China’s interest at this time to compete with the West,” said Xiaodong Bao, portfolio manager at Edmond de Rothschild Asset Management.
But the war in Ukraine is a chance for China to reduce its dependence on the US dollar. The Wall Street Journal reported that Beijing is in talks with Saudi Arabia to buy oil in yuan instead of dollars.
“China will continue to build foundations for the future,” Bao said. “Financial decoupling is accelerating.”
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)