Ukraine War Will Accelerate the Decline of Globalization - Bloomberg - 0 views
www.bloomberg.com/...e-the-decline-of-globalization
globalization trade costs deglobalization immigration china sovereignty
shared by Javier E on 14 Mar 22
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At the dawn of the 20th century, Norman Angell famously (or infamously) predicted that the era of global commercial integration had made great power conflict so costly and destructive as to be unthinkable.
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A few years later, the outbreak of World War I proved him right about the cost and destruction, but wrong about being unthinkable. The Great War ended the first era of globalization, and it took generations to rebuild the level of worldwide integration that pertained before the assassination of Franz Ferdinand.
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Russia’s invasion of Ukraine is a much smaller conflict than World War I, and the trade disruptions associated with the U.S./European quasi-embargo on Russia are smaller than the British blockade of the Central Powers.
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the clash is nonetheless a giant step away from globalization — and, unlike World War I, it comes at a time when the world has already been moving away from economic integration: Trade’s share of global GDP peaked in 2008, and has been falling for the past decade.
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the war in Ukraine doesn’t necessarily mark sharp a break in history. But it underlines and will perhaps cement the decline of globalization.
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Similarly, the U.S. and Europe got vaccinated not only before low-income countries, but also before other rich countries — because they had the production capabilities.
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Eventually, the logic of geopolitical conflict entered the equation. President Xi Jinping’s “Made in China 2025” initiative, for example, isn’t about creating jobs, it’s about securing economic space for China to operate with political autonomy.
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When the Covid-19 pandemic hit, national sovereignty took precedence over free trade almost everywhere.
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That decline started with a populist backlash to the Great Recession and sluggish employment growth that made the politics of saving jobs more appealing than the politics of efficiency.
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Meanwhile, in the U.S., one issue on which President Joe Biden hasn’t broken with his predecessor is trade with China.
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Foreign nations see this, too. The sanctions regime against Russia is both extremely tough and surprisingly non-global.
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There are good reasons for all this deglobalization. But it’s important to note that it will come at a cost.
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Consumers around the world reaped large benefits from a world of specialization, comparative advantage, just-in-time shipping and elaborate supply chains.
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But the populist economics that powered the current wave a decade ago are basically wrong. Mass unemployment after the financial crisis was a tragic mistake of demand-side policy, not a sin of globalization. America can absolutely drill more oil and gas, build more cars and microchips, and make more steel. But there is not a vast army of unemployed people to do that work.
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If the U.S. reshores a large segment of tradeable goods, then it will have fewer people left to build houses, clean teeth, cut hair, cook food and care for children and the elderly.
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To meet real security imperatives, these may be prices worth paying. Make no mistake, however: There is a price.
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as more countries step away from globalization, the price will get steeper. A poorer world offers fewer customers for everyone’s exports, and a world less economically connected is one in which disruptions and conflict are more thinkable.
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One alternative to importing foreign-made goods, for example, is to import foreign-born workers. In an inflationary, supply-constrained, deglobalizing world, immigrants — including the so-called “unskilled” ones who clean houses, wash dishes and pick crops — are a valuable asset.
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It’s also crucial to think pragmatically about what the actual issue any given policy is trying to address
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there is a world of difference between a supply chain that depends on China and one that leads to Mexico, Central America or the Caribbean.