Will the Ukraine War Spell the End of Globalization?
Will the Ukraine War Spell the End of Globalization?
In a letter to shareholders last week, Larry Fink, the chief executive of BlackRock, the world’s largest asset management company, issued a striking warning about a shift he perceived in the global economic order. Vladimir Putin’s invasion of Ukraine had compelled governments and private companies like his own to retaliate by severing business ties with Russia. This response was justified, he wrote, but it had come at a cost: “an end to the globalization we have experienced over the last three decades.”
It’s a sweeping claim, and Fink is far from alone in making it. But what would the end of globalization actually look like, and how would a transformation of international trade affect the daily lives of citizens around the globe? Are such predictions premature? Here’s what people are saying.
Globalization and its discontents
For the past several decades, the story of the global economy has been one of rapid liberalization and integration. Since the 1990s, following the collapse of the Soviet Union, trade deals, innovation in communications technology, and shipping improvements lowered the barriers to international trade. The benefits of this shift, in the eyes of its proponents, were so unequivocal that it became a political imperative: Globalization allowed richer nations to reap the fruits of poorer countries’ lower labor costs. That, in turn, allowed those poorer countries — most notably China — to develop more quickly than they would have had they remained isolated.
But globalization produced many losers as well as winners: The wave of cheaper consumer products came at the expense of regions and workers dependent on domestic manufacturing jobs.
In terms of international trade and financial flows, globalization had already begun to reverse after the Great Recession. The outbreak of the coronavirus added momentum to the trend and fueled broader questions about how desirable an interdependent world really was. The pandemic contributed to a climate of fear and hostility toward foreigners, especially Chinese people. And it exposed the fragility of global supply chains upon which the speedy production and frictionless flow of goods — masks and vaccines not least among them — depended, as The Times’s Peter S. Goodman wrote in 2020.
A growing number of business executives and commentators believe that the war in Ukraine will accelerate the shift many nations seek to make toward self-sufficiency. The chief catalyst is the coordinated campaign that major powers have mounted to cut off Russia from the world economy. “The sanctions regime against Russia is both extremely tough and surprisingly non-global,” Matt Yglesias writes for Bloomberg. “Aspiring regional powers such as India, Brazil and Nigeria are studying America’s financial weapons of mass destruction and asking how they can adjust their defenses lest they end up in the crossfire.”
The appetite for autarky isn’t limited to smaller economies, though:
Well before Russia’s invasion, the Biden and Trump administrations pursued policies to decrease the United States’ reliance on trade with China. As Yglesias notes, one of President Biden’s best-polling lines in his March 1 State of the Union address was his vow “to make sure everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end.”
In part because Russia and Ukraine supply more than a quarter of the world’s wheat, the Chinese government has become particularly concerned about reducing its dependence on foreign agricultural products, as James Palmer writes in Foreign Policy. President Xi Jinping of China said this month that the “the rice bowls of the Chinese people must be filled with Chinese grain.”
After a reckoning with the costs of its dependency on Russian fossil fuels, the European Union vowed this month to slash Russian natural gas imports by two-thirds by next winter, and to phase them out by 2027.
The long view: “What we’re headed toward is a more divided world economically that will mirror what is clearly a more divided world politically,” Edward Alden, a senior fellow at the Council on Foreign Relations, told The Times. “I don’t think economic integration survives a period of political disintegration.”
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What would deglobalization mean?
A surge in prices and an increase in domestic jobs: If globalization resulted in a wave of cheap consumer goods, its opposite could push prices higher, worsening the effects of inflation. “Rather than the cheapest, easiest and greenest sources,” Fink wrote, “there’ll probably be more of a premium put on the safest and surest.”
This shift in priorities will have benefits as well as costs, argues Howard Marks, the co-founder and co-chairman of Oaktree Capital Management. Deglobalization, he writes in The Financial Times, could “improve importers’ security, increase the competitiveness of onshore producers and the number of domestic manufacturing jobs, and create investment opportunities in the transition.”
A green energy boom? The rapidly declining costs and growing availability of renewable energy might make it more attractive than fossil fuels to countries seeking energy independence. Particularly in Europe, the fusion of foreign-policy and energy interests has lent more political momentum to decarbonization, with Germany earmarking 200 billion euros for investment in renewable energy production between now and 2026.
At the same time, deglobalization could make the transition to renewable energy more difficult by erecting barriers to the trade of raw materials. “Look at what’s just happened to nickel, a critical ingredient in many battery technologies, for which Russia is a major supplier,” Liam Denning points out in Bloomberg; the metal’s price surged at the beginning of March.
A tax on the developing world: Globalization coincided with an increase in economic inequality within nations, but also a decrease in inequality among them as developing countries raised their standard of living. The burden of globalization’s reversal, then, might be felt most acutely by the world’s poor.
“Food and energy price hikes are already hurting the citizens of poorer states, and the economic impact of corroding globalization will be even worse,” writes Adam Posen, the president of the Peterson Institute for International Economics, in Foreign Affairs. “If lower-income countries are forced to choose sides when deciding where they get their aid and foreign direct investment, the opportunities for their private sectors will narrow.”
A rise in military spending? Over the past five decades, according to the International Monetary Fund, military spending has fallen by nearly half worldwide — a decline that some analysts attribute at least in part to increased global economic interdependence. If they are right, deglobalization could have the opposite effect. Last month, Germany announced it would increase its defense budget by 100 billion euros, a remarkable shift for a country that has been deeply wary of militarism since World War II.
An end to globalization, or a new form of it?
If proponents of globalization too often characterized it as a historical inevitability, those warning of its imminent unraveling may be guilty of the same error. Just as the forward march of globalization has been impeded by unforeseen consequences and contingencies, so, too, could its reversal.
For a potential glimpse at this fitful dynamic, one need look no further than the economic contraction that Russia is now experiencing, which “shows just how difficult it is for states to thrive without economic interdependence, even when they try to minimize their perceived vulnerability,” Posen notes. “Russia’s attempts to make itself economically independent actually made it more likely to be subject to sanctions, because the West did not have to risk as much to impose them.”
Posen, for his part, doubts that the economic and political risks of deglobalization will stop many governments from at least trying to achieve more self-sufficiency. But the result, in the view of the historian Stephen Wertheim, may not be so much a global turn toward national autarky as toward international economic blocs.
Countries that fear being on the wrong side of Western sanctions “may want to make plans to align economically with certain states, and abandon others, when the chips are down,” he told Jewish Currents. “And preparing for such an eventuality may actually help to bring that eventuality into being, as states become less reliant on certain trading partners and make strategic partnerships with others.”
But as Wertheim notes, the global economy is still a long way from such factionalization. It’s possible that Russia’s exile will be the exception that proves the rule of globalization’s durability.
“You are removing this big chunk of the global economy and going back to the situation we had in the Cold War when the Soviet bloc was pretty much closed off,” Maury Obstfeld, an economics professor at the University of California, Berkeley, told The Washington Post. “But that doesn’t mean the rest of the world can’t be tightly integrated in terms of trade and finance.”
In the years to come, the editors of The Guardian write, “Deglobalization does not mean we will see a new age of autarky — the kind of drastic reversal seen in the 1920s and ’30s, when protectionism surged and global trade collapsed.” They add, though, “The high tide of globalization has passed for now; the question is how far the water will drop"