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Balkanization is the future of the global economy

24 7 1

A U.S.-China trade war, the COVID-19 pandemic and Russia’s invasion of Ukraine are three blows that spell, for a growing number of observers, an end to globalization.

While there is a powerful rebuttal, I’m with the pessimists. The terms of international engagement, and economic activities in particular, are changing. That’s natural and proper as power and principles themselves evolve.

Key to this world order is the role of new and emerging technologies. Ironically, these tools and the connectivity that they facilitated encouraged globalization; now, they are seen as sources of vulnerability. The resulting suspicion and fear are splintering — Balkanizing — the global economy. It isn’t quite deglobalization but it’s just as pernicious.

A long-simmering debate among academics and policy folks burst into the real world a few weeks ago when Larry Fink, head of BlackRock, the world’s largest asset management company, sent a letter to investors arguing that the end of globalization was nigh. The COVID-19 pandemic raised awareness of dangers associated with global supply chains for crucial goods, and the war in Ukraine turbocharged that sense of vulnerability.

“While dependence on Russian energy is in the spotlight,” Fink explained, “companies and governments will also be looking more broadly at their dependencies on other nations.”

The combination he said, “has put an end to the globalization we have experienced over the last three decades. We had already seen connectivity between nations, companies and even people strained by two years of the pandemic… (this has) had profound effects on political, economic and social trends. The impact will reverberate for decades to come in ways we can’t yet predict.”

Not everyone agrees. Ngozi Okonjo-Iweala, director-general of the World Trade Organization, counters that trade diversification is the best way to build resilience. “This is not the time to retreat inward,” she said last week. She continues to believe that international supply chains are the best way to diversify risk. “This is the time to stress the importance of multilateralism, global solidarity and cooperation.”

U.S. Treasury Secretary........

© The Japan Times

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