Yet, as the Mexican government itself has recognized, notional demand will not be translated into effective demand unless policymakers accelerate progress on infrastructure, clean energy, deregulation, and the like. Mexico, for example, stands to gain from US friend-shoring, as well as the corporate sector’s shift to more diversified supply chains. While this process will produce winners and losers, their identity will depend to a significant extent on how policymakers adapt to the global economy’s new operating model. Meanwhile, consumers will increasingly look for an emphasis on purpose in their commercial interactions. This will come at a time when security concerns gain greater weight in commercial considerations, and companies will move away from risk-sharing and general partnerships to more narrowly-designed arrangements. As companies opt for resilience over efficiency, they will increasingly shift their approach to supply chains from “just in time” to “just in case”.
In short, the combination of geopolitical shocks, corporate strategies, and changing societal values will affect trade and investment patterns along four main axes. This trend will likely continue over the next few years, as companies increasingly diversify their supply chains away from China and as Western governments resort to near-shoring and friend-shoring to maintain the production of critical inputs and sensitive exports. Even more worryingly, Russia and some of its allies have also made progress in creating somewhat of a parallel cross-border payments and settlement system, albeit a rudimentary and inefficient one. Similarly, rather than bringing Russia’s economy to its knees as many had predicted, the comprehensive sanctions shrunk its GDP by just 2 per cent, as Russian technocrats found ways to reorient and rewire both domestic and external activities. Over the past year, the EU-US-led restrictions have not materially reduced Russia’s oil exports but redirected them elsewhere, primarily to China and India. The sanctions regime imposed on Russia is a case in point. But, rather than a sharp reversal of the past 30 years, it seems far more likely that we are entering an era of fragmented globalisation characterized by substitution, not negation. It follows, then, that many would conclude that globalisation has ended. And the invasion of Ukraine has led to unprecedented sanctions on Russia (a G20 country) and the weaponisation of the international payments system. Western consumers, meanwhile, have increasingly pushed back against human-rights violators and countries that harm the environment. Soon, the United States had entered a tariff war with China, deepening the divide between the two economic powers. The result was a backlash against globalisation, whose most visible political manifestations were the United Kingdom’s vote to leave the European Union and Donald Trump’s election to the US presidency in 2016. Many communities and countries were left behind, contributing to a widespread sense of marginalisation and alienation. And technology, including, most recently, the accelerating shift toward remote work, made national borders seem largely irrelevant.īut while globalisation made markets work better, policymakers lost sight of its adverse distributional consequences.
#PROJECT CYNDICATE SERIES#
The world’s governments engaged in what seemed to be a series of win-win partnerships. Global capital markets expanded access to credit and lowered its cost for private and public borrowers alike. The interconnectedness of production, consumption, and investment flows provided consumers with a wider range of choices at attractive prices, enabled companies to expand their markets, and improved the efficiency of their supply chains.
For decades, globalisation’s benefits appeared to be obvious and unassailable. Not too long ago, it seemed that there were no limits to global economic and financial integration. But the available data suggest that globalisation is not ending so much as it is changing. As the international order has come under strain in recent years, however, the concept of deglobalisation, the delinking of trade and investment, has increasingly gained traction with households, companies and governments. For three decades, businesses and governments around the world operated under the assumption that economic and financial globalisation will continue apace.
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