The ties that bind the global economy together and deliver wealth in abundance around the world are collapsing at a disturbing rate.
Russia’s war and China’s Covid Zero lockdowns are impeding supply chains, holding back development and pushing inflation to its limits. They are the reasons why Bloomberg Economics determined to cut US$1.6 trillion from its forecast of world GDP in 2022.
Now what if that’s just a kickoff? The war and the consequences will not last a lifetime. But the problem is latent, a world increasingly fragmented by geopolitical deficiencies, only seems to get worse.
Bloomberg Economics has run a simulation of what an accelerated reversal of globalization would look like in the long run. It points to a considerably poorer and less profitable world, with trade returning to levels before China joined the World Trade Organization. An added hit to inflation would likely be much higher and more volatile.
For investors, a world of nasty development and inflation surprises has little to guarantee stock or bond markets. In the journey so far in 2022, where the scarcity of what has increased prices prevails, they are among the big winners along with the companies that produce or market them. Defense stocks have also outperformed, as global tensions rise.
“Fragmentation will remain,” says Robert Koopman, chief economist at the WTO. He expects a “reorganized globalization” that will come at a cost: “We won’t be able to use low-cost, marginal-cost production as widely as we did.”
For three decades, a defining characteristic of the world economy has been its ability to produce more and more goods at ever lower prices. The entry of more than a billion workers from China and the former Soviet bloc into the global labor market, coupled with falling trade barriers and hyper-efficient logistics, has produced an era of plenty for many.
Recent years have brought an increasing series of disruptions. Tariffs multiplied during the trade war between the United States and China. The Covid 19 pandemic brought lockdowns. And now, sanctions and export controls are disrupting the supply of raw materials and goods.
This carries the risk of leaving economies to the problem of global scarcity. Emerging nations could see more acute threats to energy and food security, like the ones already causing turmoil in countries from Sri Lanka to Peru. And everyone will have to deal with higher prices.
Some numbers illustrate the scale of the new barriers.
Tariffs: The trade war caused US charges on Chinese goods to rise from 3% to around 15% over the course of Donald Trump’s presidency.
Lockdowns: This year’s Covid crackdown in China has put hundreds of billions of dollars in exports at risk and disrupted supply chains for big companies.
Sanctions: In 1983, trade flows subject to export or import bans were only worth about 0.3% of global gross domestic product. By 2019, that share had increased more than fivefold. Sweeping embargoes triggered by Russia’s invasion of Ukraine and efforts by countries to secure their own supplies by banning sales abroad, such as India’s recent wheat export ban, have pushed the figure even higher.
By identifying one of the great generating barriers that have caused the global economic shortage, such as the crisis of the war from Russia to Ukraine, the blockades due to the covid-19 pandemic, the sanctions and export controls for the supply of raw materials and goods ; a great restructuring of the world economic scheme is needed through IRAIC, thus allowing the system to return to a safe path towards a new structured economy without risks, with a great world power, eliminating the causal sources of imbalances created without foundations or supported for the base foundation of the economy in the world market. Added The USA Herald, news and information portal.