Russia’s invasion of Ukraine and the financial reckoning imposed on Moscow in response are proof that the triumphant globalization campaign that began more than 30 years ago has reached a dead end.
Fallout from the fighting in Ukraine will take a meaningful bite out of the global economic recovery this year, with the greatest impact in Europe, economists said. A spike in oil prices to more than $110 per barrel and renewed supply chain disruptions — including fresh headaches for the auto industry — also are likely to aggravate U.S. inflation, already at a 40-year high.
But the war’s long-term consequences could be more profound. Even before Russian President Vladimir Putin sent tanks and missiles hurtling toward Ukraine, years of deteriorating U.S.-China relations and failed global trade talks had stalled the tighter integration of finance and trade flows that had been anticipated during globalization’s heyday.
What comes next is unlikely to mirror the Cold War’s distinct blocs. Even as the global economic order fractures, no rival ideologies compete for supremacy. And China’s harsh authoritarian turn under President Xi Jinping co-exists with extensive commercial ties to the United States, Europe and Japan. But governments, corporations and investors all are adjusting to a new reality.
“It’s the end of one era and the beginning of another, which is a less complete form of globalization than we had ambitions for in the immediate post-Cold War era,” said Michael Smart, managing director of Rock Creek Global Advisors. “We have to think differently about what we mean by the global trading system. There are certain requirements that, if you don’t meet them, you’re not part of it. You can’t be in the club.” [Continue reading…]