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End of globalization
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The economic globalization seen since the end of the Cold War is coming to a close, which relied heavily on the interconnectedness of national economies for cross-border movement of goods, services, technology, and capital. Protectionism and self-reliance have stepped in over the last few years, replacing free trade agreements and the promotion of economic liberalization. What started off as trade wars and increasing tariffs has morphed into an outright rejection of the complex multinational supply chain, with pandemic restrictions exacerbating supply shortages and now the war in Ukraine endangering food and energy security.
Economist Adam Posen, President of the Peterson Institute: "It now seems likely that the world economy really will split into blocs, each attempting to insulate itself from and then diminish the influence of the other. With less economic interconnectedness, the world will see lower trend growth and less innovation. Domestic incumbent companies and industries will have more power to demand special protections. Altogether, the real returns on investments made by households and corporations will go down."
Atlanta Fed President Raphael Bostic: "The tragic war in eastern Europe will further momentum toward reorienting production and supply networks away from pure cost minimization and toward resilience and risk tolerance. Supply chain disruptions [also] caused by the coronavirus pandemic prompted business leaders to start diversifying supplier locations and firms, increasing inventories, and bringing production closer to final markets to maximize reliability. Think of it as a shift to just-in-case inventories from just-in-time."
Oaktree Capital's Howard Marks: "The availability of ever-cheaper goods like cars, appliances and furniture produced abroad was a major contributor to the benign U.S. inflation picture in this quarter-century. On the other hand, offshoring also led to the elimination of millions of U.S. jobs, the hollowing out of the manufacturing regions and middle class of our country, and most likely the weakening of private-sector labor unions. The recognition of these negative aspects of globalization has now caused the pendulum to swing back toward local sourcing. Rather than the cheapest, easiest and greenest sources, there'll probably be more of a premium put on the safest and surest."
BlackRock CEO Larry Fink: "The Russian invasion of Ukraine 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. It has left many communities and people feeling isolated and looking inward. I believe this has exacerbated the polarization and extremist behavior we are seeing across society today." (15 comments)
