World leaders, financiers and chief executives say they are leaving this week’s World Economic Forum with the urgent need to re-launch and redefine ‘globalization’.
The structure of the open market that has shaped trade and geopolitics over the past three decades is increasingly shaky as trade spot fan economic nationalism, an epidemic reveals the fragility of the global supply network and a war in Europe could reshape the geopolitical landscape.
Concerns about the signs of this breakdown were evident in WEF’s reboot this week, an annual gathering of the world’s best heels, most of whom have championed globalization.
Kristalina Georgieva, managing director of the International Monetary Fund, described the mood of the event.
Georgieva said she fears less than the risks of a global recession.
“The tendency to fragmentation is strong,” he added.
Corporate executives in Davos were among the strongest signs of a world return to the bloc defined by political alliances rather than economic cooperation.
“We cannot allow globalization to be reversed,” said Jim Hegemann, chairman of Siemens AG, a German industrial powerhouse. “I will not leave Davos with that thought. I will leave with the thought that we will need more cooperation.”
Herbert Dice, CEO of Volkswagen, said he was concerned about the new blockchain because German carmakers were increasing production in the United States.
“Europe and Germany depend on the open market. We will always try to keep the world open,” he said in a briefing on the sidelines of the summit.
Officials have come up with new slogans to describe a new style of globalization, including “multilateralism”, “reshoring”, “friendshopping”, “self-sufficiency” and “resilience”.
“Multilateralism works!” German Chancellor Olaf Schulz said: “This is a prerequisite for stopping the degradation we are facing.”
Not everyone is dissatisfied with how globalization has collapsed since officials and executives last met in January 2020, just before the coronavirus epidemic began.
“Brazil has no coordination with the rest of the world,” said Paolo Guedes, Brazil’s economy minister. “We were out of the party. There was a 30-year party of globalization. Everyone took advantage. Everyone integrated the value chain. We were cursed because we were out of this thing. Now, we are blessed.”
Global trade has accelerated since the 1990s when governments hit regional agreements that reduced tariffs and then China emerged as an influential low-cost commodity producer.
Together they enabled the widespread adoption of timely supply networks that helped speed up the delivery of goods and reduce costs, contributing to the low-inflation environment prevailing in the years leading up to the epidemic.
It has also provoked losses in manufacturing in advanced economies such as the United States and Europe, a trend Guides has ridiculed as a “global labor arbitration” that he sees as coming to an end.
Even before COVID-19 upgraded those supply networks, the system was on fire due to economic nationalist policies, such as championing under former US President Donald Trump. The war in Ukraine has only provoked talks of disintegration.
Yet to make all the fuss about “globalization”, there is little evidence that countries have distanced themselves from each other through trade, with Russia’s significant exception after so many sanctions and trade restrictions.
A global index of global trade volume from the CPB Netherlands Bureau for Economic Policy Analysis fell 0.2% in March but fell just 1% from a record high in December. This is 2.5% more than a year ago and 11% above the pre-epidemic level.
Nevertheless, it may emerge in the near future as companies move some products closer to the target market to protect them from single-source dependence on their supply chain.
VW’s Diess says the move toward self-sufficiency due to disruption in the global supply chain should be arbitrary by concerns to keep markets open – even for its own company.
“So now that the race or the big blocs become very self-sufficient, there is really a big risk in a world that is going to be closed forever. And less competition. So we are really looking for and hope for an open market, which is very good for the world.”
Global supply chain dependence may now be seen as a problem, but they “help people talk to each other,” he said.
Siemens Snape says it was relatively easy for many companies to move out of Russia after the Ukraine invasion because in most cases their exposure was relatively small.
“Well, what if it was China? A completely different situation, a completely different dependence,” Snape said.
“In many ways the situation in Russia and Ukraine is a wake-up call for me … and hopefully a wake-up call for further cooperation.”
(This story was not edited by NDTV staff and was automatically generated from a syndicated feed.)