How deglobalization could ripple across the economy
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Illustration: Aïda Amer/Axios
Major economic powers, including the U.S., are turning inward — a trend sped up by the pandemic and efforts to boost domestic industries.
Why it matters: The shift away from hyper-globalization poses huge questions for what lies ahead.
- These geopolitical divides could create a more brittle global economy, warned IMF managing director Kristalina Georgieva and other leading thinkers at a Council on Foreign Relations event on Wednesday.
What they're saying: "During the highs of globalization, we were a bit too complacent," Georgieva said. "We have to accept that there had to be a course correction — it could be healthy, but only if we do it right."
- "What worries us is that we are not quite yet seeing an understanding that in a world of more frequent shocks, the only way to build resilience is to work more together," Georgieva added, noting efforts like climate change and the green transition.
The intrigue: Georgieva cited a slowdown in trade, as well as growing restrictions around the world for the changes.
- "It's happening for a reason. It's not that people have become mean and they don't want to trade with each other. ... When trade doesn't grow, that has implications," she said, noting that trade fragmentation could cause a contraction in global GDP growth.
The big picture: Nations have disentangled from one another following COVID-19's historic shock to become more self-reliant — an effort to prevent the sort of supply chain disruption that happened during the pandemic.
- Governments are also throwing massive investments into major industries, like semiconductor manufacturing — in the case of the U.S., cutting off the nation from chips is being done on national security grounds.
Between the lines: "You don't get resilience by restricting exports," Caroline Atkinson, who served as a deputy national security adviser in the Obama administration, said during an event panel.
- "It's like water. If you try and put in some dams, you might end up with the water going somewhere that you weren't expecting."
Worth noting: Georgieva acknowledged that the global economy was performing much better than economists at the IMF and elsewhere expected.
- "We have gone through unthinkable events — COVID, then Russia's war in Ukraine, then the cost-of-living crisis, now a very serious crisis in the Middle East," Georgieva said. "And yet, we are not experiencing a dramatic economic shock."
