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If globalization was supposed to bring the world and its economies together, “fragmentation” is the term for how they’re splintering apart.
“Fragmentation” is a buzzword at the World Economic Forum convening this week in Davos, Switzerland, writes CNN’s Allison Morrow.
What is fragmentation?
Morrow: By “fragmentation,” (economists) are referring to a breakdown of the kind of free-wheeling, border-crossing trade and investment that’s defined the global economic order over the past three decades. It is a form of deglobalization — rebuilding fences around national or regional fiefdoms.
What’s the evidence?
McDonald’s pulling out of Russia, which we wrote about last week, is a good example of the seeming end of cross-border openness.
Starbucks followed suit this week.
The exodus of Western companies could push Russia and China closer together. Morrow points out that Airbnb is pulling its listings out of China not for political reasons, but to avoid bureaucracy.
End of the globalization wave?
Federal Reserve Chairman Jerome Powell, who still hopes to control inflation by raising interest rates, said at a Wall Street Journal event last week that the US and other world economies have benefited from years of low prices thanks to globalization paired with technological advances.
“There is a real possibility that globalization will go into reverse,” he said, although he also argued there would be trade-offs, and that in the future, supply chains will be better able to withstand disruptions like a pandemic and a war.
Beyond decisions made by corporate giants, so many key markets, like oil and gas and food, are based on a global supply.
Russia seems to be pilfering grain from Ukraine. Satellite images appear to show Russian ships being loaded with grain at a port in Crimea, likely bound for whatever country Russia can get to buy it.
Grain supplies from Ukraine are vital to the world food supply, particularly in Africa and the Middle East, as CNN has reported. As Russia blocks Ukrainian ports, the US and Europe are trying to develop alternative routes for Ukraine’s grain – and alternatives to avoid a world food shortage.
How countries pursue strategic foreign policy goals feels increasingly interlocked with their economies.
President Joe Biden engaged with two different blocs of countries this week.
There’s a loose bloc, the newly formed Indo-Pacific Economic Framework, whose representatives he met in person or virtually while in Tokyo, with an eye to reasserting the US as a counterweight to China in Asia.
This is not, apparently, a rehash of the Trans-Pacific Partnership, the trade deal negotiated by the Obama administration but then rejected by the Trump administration. (Other TPP nations carried on without the US and formed that partnership anyway.)
Biden also met with leaders from the informal security group, the Quad, short for the Quadrilateral Security Dialogue, which includes Japan, India and Australia.
Why won’t Biden repeal these tariffs?
What Biden has not done is lift the Trump-era tariffs on Chinese goods – even though that’s one of the few concrete and potentially substantive things he could do to combat inflation that’s making everything more expensive for American consumers.
The solar panel industry could collapse
Read this fascinating account from the energy economist Mark Wolfe in CNN Opinion. The larger point of the story is to argue for increased tax credits for people installing solar panels.
But he also explains how an investigation by the US government – into whether imports from Cambodia, Malaysia, Thailand and Vietnam use components made in China and should be fined for escaping tariffs – has the entire industry on the precipice.
Lifting the tariffs would frustrate supporters on the right and left who prioritize containing China and question whether doing so would actually control inflation.
The White House is in the midst of a holistic review of whether to lift them and how to deal with China.
The case against tariffs
CNN’s Fareed Zakaria devoted a portion of his show on Sunday to the Biden administration’s failure, so far, to lift the tariffs because it fears the domestic political consequences.
He lambasted the White House for behaving “like a deer caught in the headlights, paralyzed from fear that any major shift might get attacked by Republicans.”
“Getting cheap stuff at Walmart is a much bigger boon for someone making $30,000 a year rather than $300,000,” Zakaria said.
But the larger issue of globalization and an opposition to free trade has gotten a bad rap in the US, he said. Former President Donald Trump exploited this constantly, scuttling the TPP, renegotiating NAFTA and also by slapping the tariffs on China.
“A conventional wisdom has congealed in the United States that decades of free trade have led to stagnant wages for the middle class and misery for the working class,” Zakaria said.
The flip side of globalization
He argued globalization has actually made life better by making key goods like food, clothing and technology cheaper and more accessible to more Americans.
“We are witnessing what happens when the economic winds move in the opposite direction and costs start spiraling up,” Zakaria said. “It might even make us all a little nostalgic for globalization.”