The war in Ukraine ended globalization as we've seen it rule the world for the past three decades, said Larry Fink, head of investment fund BlackRock. In the United States they coined the term "friend-shoring" to frame the homecoming mechanism of strategic and high-tech industrial productions. The risks of almost total dependence in many industrial sectors have already been experienced with some shivers in the most acute phases of the pandemic. In Italy, in the first weeks of Covid we struggled to produce simple fabric masks, not exactly the latest derivatives of technology connected to quantum physics. Two months ago, the conflict in Ukraine was added which has brought the various regional economies back to potentially having to think about a future where the world divides resources into blocks of political influence. Exclusively for FIRSTonline, economist Jeffry Frieden, author of one of the most cited books on the future of globalization, "Global Capitalism: Its Fall and Rise in the Twentieth Century, and Its Stumbles in the Twenty-first", draws an updated map for orient themselves in the new geography of the world economy. He teaches International Economic Policy at Harvard where he heads the Department of Government.
Professor Frieden, the war has frozen the deep roots of the world economy. Energy, oil, currencies, investments, food supplies: globalization seems to be in a great crisis. Playtime is over, will the world again divide into influence blocs?
“The Russian invasion of Ukraine has changed both the geopolitical and economic realities we face. There had already been some lull in international economic integration, for several reasons. The invasion will certainly lead to a reconsideration of the depth and breadth of many economic and political relationships."
It is not easy to dismantle the functioning of a completely globalized, interdependent economy with manufacturing production chains located all over the world. Is a world cut into blocks really conceivable?
“Removing Russia from the integrated world economy is not the same as 'dismantling' it. Russia's economy is small and not particularly relevant to the rest of the world, although it is important for some commodities and some countries. As long as the invasion and its aftermath lead simply to the economic isolation of Russia and its closest allies, the implications for the world economy will not be particularly significant.
The United States and the European Union on one side and China and Russia on the other? With a variable corollary of regional powers being positioned. What kind of economy would that be?
«He is right to underline this question: the biggest question about the future of the international political and economic order concerns precisely the role of China. If the Chinese government decides to stay with Russia, the prospect would be the establishment of a large Eurasian bloc that could conceivably take the form of an alternative to the OECD. However, I don't think that's very likely, at least not in the foreseeable future. China is much more tied to the world economy than the relationship with Russia".
Western capitalism, even if it doesn't put its boots on the ground in Ukraine, has decided to fight its enemies hard with sanctions. What effects will economic warfare have on international trade?
“I don't think the sanctions will have a particularly profound impact on world trade, other than of course their impact on trade with Russia and its allies. There will be a search for new sources of supply made less accessible by the sanctions, but it would be a question of a shift in trade rather than an actual reduction".
The pandemic before and the war after force Western countries to plan the shortening of value chains. Is being dependent on potentially hostile countries a risk we can no longer take?
«Yes, already with the pandemic, many governments were reconsidering the idea of reducing the dependence of global supply chains on particularly important goods: those essential for health care, food supply, defense and the like. I believe that the invasion, the sanctions and the aftermath of the war will lead many more governments to try to better protect their economies. First, against the potential negative effects of disruptions in supply chains».
Can you give us some examples of goods and technologies that will soon return home?
«It is about the production of goods considered strategic, or even essential, for the various nations. Basic foodstuffs, medical supplies, technologies related to national defense and some particularly sensitive electronic equipment.
Europe has discovered itself to be very fragile in some sectors. In the first place for simple productions (the case of masks), then for the energy question and finally for the primary goods of agriculture. So will there be a new phase of state interventionism in the economy?
«The European Union and its member countries will have to strongly reassess their vulnerability to supply chain disruptions. Aside from the obvious implications in energy matters, I imagine this will apply to the types of goods mentioned above, those deemed crucial to the functioning of the European economy (electronics and capital goods) and those deemed basic such as food and healthcare ».
Inflation is an "ugly beast" that we were no longer used to dealing with. It will stay with us for a long time, both for the effects of the energy transition and for the reorganization of international trade. Is Western politics destined to change too?
«Monetary policy is destined to tighten in the United States and in Europe, this phase has already begun. It remains to be seen how far interest rates will have to go up and how much this increase will cause a profound slowdown in the economy. And above all check if this policy will be sufficient to stem inflation. The easing of fiscal policies, which began in the era of the pandemic and now with the war, will also be a challenge facing Western economies.
What scenarios are foreseeable in the world of currencies in view of this reconfiguration of the new international commercial order?
«Although there continue to be projections on the decline of the dollar, I still don't see any real signs in this direction. There is no realistically viable alternative, although the euro may become slightly more attractive over time. The renminbi, China's currency, lacks the reputation an international currency needs, and China's financial market itself is not open and deep enough to support a currency of global interest. So I don't see many changes in the short to medium term."
On the technological factor, where should we look to understand how relations between global powers will evolve?
"Automation, biotechnology and artificial intelligence are currently the spearheads of modern technological change and will likely continue to be so."
Last question: in the light of what is happening, do you see a stronger or weaker Europe in the coming years?
«I believe that the Russian invasion of Ukraine will ultimately strengthen both NATO and the European Union. The perspective of a real enemy usually focuses the mind and helps bridge differences in the pursuit of the common defense."
