Three years ago, The Economist used the term “slowbalization” to describe it The fragile condition of the international trading exchange. At a rapid pace after the 1990s and 2000s, the pace of economic integration stalled in 2010 as firms suffered shocks from the financial crisis, the populist uprising against open borders, and the president’s trade war. Donald Trump. The flow of goods and capital was stagnant. Many bosses have postponed making big investment decisions abroad: giving way to waiting and seeing in a timely manner. No one knew if globalization was threatening Slokin or extinction.

Now the wait is over because The pandemic and the war in Ukraine led to a re-emergence of global capitalism In directories and governments that appear once a generation. Wherever you look, production chains are transformedOf the $ 9 trillion in reserves accumulated in the form of reinsurance from deficits and inflation, David ended up in labor when global firms moved from China to Vietnam.

This new type of globalization is about safety, not efficiency: it prioritizes doing business with people you can trust in countries that your country government is friendly to. It can lead to protectionism, state expansion, and rising inflation. Alternatively, if firms and politicians are careful, the global economy can change for the better, maintain openness benefits, and improve sustainability.

The key to globalization has been efficiency since the fall of the Berlin Wall in 1989. The companies placed production where the cost was lowest, And investors invested their capital where profits were highest. Governments sought to treat firms equally, regardless of their nationality, and to conclude trade deals with democracies and autocracies. For more than two decades, this has inspired Impressively sophisticated value chains It accounts for half of the total trade: its car and phone contain components that have traveled farther than Phileas fog. All of this has reduced prices for consumers and helped lift 1 billion people out of poverty. The extreme as an emerging world, including China, is industrializing.

The exclusive pursuit of the benefits of spending has led to reliance on autocracies that abuse human rights and trade as a means of coercion.

But hyperactive globalization also had problems. Unstable capital flows have destabilized financial markets. Many industrial workers lost in rich countries. Recently, other concerns have emerged that have gained great weight. First, some lean supply chains are not as good value as they seem at first glance: basically they keep costs down, but when an account is broken, it can be very expensive. Current delays have reduced global GDP by at least 1%.

Shareholders affected as well as consumers: With the shortage of computer chips, which hinders the production of automobiles, the cash flows of automakers have been reduced by 80% in a year. Tim Cook, a supply chain guru who runs Apple, estimates these problems could reduce sales by $ 8 billion, or 10%, this quarter. Covid-19 was a shock, but wars, extreme weather events or other viruses could seriously affect production chains over the next decade.

The second problem is that the exclusive pursuit of cost benefits has led to reliance on autocracies that abuse human rights and trade as a means of coercion. The hope that economic integration would lead to reform – what the Germans call “change through trade” – has completely vanished: autocracies account for a third of world GDP.

Vladimir Putin’s invasion of Ukraine painfully reveals Europe’s dependence on Russian energy. A few days ago McDonald’s in Moscow, which opened in 1990, resumed its operations under local control. The Big Mac menu is no more. ასMasoba, President Xi Jinping’s ideological and unpredictable ChinaIt has seven times more trade traces than Russia and the world depends on it for a variety of goods, from pharmaceutically active ingredients to batteries used in processed lithium.

One indicator that companies are moving from efficiency to resilience is a huge increase in preventive stocks: In the 3,000 largest firms globally, these stocks have grown from 6% to 9% of global GDP since 2016. Many firms use dual source of production and long-term contracts. The pattern of multinational investments has changed: 69% are from local subsidiaries that invest locally and not from parent firms that send capital overseas.

In the 1930s, with global firms responding to nationalism, foreign subsidiaries became more self-sufficient. The most pressured industries are already rethinking their business models, encouraged by governments from Europe to India to promote “strategic autonomy”. The auto industry is copying By Tesla Elon Musk Going towards vertical integration, each company controls everything from nickel mining to chip design. Taiwan Electronics Assemblers have reduced their share of assets in China from 50% to 35% since 2017, suing clients such as. Manzana Diversification.

Looking for long-term supply agreements from Western allies in energy Rather than relying on spectrum markets dominated by competitors: this is one of the reasons why it is strengthening relations with gas-rich Qatar. Renewables will also make energy markets more regional.

The danger is that reasonable security pursuits will turn into sweeping protectionism, job promotion plans, and hundreds of billions of dollars in industrial subsidies. The short-term effect of this will be more volatility and fragmentation, which will further raise prices: this is President Joe Biden’s discussion of imposing new tariffs on solar panels, which he suspended this month due to a deficit. The long-term inefficiencies that would result from indiscriminate repetition of production chains would be enormous. If one were to repeat a quarter of the total multinational activity, the additional annual financial and operational costs could exceed 2% of world GDP.

Durability and diversification

Therefore caution is crucial. Governments and firms need to remember that resilience is caused by diversification and not by concentration in the country. Delays controlled by autocracies account for only one-tenth of global trade. Based on their exports of goods in which they have a market share of more than 10% and which are difficult to replace. The answer is to require firms to diversify their suppliers in these areas and allow the market to adapt. Will current governments fulfill this task? Myopia and isolation are abundant. But if you are a consumer of global goods and ideas – or a citizen of the world – you need to base your hopes on the next phase of globalization, which includes maximum openness. The new balance between efficiency and safety is a reasonable goal. There is no life in a subsidized bunker.