Be wary of the three consequences of rapid deglobalization

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deglobalization
A lady wearing a face mask stares at a mural fresco portraying a global map with tags saying ‘Fragile’ by French street artist Ender, 28 May 2020, Paris, France. (Source: CHESNOT)

Jakarta, IO – The COVID-19 pandemic has hastened the reorganization of global supply chains. The global supply chain’s regionalization or localization trend will significantly contribute to the de-globalization trend. The ongoing conflict between Russia and Ukraine could result in global political and economic reorganization. The long-term comprehensive confrontation between Russia and the West, the escalation of all-around, high-intensity, and indiscriminate sanctions imposed on Russia by the US and Europe, the sharp depreciation of the ruble, and, for a time, the violent turbulence of the Russian financial market. 

The global currency, financial, and trade systems have been influenced since World War II. Globalization-related concepts, mechanisms, and credibility have been severely harmed, while the already battered global industrial and supply chain has taken another hit. According to this perspective, the conflict between Russia and Ukraine is hastening the reconstruction of global trade flows and supply chains, thereby hastening the trend of de-globalization. De-globalization will also have three consequences that are worthy of the world’s attention. 

The first consequences of de-globalization have been a global economic slowdown and upheaval. Globalization promotes labor division and worldwide market cooperation, which may optimize each nation’s comparative advantages, promote optimal resource allocation in each country, and significantly increase production efficiency. The acceleration of deglobalization immediately leads to a reduction in the amount of economic division of labor and exchange, as well as a corresponding reduction in the degree of marketization, reducing the global economy’s efficiency. Furthermore, rearranging production and supply networks increases the cost of global industrial chains, supply chain operations, and worldwide economic growth while diminishing global economic efficiency.

At the moment, the acceleration of deglobalization provides people the most immediate impression that global energy and food costs are skyrocketing, inflation is rising, and the United States and Europe are more likely to enter a recession or perhaps stagflation. In comparison to low- and middle-income countries, it is already very difficult for them to be hit by the new crown epidemic, and the debt problem has become prominent; and the conflict between Russia and Ukraine will cause some emerging economies that rely heavily on food and energy imports to experience massive trade deficits, and even currency financial crises. In other words, the acceleration of deglobalization has caused a slowdown and turbulence in the global economy, which is not favorable to the seamless and smooth functioning of the worldwide economy as soon as possible after the epidemic-affected haze.