Globalization: “Sovereignty reappears today as a major attribute of trade”

A little sentence that caused a lot of noise in financial circles: “The Russian invasion of Ukraine ended the globalization we have known for the past three decades.” She is pulled of the letter from Larry Fink, the boss of the American group BlackRock. It is the largest asset management company in the world: 10,000 billion dollars in assets under management.

Larry Fink is therefore a voice that counts. But is he right? The point of view of the economist Bruno Colmant.

In any case, it is a globalization that is altered. It really started in 2001, when China joined the World Trade Organization. Twenty years later, with a war and we realize that globalization had largely erased the sovereignty of States. It’s wrong. Sovereignty today reappears as a major attribute of trade. So, yes, it’s a shock of globalization that I think will last for a very, very long time.”

Globalization may fuel inflation

What could be its main characteristics? Relocation of a whole series of activities? Structural change in supply chains? Are we going to remanufacture jeans in Europe? How could one describe what could happen?

“I believe that the relocation of companies will be considered, but it will last a very long time. Some companies will come back to us, but we will keep a level of globalization, but at a higher cost, because in fact globalization has led to a deflationary structure of prices. Prices have been able to fall thanks to this globalization. So, I think one could imagine that companies remain localized in the places where they are largely. But unfortunately, the costs transaction costs will become higher. And so globalization will no longer be deflationary. It will perhaps even fuel inflation, as we are now seeing.”

These relocations of activities will doubtless not be massive, but will relate to goods of strategic importance. We can think, for example, of semiconductors. Also, for example, to drug molecules. We had discovered with the pandemic in China that many were manufactured and that we did not necessarily have them available at home. And there will undoubtedly also be an increased role for public authorities.

I believe that the notion of public service, of public goods in terms of energy will be rehabilitated

Regarding energy, oWe see this clearly in France, in Germany, with the European Commission: the public authorities seem to want to regain control, at least in part. We have experienced the liberalization of energy. We also experienced the privatization of energy, we must not forget that. The French case is very revealing. As much as “Gaz de France” had been a nationalized company after the Second World War, it is now under private control. What is happening now is that European states understand that there must be a coordinated approach, which will inevitably limit the privatization of energy and increase its national and European character. And so, I believe that the notion of public service, of public goods in terms of energy will be rehabilitated in most European countries, whose middle and lower classes are strongly affected by the price increases that we are now seeing. “

This surge in energy prices that is fueling inflation and rising prices is likely to subside. But it nevertheless risks settling structurally. “Since the beginning of the 1980s, we have experienced continuous deflation, or in any case disinflation, of the economy. This is also retrospectively called the great moderation in terms of prices. This great moderation is linked, among other things, to to the aging of the population, but above all linked to the opening of borders which has made it possible to take advantage of raw materials and the cost of inexpensive labor located on the other side of the world. companies to relocate abroad and that has led to this globalization of trade. If we start from the idea today that this globalization will be slowed down, will be restrained or in any case will be controlled by States, then inevitably, it will lead to fueling inflation.”

In summary, after a global pandemic not quite over by the way, and a war in Ukraine not over either, we are most certainly entering a new economic era.

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