Geopolitics is the biggest threat to globalization and world economy in 2023

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Geopolitics and deglobalization impact on global economy risk
Geopolitics and deglobalization impact on global economy risk

How may globalization come to an end? Some people appear to envision the once-tightly coupled economies “decoupling” in a relatively peaceful manner. However, it is likely that the weakening of economic links will both contribute to and be a cause of the growing world unrest. If so, globalization may come to an even more catastrophic end.

Sadly, humanity has already done this. We have had two phases of expanding cross-border economic integration since the industrial revolution in the early 19th century and one of the opposite. Prior to 1914, the first globalization era began. The second started in the late 1940s but picked up speed and widened starting in the late 1970s as more and more economies began to integrate. Between the two world wars, there was a protracted era of deglobalization, which was exacerbated by the Great Depression and the protectionism that both accompanied and exacerbated it. The final point is that since the financial crisis of 2007–2009, globalization has not been accelerating or slowing down.

Geopolitics and deglobalization history

Deglobalization due to world conflicts
History of deglobalization events

This history scarcely hints to the likelihood of a cheerful deglobalization era. Contrarily, the local and international political and economic order collapsed during the period 1914–1945. The Bolshevik revolution of 1917, which was also a result of the First World War, was the catalyst for the spread of communism. Some estimates have the death toll from communism at about 100 million, surpassing that of the two world wars.

The European empires were rendered unsustainable by this time of chaos and disaster, which also gave rise to modern welfare states and increased human awareness of their common fate. Overall, though, it was a catastrophic era.

Geopolitics and Threat of nuclear war Total of 13,000 nuclear weapons

Nuclear warheads by country
Total Nuclear warheads based on countries

How and to what extent peace is tied to globalization is a contentious issue. John Plender recently asserted that trade does not always guarantee peace. The fact that the first world war broke out during a period of comparatively brisk trade is proof of this. From peace to business, the causality sort of goes the other way. Trade generally increases when major powers cooperate. Trade collapses in an environment of mistrust, particularly in one of open hostility, as we are currently witnessing between Russia and the west.

Some people cite the liberal Englishman Norman Angell as an example of someone who was naive enough to think that commerce would bring about world peace. However, he contended that countries would gain nothing of value from war in The Great Illusion, which was written just before the First World War. Experience after the war showed that this theory was completely correct: all of the main players suffered defeat. Similar to how common Russians and Chinese will not profit from the conquest of Ukraine or Taiwan, respectively. But despite this fact, strife continued to exist. We are prone to absurd follies and heinous crimes when led by psychopaths and under the influence of nationalism and other perilous ideologies.

Atmospheric carbon dioxide concentration in parts per million globally.

Co2 – Carbon foot print globally

One argument for this is that nothing like to what occurred during the “great deglobalization” of the 20th century can occur now. The outcome could, at worst, resemble the cold war. But this is overly hopeful. The effects of a breakdown in relations between great powers are quite likely to be greater in our time than they were in the past.

One obvious reason is that we are now more than an order of magnitude more capable of annihilating one another. An alarming new study from Rutgers University contends that nearly 5 billion people might perish in a full-scale nuclear conflict between the US and Russia, especially given the likelihood of a “nuclear winter.” Is that not conceivable? Sadly, no.

We rely on a high degree of enlightened cooperation to support an inhabitable planet, which is another reason why the result could be far worse this time. This is especially true of China and the US, which together account for more than 40% of the world’s CO2 emissions. The greatest collective action problem now is the climate. Any prospect of preventing a runaway process of climate change would likely be eliminated if cooperative relationships broke down.

Earth Temperature land-sea chart from 1961 – 2022

Land sea temperature changes history from 1840 – 2022

Then, one must revert to the optimism that the current, widening global divisions may be contained, as they mostly were during the cold war. This optimism can be rebutted by the fact that there were some close calls during the Cold War. The second is that, while China and the west compete with one another and are both integrated with the rest of the globe, the Soviet economy was not. It is impossible to break these economic ties without suffering some grief. To think there is foolish. Conflict appears certain to result from the effort.

The newly announced restrictions on US shipments of semiconductors and related technologies to China do appear to be a meaningful move. This poses a threat to Beijing that is unquestionably much greater than anything Donald Trump achieved. It is obvious that the goal is to hold down China’s economic growth. Economic warfare has been committed there. It might be accepted by some. But it will have significant geopolitical repercussions.

Inequality is on the rise for developed nations

Country wise inequality index compared with Trade as % of GDP vs Household disposable income

deglobalisation that has been carefully calculated and intelligently executed is not likely to lead to deglobalization. Humans do not operate in this manner. Some people can assert that deglobalization contributes to lowering inequality. That is also absurd because open economies are typically more equal than closed ones.

Power struggles pose the biggest challenge to globalization. By attempting to increase their security, great powers make their adversaries feel less safe, which feeds a vicious cycle of mistrust. We’ve come a long way in this spiral already. That fact will determine how the global economy develops. Instead of a friendly localism, we are moving toward negative-sum competition. If that sickness spreads rapidly, our planet might not survive.

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