Globalization Loses Steam
The authors are economists of Shinhan Investment Corp. They can be reached at keonhyeong.ha@shinhan.com. -- Ed.
COVID-19 pandemic and Russia-Ukraine war fueling further deglobalization
Globalization, after driving the world’s economies, politics and cultural developments through the 20th century, started to lose steam since the financial crisis of 2008. The move toward deglobalization began to accelerate after Trump took office and pushed forward on "America First" policies. The added impact of COVID-19 disruptions from 2020 quickened the pace of global supply chain restructuring efforts led by developed countries. The retreat from globalization, first witnessed in the economic arena, expanded further to politics and national security with the start of the Russia-Ukraine war. Different country responses to US sanctions on Russia signaled an end to the US-led global order.
Anti-globalization movement and energy crisis of the 1980s
The world today shares many similarities with the 1980s when anti-globalization was at its height, including: 1) tensions between nations brought on by the Cold War; 2) raw material price hikes led by oil shocks; 3) monetary tightening to tackle inflation; and 4) protectionism in the US to help its faltering manufacturing industry. Amid the retreat from globalization, the global rush to secure energy, considered the key necessity in that era, prompted the US to shift its foreign policy focus to the Middle East and energy companies to push forward on aggressive investments to increase supply.
New focus on securing the key necessities of the 2020s, high-tech products
Energy is a strategic resource for most countries except the US, which is now a net energy exporter. Instead of energy, the US is currently focused on sourcing high-tech products such as semiconductors and rechargeable batteries, which are essential for the fourth industrial revolution but heavily reliant on Asian regions for supply. With western countries led by the US expected to ramp up diplomatic efforts in Asia for the procurement of strategic resources, US-China tensions are likely to surface more frequently going forward but at a lesser extent than in the past. At the same time, we expect countries to increase local investment into high-tech areas such as semiconductors and rechargeable batteries.