International Monetary Fund (IMF) chief Kristalina Georgieva has warned that what she calls ‘geo-economic fragmentation’, combined with financial instability, could impact heavily on the growth of the world’s economy in the coming years. Speaking at the China Development Forum in Beijing in March, she said that the world risks splitting into rival economic blocs which would leave people poorer and less secure.
Her warning develops a theme set out by the IMF in January 2023. In a paper entitled ‘Geoeconomic Fragmentation and the Future of Multilateralism’, the authors describe a number of scenarios in which the cost to global output from trade fragmentation could range from 0.2% up to 7% of GDP. The organisation believes that with the addition of ‘technological decoupling’, the loss in output could reach 8 to 12% in some countries.
The authors use the paper to stress that globalization, overseen by post-war organisations such as the IMF, has brought many societal and economic benefits. Deeper trade ties have helped emerging markets reduce poverty; cross-border migration has created value in both developed and migrant-sending countries; and capital flows have led to the diffusion of technologies worldwide through foreign direct investment.
That the IMF needs to make the case for globalization is a tacit admission that it feels it is losing the argument. In its paper, the authors state that, ‘Given current geopolitical realities, progress through multilateral consensus may not always be possible. Trust may have to be rebuilt gradually through differential engagements depending on the countries’ preferences and willingness to work together.’ Given the state of antipathy which exists between many of the world’s trading powers this statement somewhat under plays the extent of the task required to re-establish trust and the mechanisms with which countries could work together towards further trade liberalisation.
It is ironic that Georgieva should warn of the risks of de-globalization at a conference in Beijing. Many people believe that the accession of China to the World Trade Organization (WTO) in 2001 was the first step in the loss of confidence in the rules-based multilateral trading system. There is a consensus (in the West at least) that China has used its access to the international trading regime as a means of unfair competition, unopposed by institutions such as the WTO whose job it was to enforce the rules of fair trade. At the same time as this, China has been allowed to project its economic, financial and political power throughout much of the emerging world. It is notable that China is still very keen to promote globalization and ‘free trade’ whilst many of its major trading partners have started to talk about ‘strategic autonomy’ and re-shoring. Germany, heavily invested in China, is an exception and the new Chancellor Olaf Scholz has made it clear that de-coupling from China is not an option.
At one level of course Georgieva’s argument and warning makes perfect sense. Measured by top line economic growth alone, there is little doubt that de-globalization will leave many countries worse off. However, this argument ignores the political, security, legislative, environmental and ethical priorities which are leading to the creation of competing supply chain hegemonies. The shift to a fragmented, multipolar world has already started and there will be no going back.
Source: Transport Intelligence, 30th March 2023
Author: John Manners-Bell