The Ukraine Crisis Could End Globalization

Remember The Economist’s claim that our era of largely peaceful globalization could come to an end? Four months into the new year, the similarities between 2014 and 1914 have become a bit more obvious.

The magazine was wrong to assume that old-school geopolitics would make its return in East Asia, where disputes over maritime borders could still lead to war. Instead it was Ukraine – the site of the 20th century’s most horrific violence – that cast doubt on the stability of our current world order.

Brookings fellow Thomas Wright recently wrote an article that convincingly explains how much of a threat Russia’s annexation of Crimea is to globalization.

The annexation and following sanctions against Russia brought the world “to the cusp of a period of de-globalization,” he writes.

“The logical response to the prospect of economic warfare is for states and major companies to hedge against the risk of vulnerabilities created by interdependence. They will adopt a strategic approach to integration—pursuing it where it works to their benefit, but stepping away from it when it exposes them to potential actions by a hostile government. This will be a sea change in international economic policy and U.S. grand strategy more generally.”

This selective approach to interdependence would differ sharply from previous decades, when countries strove to participate in the global market as much as possible. Wright argues that this “sea change” would have happened anyway, even if Russia hadn’t invaded Crimea:

 “Globalization was always especially vulnerable to geopolitical shocks. The great power comity of 1991 to 2008 was never going to be permanent. It is perhaps better that this realization comes in a stand-off with Russia, the world’s eighth largest economy and one that has already been distancing itself from the global economy, than a crisis involving China, the second largest economy, which could do real damage to the United States and its allies.”

In theory, a more selective approach to globalization could lead to a boom in protectionism across the world. This is exactly what happened after 1914, when geopolitical disputes ended decades of unfettered globalization and ushered in an era of closed-off national markets and recurring economic crises.

But Wright is optimistic that history won’t repeat itself in this case. He argues that countries will seek to diversify trade rather than not trade at all, which will give them more security without having to resort to protectionism.

“Major powers will identify areas where interdependence creates a real strategic vulnerability—especially on finance, energy, and cyber—and reduce them gradually over time. Rather than erecting barriers, diversification could achieve the same effect with much less cost.  As they look to deter Russia, the United States and Europe should also be cognizant about the precedent they are setting.”

 (…)

 “Done right, a more strategic approach to integration and international order can put interdependence and globalization on more stable footing, which will serve the world well as it faces what could become a competitive and volatile couple of decades.”

Let’s hope he is right. But history – and Putin’s current foreign policy – show that governments often don’t act as rationally as we would like.

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