The US could cope with deglobalisation. Europe couldn’t by John Springford
True ‘deglobalisation’ – disintegration of the global economy – would be triggered by a political event, like China invading Taiwan. That would be a big problem for Europe’s economy. Foreign policy analysts sometimes indulge in grand narratives that have little basis in data. Talk of ‘deglobalisation’ is one such narrative, and has been on the rise since 2016. On some measures global economic integration has stalled, while on others, it continues to grow. A 1930s-style collapse in trade and international investment did not happen after the global financial crisis in 2008 – or after Donald Trump’s election victory. However, the risks of outright deglobalisation have clearly risen after Vladimir Putin’s invasion of Ukraine and Xi Jinping’s decision to strengthen ties with Russia (if more in word than deed). If Xi decides to invade Taiwan, and the US and its allies impose sanctions on China in response, international trade and investment would fall substantially. Europe’s economy is far more vulnerable to such disintegration than that of the US. Global goods trade remained high after Trump took office, fell rapidly during the pandemic, and then recovered (unlike the 1930s, when it fell precipitously to a lower level and stayed there). Global services trade has been steadily growing since the financial crisis. After 2009, global cross-border lending stagnated: slower trade growth meant less international credit was needed to facilitate it. But foreign direct investment – investment in companies, buildings and machinery – continued to rise, especially in emerging economies. So too did migration flows. But if China, Russia and the West separate into
two opposing political and economic blocs, true deglobalisation would ensue. Meanwhile, the EU has been flirting with policies to bring more production onshore (as have the US and China, which is aiming for self-sufficiency in key technologies through its ‘dual circulation’ policy). Since the UK voted to leave the EU, the balance of power in the Union has shifted towards more trade-sceptic countries, especially France. Gummed-up global supply chains after the pandemic have further encouraged talk of European ‘strategic autonomy’ in trade and investment. The EU is providing big subsidies for European microchip production, attempting to onshore electric vehicle supply chains, planning to develop home-grown alternatives to US tech and payments giants, and enacting stricter controls on foreign investment into the Union, especially by companies based in autocracies. Russia’s weaponisation of gas supply has prompted a scramble to diversify Europe’s energy imports. The EU’s economy – like those of the UK, Switzerland, Turkey and other countries in its neighbourhood – faces a sharp recession as retail energy prices climb. Energy rationing might be needed this winter as EU member-states struggle to find alternatives to piped Russian gas. Food prices are also rising rapidly, as well as some commodities that Ukraine and Russia specialise in, such as fertiliser. That comes on top of high inflation in other imported commodities, parts