Global Courant
Globalization may have brought this about common economic prosperity and primarily improve prosperity worldwide; however, now it has more disadvantages than advantages.
This is mainly due to the so-called chain effect.
Due to the interconnectedness of economies, a problem in one country can have major consequences and lead to recessions and other negative consequences on a global scale.
The bursting of the Internet bubble in the late 1990s, the real estate bubble in 2008 and the European debt crisis in 2009 are excellent examples of this phenomenon.
The challenge is that, in the context of full globalization, it is difficult to mitigate the negative consequences of interconnected economies.
The unfolding crisis in China serves as a poignant reminder of this reality.
First, a lower-than-expected flow of orders from Chinese consumers or a drop in foreign investment by the government cannot be easily replaced.
Second, if the People’s Bank of China (PBOC) increases the pace of its foreign asset sales to support the yuan, there are limited options to offset the resulting negative impact.
For example, China’s sale of US government bonds could prevent a fall in yields, even as the Federal Reserve nears the end of its rate hike cycle and global stock markets face a massive sell-off.
Moreover, if the PBOC decides to dump a third of its $835 billion, there could be a huge shockwave on the US long-term debt markets, especially in the current context of economic crisis. Quantitative easing by the Fed.
So where does it take us?
Although globalization can be harmful in times of uncertainty, this does not mean that we should reduce interdependence and integration and return to protectionism. That would only increase the global economic slowdown, inequality, poverty and inflation. The best thing would be to help those on sinking ships recover faster.
But unfortunately, in the current state of geopolitical relations, this seems highly unlikely. All we can do is follow global market updates and stay prepared.
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