Within the space of five years, the world economy has gradually been put out of balance by new dynamics. These include Donald Trump, the Covid-19 pandemic and the ‘special operation’ in Ukraine, which has resulted in trends of protectionism, shortages and inflation. Should we interpret these signs as being the start of deglobalisation?

Protectionism

At least one positive thing came out of Donald Trump’s election in 2016: it revealed the differences between the United States and China on trade issues. The economic war that was subsequently declared – not without a certain panache by the new tenant of the White House – nevertheless had side effects for the West. In this context, the reactivation of the “America First” doctrine exacerbated the protectionist reflex, and with it the repatriation of means of production and capital, to the great displeasure of Western allies to the US.

Shortage

In 2020, the Covid-19 pandemic, which has accelerated the trend towards inward-looking attitudes, also highlighted the logistical issues of our globalised economy. When ports and factories are at a standstill, shortages appear at all levels, especially in staple products. This tends to call into question our globalised production chain model in a context that is already tense.

War

And now, in the year 2022, we have war in Europe. A possibility that no-one on the Old Continent was really prepared for. Except for the Russians, of course, who had already detached their economy from that of the West by turning to Asia after the annexation of Crimea in 2014. The impact is less severe for the Americans as they are independent when it comes to energy.

In this context, the sanctions imposed by the West on the Russians have done nothing other than to further fuel economic frictions linked to American protectionism and the shortages resulting from the pandemic. Indeed, these sanctions have failed to bring Russia’s economy to its knees; having diversified the outlets for its energy products, Russia can continue to sell these by circumventing the sanctions via China and India. This situation is being closely monitored by China, which could well find itself in the same situation if it were to act on Taiwan. Meanwhile, the price of raw materials, goods and services is skyrocketing, further fuelling inflation.

Inflation

The economic consequences of Covid-19 are currently being felt. Governments that stretched their national economies to the limits to cope with the unprecedented situation are now facing the first bills. Added to this are supply problems and extensive money printing, which is further accelerating inflation in a way that has not been seen for more than a generation.

Karlo Otto Pöhl, President of the Bundesbank in 1980, said: “Inflation is like toothpaste. Once it’s out, you can hardly get it back in again. So the best thing is not to squeeze too hard on the tube.” It should be noted, however, that this inflation is structural, i.e. linked to supply rather than excessive demand. In this context, were central banks right to delay raising interest rates? Nothing is less certain. Indeed, interest rates can only solve structural issues at a huge cost to the economy.

The coming years

Protectionism, shortages, war, inflation – all of these are encouraging “deglobalisation”. This trend is likely to continue if there are no improvements in the situation in the short term, and unfortunately, no such improvements are being observed. Inflation will therefore continue to be a burden on corporate profits and households.

As for the two superpowers, namely the United States and China, they are likely to continue their economic and diplomatic confrontation, which will lead to a general rise in mistrust. These new circumstances will inevitably disrupt the commercial development of multinationals.