The End of Globalism
Not so long ago - well it doesn't feel that long ago - Globalism seemed set as the way of the future. There would be more coming and going of goods and trade and ideas and education. Like it or lump it, we were all set to compete on a global stage and there was no escaping its tendrils as goods and services put together with global supply chains and global transportation made its way around the world. Globalisation looked like the kind of end point of history that say Francis Fukuyama might approve of; even allowing for these pockets of global players who didn't quite fit into the club of liberal democracies. You could argue Russia was coming along ever slowly towards seeing things the way the west sees them, and even China under the CCP seemed to prioritise making money over ideological purity thanks to Deng Xiao-Ping-ism.
Now in the wake of the Covid-19 pandemic, the bellicosity of Xi Jinping's China, and the Russian invasion of Ukraine, some things have come into very sharp focus. The first thing on the list is that China under Xi - so China since about 2012 - has been a really crappy participant in the global order. The second is that Russia has also been a crappy participant in the global order. And between the two of them, their contributions have lessened to the point of making the first world wonder whether there is any merit in extending the welcome mat to these countries.
To be sure, China is a big market that seemingly promises future growth except for the gigantic property bubble that has just popped. Russia, for its part is tremendous exporter of oil, gas, wheat and fertilisers - so much so that the sanctions to remove Russia from the global markets is in a sense flirting with mass starvation scenarios.
It's kind of amazing things have come to this, but the last decade has been to put it mildly a shit show for globalism. It is no wonder it is in retreat. For a while there, globalism looked so locked in, the people protesting against it in the late 1990s looked like ideological crazies. Now, globalisation is forced to being rolled back by the simple reality that you can't do business with countries with dictators like China and Russia. It may profit you in the short to mid term but in the long run, they're sure to screw you over. In that sense, there's not much daylight between Saddam Hussein and Vladimir Putin or Xi Jinping.
The End of Deflationary Pressures
For some time we've been in this weird loop since the end of the Global Financial Crisis around March 2009. Governments have spent lots of stimulus money in the hopes of stoking inflation but all these quantitative easing and printing money did not lead to the kind of inflation they taught in schools. Part of the reason is that as the world went global, so did the money, so all the money printed by the US Fed or the RBA seemed to just flow out into the wider world and did not come back as inflation.
It's a complicated area but the bottom line is that even faster than the US was printing money, China had been exporting deflation to the world through its cheap labor. I think I've covered this phenomenon somewhere in the past so I'll skip going into it here. Suffice to say China's labor costs have been going up over the last decade, and so there probably has been less deflationary pressures that China was exporting, leading up to the Covid-19 pandemic. If the last 30 years of gentle economic growth for the first world was founded on Chinese manufacturing being so cheap and easy, that context is coming to a rapid end.
Worse still China is the most indebted nation in history both in absolute terms as well as per capita, and for political reasons of the CCP needing to stay in power - or perhaps it's just Xi who needs to stay in power - they have blown up their property bubble. We have no idea how this is going to play out in global markets. Judging from the ructions of April and May, global markets do not like what is going down in China. Markets might approve and accept the US Federal Reserve raising interest rates, but it does not like the figures coming out of China. The supply chain issue that we have come to understand isn't just about the fact that China is in lockdown across its most productive cities. It's the fact that China itself has become this gigantic counter-party risk in the last few months.
Some of the manufacturing the Chinese had been handed by foreign corporations is now being on-shored back to those very foreign shores. The reason we're seeing such stubborn inflation in the first world is simply because the deflationary pressure China brought to the world economy has been cut out of the loop. This means we can expect inflation to keep rising, and for interest rates to keep rising until those inflationary pressures are tamed. In turn this means we will be having that recession we had to have back in 2008-2009 that we didn't quite get because China took on the greatest debt in history to keep the punch bowl swirling. All of that, on top is about to get unwound out of China.
Brace yourselves. This ride is going to be a bit rough.
Can Global Capitalism Even Be Fixed?
I'm sure people will make every effort to revive it, but right now, the forces are arrayed against it.
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