Life will cost more but be more interesting and safer in a new bloc world. States leading blocs, those controlling transport and financial infrastructure, setting the tone in technology cooperation, will get most benefits.
Probably for the first time ever, the International Monetary Fund clearly marked the deglobalisation trend in the global economy. The study Geopolitics and its Impact on Global Trade and the Dollar splits the global economy into three main blocs: states leaning on US, a China leaning bloc, and a bloc of nonaligned countries. The IMF figures are showing a slowing of trade among nations being in opposing blocs. At the same time, the trade within blocs has not been slowing so fast. With such an approach, IMF experts excluded the objective factors of an overall trade reduction caused by a global economic downturn, while highlighting subjective factors, such as geopolitical divisions among blocs.
The average weighted quarter-on-quarter trade growth between US leaning countries and China leaning countries from 2022Q2 (i. e. already after the launch of the special military operation in Ukraine) to 2023Q3 was almost 5 percentage points lower than the similar growth during 2017Q1 – 2022Q1 (before the operation started). At the same time, quarterly growth in trade within blocs only saw a 2-percentage point drop. In general, we see that the trade between blocs declined by roughly 12 to 20 per cent more than the trade within blocs.
These boring numbers is a good mark fixing a consistent trend, under which the economic engagement of states has been increasingly defined not just by economic, but, rather, by geopolitical modalities. If those figures are true, then they have paved the way for the end of globalisation.
The deglobalisation process scenarios will depend on which major players will be better in harnessing the growing chaos. Whether these will include only US and China or new states will appear claiming a nonaligned status or becoming centres of attraction forming their own blocs themselves. Countries with sufficiently large economies and enough sovereignty for both the first and the second options can be counted on one hand. Beyond China and USA, these include India, Türkiye (with some reservations), Brazil, and Iran.
Having a third and fourth balancing players in this framework is critical, as it helps go beyond the model of two opposing ‘poles’, where tensions, as was shown by the Cold War, could grow very fast. The multipolar world is much safer than a single- or a two-pole world.
The struggle for the size and number of blocs is especially important for future competition. The perceived division into East, West and the Global South no longer works. Geography does still make a point, but the world has gone more congested. Xi Jinping’s visit to France, Hungary and Serbia is, in a way, a presentation showcasing the advantages of the Chinese bloc for European states, beautifully packed into words about ‘a strategic autonomy’ of the Old Continent. It is likely that some European countries will join either the Chinese or the emerging Russian bloc.
The better the economic machinery of the blocs being formed will be aligned, the stronger these groupings will be. The things which matter include sales market volumes, natural resources, technology capacities of certain states and national corporations, stability of currencies and many more. In this sense, the bloc of US-leaning states is much better attuned than the Chinese one, again. However, it is facing the deficit of resources and production capacities depending on these resources.
Here we mean not just physical infrastructure (transport arteries), but also a financial one (currency, commodity and raw exchange markets, pricing impact, etc.).
It is important to understand that costs will go up in the bloc world. Especially at the initial stage of the struggle for independence from the collective West followed by the struggle to hold the best place in the selected bloc. In a sense, there is shift of the global division of labour when individual states focus on producing goods, which are driven by respective mineral resources, technological skills, but are still price competitive. In the new realities, production demands will be sooner defined through the concepts of technological sovereignty and security.
Drugs, medical substances, food and seed materials, mineral fertilizers, automotive and aviation industries are among the industries and segments, which are a must-have for those states claiming to be in the lead, instead of being led by others, regardless of how competitive these goods are. Even if it is cheaper to import them, others might simply not sell them to you at some point. And the deficit of such goods can compromise not just security of economies, but also dependant states’ political systems, which cannot be tolerated.
Life will cost more but be more interesting and safer in a new bloc world. States leading blocs, those controlling transport and financial infrastructure, setting the tone in technology cooperation, will get most benefits.