Geoeconomic Fragmentation and the Future of Multilateralism - by IMF 2023 - Article review

This document contains article review "Geoeconomic Fragmentation and the Future of Multilateralism" by IMF written in 2023
To order to read the article select: https://www.imf.org/-/media/Files/Publications/SDN/2023/English/SDNEA2023001.ashx

• The text in italics is copied from the article.
  
• Immediate followed by some comments
  

Contents

• Executive Summary
• I. Introduction
• II. The State of Global Economic Integration
• 3.

Reflection

• Reflection 1 -
• Reflection 2 -

This Staff Discussion Note explores the potential economic ramifications of a policy-driven reversal of global economic integration, a multidimensional process that the authors refer to as geoeconomic fragmentation (GEF).

Was globalisation also policy-driven? By who?

The benefits of globalization propagate through multiple channels; the adverse consequences of GEF would be felt in many areas as well.

Globalisation has undoubtfull postive effects but also negative. i.e. maybe more. For DeGlobalisation de same logic applies.

For several decades, trade deepening has helped catalyze catch-up in per capita incomes across countries and a large reduction in global poverty, etc, etc.

The reality will show that overall picture is very mixed. It is important to consider raw materials, goods, property and production seperate from money and capital.

Available studies suggest that the deeper the fragmentation, the deeper the costs; that technological decoupling significantly amplifies losses from trade restrictions; that adjustment costs are likely to be large; and that emerging market economies and low-income countries are likely to be most at risk due to the loss of knowledge spillovers

This discussion should start with a total view about the structure of the world we want to live in.
That means a world we more or less all own the same, all have work, all have the same social benefits, all have the same medical benefits, all have the same happyness, all have leasure time and can enjoy the environment
That definite does not mean that in all aspects we are the best.
A typical case is football where the saleries of a certain number of players is skyrocketing to the disadvantage of the club and the players in the middle. These local clubs cannot compete with these rich clubs, which are global oriented. As a result the members of the first are disatisfied. The scapegoat is the trainer, because his team is not a winning team. It is final goal he can not reach, as such he has to find an other job. This final step is also impossible, because he becomes to old and to find this job he has to emigrate.

More work is needed to assess and aggregate the costs through multiple channels.

Before studying costs it is more important to study these channels. That means how the different parts of the world influence each other. That is a complex task.

By hampering international cooperation, GEF could also weaken the capacity of the GFSN to support crisis countries and complicate the resolution of future sovereign debt crises.

International cooperation is a difficult concept. Some countries will claim: Please cooperate with us, we will become friends and we will all benefit. In reality this is maybe only a one direction road.

I. Introduction

Page 5

The United Kingdom’s decision to leave the European Union in 2016 was an example of this broader trend.

Is that good or bad? IMO my overall impression the overall investements for the benefits of the average englishmen is low. I don't understand why so many people want to emmigrate to England, while it is not a rich country. Part of the reason is that to compete worldwide is difficult. At the same time you here much more about the winners than about the loosers. The last will go broke.

The COVID-19 pandemic and increased geopolitical tensions have tested international relations and raised more questions about the benefits of global integration.

That is true, but this issue is much broader

While fragmentation may entail strategic advantages for some countries in selected cases, it is very likely to involve significant economic costs in the aggregate.

A typical case is the United Kingdom. The word cost should be used in a much broader context. It should include all the efforts involved.

Globalization has gone through ebbs and flows. Globalization is often described as a process of increasingly free flow of ideas, people, goods, services, and capital across national borders that leads to greater economic integration.

Globalization can be described in many ways. In fact it amphesizes a global network, while minimizing our local network.
In some way it tries to equalize the whole world, making it more the same, while at the same time the gap between certain activities increases.

The main phases of globalization can be illustrated using the trade openness metric—the sum of exports and imports of all countries relative to global GDP (Figure 1).

Figure 1 "Trade Openness 1870-2021 (Sum of exports and imports, percent of GDP)" shows one aspect of globalization, but not the complexity of globalization.

The current economic structure of the world and its multilateral institutions has been largely shaped by the Liberalization era. Beside the integration of nearly all countries into the global economy, the current system has several important features.

This integration is only true for some countries. Ofcourse all countries depend on each other

Supply chains have become highly internationalized. This has occurred through the outsourcing of manufacturing and some services (mainly from AEs) to countries with skilled but cheaper labor. As a result, trade in intermediate goods now slightly exceeds trade in final goods

The amphisis is at cheap labor. At the disadvantage is for the local economy and lower product quality.

The production of many critical commodities has become highly concentrated.

This was easy to predict compared to 1960. You don't have to be a wise man. Almost all production is now concentration in certain areas.

The decline in the share of Advanced Economies AEs in global manufacturing has been even more dramatic, with China now accounting for roughly one-third of the global manufacturing value added (based on World Bank data).

Is China a AE or an EM (Emerging Market)
More important is how China penetrates in Africa.

The evolution of trade patterns mirrored these economic shifts, with China becoming the largest trading partner for a growing number of countries around the world (Figure 5)

The question is to what extend China is a good trading partner. Maybe the same is true for many countries.
A good trading partner is a combination of two countries A and B when the flow of goods in both directions is identical.
A second issue is owners. The value of the goods of foreign owners B in A should be the same as of the foreign owners A in B.

The basic solution is that each country should emphasize local manufacturing capabilities.

Despite clear benefits, discontent with globalization has been growing:

This should be: Despite clear benefits for some etc.

Rising discontent with globalization has fueled political populism and trade tensions.

This should be: Rising discontent with globalization related to inequality has fueled unrest and trade tensions.

The COVID-19 pandemic and the war in Ukraine have deepened cracks in the global economic order.

Covid-19 has learned us that our open world is highly vulnerable when something unexpected (for some) happens and how to control these events in a controlled fashion.
The same is also true for actions to be taken by the EU.
The war in Ukraine (the third world war) learns us that a critical evaluation of the democratic situation all over the world is important.

Rising geopolitical tensions have led to more protectionism and increasing use of cross-border restrictions on the national security grounds.

There is nothing wrong with protectionism, but again this should go in both directions.
What is wrong is to welcom educated people, because that causes a type of brain drain. This is bad for the countries of origin.
There is nothing wrong that in same cases the VS closes it borders with Europe, but than also Europe should close it borders with the VS.

3.

4.

Go Back to Article Review
Back to my home page Index