Globalisation a casualty of Russia-Ukraine war

Last week, many leaders of Europe and America met at Brussels and decided to impose sanctions on more Russian individuals and defence entities. They also decided to reduce the dependence of Europe on Russia for fossil fuels. The idea is to cripple the ability of Russia to finance its war efforts. However, Russia has remained defiant and continued its war in Ukraine.
 

The relations between Russia and the alliances led by the United States have deteriorated so much that the probability of a diplomatic solution to resolve the issues has diminished considerably, although it cannot be ruled out. The prolonged war in Ukraine and considerable hardening of attitudes on both the sides can hurt global trade and economy in the coming years. Globalisation is a major casualty of the conflict in Ukraine.
 

Already, the rise of China as an economic power has sufficiently rattled the US and diverted its energies on containing China’s progress. President Donald Trump with his ‘America First’ policy had imposed import duties on many items originating from China and Europe under the pretext of security concerns. He walked out of the negotiations for the Trans-Pacific Partnership trade agreement and undermined the World Trade Organization (WTO) by refusing to appoint enough judges to hear the appeals and settle the trade disputes. His successor, Joe Biden has sorted out some issues with the European Union but has not removed the tariffs imposed by Trump on the goods originating from China or appointed any judges to the appellate body at the WTO. In many other countries, barriers to free trade, investment, and immigration have gone up.
 

Now, the US and its allies have substantially shut out Russia from the global financial and trading system by barring its access to SWIFT, the global electronic platform for banks to put through financial transactions. Its ability to access its foreign exchange reserves has been constrained. Restrictions have been placed on exports of high-tech items to Russia. Many western companies have suspended their operations in Russia. On its part, Russia has said it will accept payments only in rubles from unfriendly countries. These curbs are likely to continue for some years even after the war in Ukraine ends.
 

The global trade and economy have already taken a big knock due to the hostilities in Ukraine, with prices of natural gas, oil, coal, wheat, fertilizers, and metals going up sharply. Besides, the supply chains have also been disrupted due to the lockdowns in China. Many countries in Africa are likely to face serious problems due to disruption of wheat supplies from Ukraine and Russia. However, some countries like India are looking to benefit through opportunities to export food grains at higher prices and import fossil fuels from Russia at discounted prices under an alternate payment mechanism.
 

In an interconnected world, where social media puts enormous pressure on the policy makers, especially in the democratic countries, it is quite possible that the leaders will make their economies more inward looking and spend more on military hardware and cyber security.
 

The global economy may fragment into two loose trading blocks, one led by the US and the other by China. Consequently, the benefits of globalisation through greater efficiencies and the spread of ideas and innovation will get substantially reduced leading to sub-optimal outcomes.
 

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