“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” wrote Larry Fink in his March 24 letter to BlackRock shareholders. “We had already seen connectivity between nations, companies, and even people strained by two years of the pandemic.”
Fink, who oversees $10 trillion of wealth as the world’s largest asset manager, is right to be concerned that an era has ended. “Globalization—as promoted by the United States over the past 70 years—has led to the greatest reduction in poverty and the biggest decline in interstate conflict in human history,” writes Matthew Rooney of the George W. Bush Institute.
So will the world, in Fink’s new era, be less prosperous and peaceful? Many think high levels of trade—in other words, continued interdependence—will save the day, yet this view is debatable. “Does trade increase or decrease the likelihood of conflict?” Samuel Huntington, the late Harvard political scientist, asked in The Clash of Civilizations and the Remaking of World Order, his landmark 1996 book. “The assumption that it reduces the probability of war between nations is, at a minimum, not proven, and much evidence exists to the contrary.”
Huntington, building on the work of others, pointed out that it is expectation that drives events. “Economic interdependence fosters peace,” he wrote, “only ‘when states expect that high trade levels will continue into the foreseeable future.'”
So what is happening in the post-invasion period? The World Trade Organization in April predicted that merchandise trade would grow 3.0% this year—down from a previous forecast of 4.7%—but admitted growth could be as low as 0.5%.
Last year’s trade volume—the WTO put total merchandise trade at a staggering $22.4 trillion after growth of 9.8%—set a record, but that figure could decline this year. Last year’s volume was the result of a sugar high, boosted by one-time government stimulus measures. Resulting commodity price increases further inflated trade statistics. The factors driving trade in 2021, the U.N. Conference on Trade and Development correctly stated in February, will “abate.”
Projections of increasing trade depend on forecasts of continuing prosperity. There is concern, however, that a downturn is coming and it will be especially severe. “You’d better brace yourself,” Jamie Dimon, the influential CEO of JPMorgan Chase, told a financial conference in New York in early June. He said everyone should expect not “storm clouds”—his previous prediction—but a “hurricane,” which could be “a minor one or Superstorm Sandy.”
