Inflation is raging because globalisation is fading

[Torie]

https://economictimes.indiatimes.com/small-biz/trade/exports/insights/inflation-is-raging-because-globalisation-is-fading/articleshow/92794559.cms

I was rooting around for a good article of the consequences of the US and the PRC trade relationship falling apart as the US, and maybe the PRC too, don't want to be dependent upon and subject to coercion by the other via trade dependency, and found the above instead which has a more global focus.

It does seem to me that at the rate we are going the Industrial democracies will have one trading relationship, and China and Russia and some other autocracies in another, and India somewhere in the twilight zone, perhaps under pressure over time to choose one or the other. Standards of living will drop, and the planet a more dangerous and risky place.

Informed and thoughtful comments on this are welcome.

[Torie]

There is a question that you have to ask that is often overlooked in these discussions, "how sustainable is it really to maintain the kind of global environment where this can occur"?

Countries are going to make decisions that are in line with the interests of them and their people. To think otherwise is rather idealistic view of the world and one in which you are apt to be disappointed or forced to make a set of terrible choices.

There are some assumptions at the heart of free trade that I have became rather dubious about in recent times. One of them is that the presumption that the default state of the world is peace and security and history shows that the opposite is true. Therefore the maintenance of such peace, security and "open sea lanes" can only be sustained through military intervention.

There is also the presumption that the world is a "fair" place and thus free trade allows for "more efficiency" to be reamed out of the global economy as a whole. However, the world is not a free place, most comparative advantage is the result of choices made save obviously for resources and climate sensitive crops (to say otherwise almost reaks of cultural racism. Education, infrastructure, etc can be built and thus any comparative advantage anyone has was obtained through development via asserted actions).

The world is not a fair place, most superpowers obtained their economic dominance through protectionism and developmental intervention first and once such power was obtained, they "embraced free trade" and then often sought to use their economic leverage to bend the world to their wishes. You then have to make another choice between "freedom of the market" and "political freedom", unless you are that sole dominate power that is.

This is why, against the backdrop of a British dominated world, US isolationism and protectionism went hand in hand as essential to the geopolitical aim of preserving the victory in the American Revolution. To remain free and independent politically, it was necessary to avoid being economic dependent on the country that could leverage their power to reduce the former.

There is no way in which a world where PRC China is the number one economic power or a co-super power, that there is not going to be a political reaction in all of the countries whose systems are at odds with theirs. China has and will continue to leverage its economic power to achieve its aims and bend other county's to their will.

To blame "those other countries" for not wanting the tentacles of a totalitarian regime reaching into and violating their own sovereignty because it deviates from the worship of complete and slavish devotion to the alter of economic efficiency demonstrates a rather idealistic view of the world that has been gnashed about on the rocks of reality. This is not irrational or "dumb rubes acting against their economic interest", it is putting political freedom over "economic freedom".

America was right to resist the influence of the British Empire in the 19th century just like it did the Soviet influence of the 20th century. However, when it comes to resisting the influence of the PRC, for those who grew up in an era of a free market world, led by the US, facing off against the anti-market Soviet Union, it is not unreasonable that they would be disappointed at the direction of global geopolitics now as this is something much similar to that of the 19th century than that of the contest with the USSR.

Yes, free trade creates economic interdependence, and thus vulnerability to coercion. A sustainable and less risky free trade system depends on confidence and trust, and yes, shared values. You mention the UK and the US in the 19th century. Actually post Civil War, the UK was delighted when the US started flexing its international muscle and grabbing ports and building warships, and having a partner in the world domination enterprise (Pax Britannica became Pax Anglophonia). A special relationship was born that has lasted in good condition to this day. If only the UK had three times as many people as it were.

[Torie]

A bizarre hypothesis if there ever was one. Globalization was fading before the COVID-19 pandemic in the wake of Trump's trade wars. This had little effect on inflation in the US. There are obvious reasons for the present inflationary burst that relate to ultra-loose monetary policy and ultra-expansionary fiscal stimulus in the US, along with a massive energy shock. These factors are fundamentally transient and will fade away rapidly.

Surely you agree that an abrupt interruption in existing trading patterns had an impact on prices, if only as a one time thing. Long term, the truncation of free trade one way or the other will reduce overall standards of living, net, via inflation or otherwise, at least until such time as the next abrupt interruption in trading patterns. It seems to me prudence dictates a balancing act, in search of the Goldilocks sweet spot.