The beginning of the end of globalization

Kim Chang-gyu
The author is the economic news editor of the JoongAng Ilbo.

In a letter to shareholders, Larry Fink, chairman and CEO of the world’s largest asset managing company, BlackRock, declared the Russian invasion of Ukraine has upended the last three decades of globalization. BlackRock has immense influence over the global capital markets. It manages more than $10 trillion in assets.

Fink is not the only influential corporate executive who worries about adverse repercussions from the war on globalization. Ray Dalio, co-chairman of the world’s biggest hedge fund, Bridgewater Associates, has categorized ongoing conflicts around the globe into five types: trade, technology, geopolitical, capital, and military wars. He observed that the Ukraine war encompasses all five, posing a serious challenge to the world order as a result of de-globalization and the rise of nationalism.

Howard Marks — co-founder and co-chair of Oaktree Capital Management, who is highly trusted by investment guru Warren Buffet — also joined the chorus preaching against the “globalization push’ and turning to “local sourcing.”

The world rode the wave of globalization amid many tumultuous events over the last three decades. After the collapse of the Soviet Union in 1991, Russia became a part of the global economic system. China was absorbed into the global economy after joining the World Trade Organization (WTO) in 2001. The commerce map expanded as a result. Companies sought countries with low labor costs and raw materials and turned into multinationals. The lines between friends and foes did not matter if competitiveness could be enhanced. Governments went all-out on globalization. The world became one under the globalization spell.

The spell has been broken. Countries that kept their borders open began to discriminate against those they disapprove of. Globalization was shaken by the trade war between the United States and China and the Covid-19 pandemic. Russia’s invasion of Ukraine has added fuel to the bonfire. Those opposing and supporting the war have become polarized. Experts agree the war has entirely changed a global order that has been maintained since the Cold War. Fink believes that the war and pandemic will cause political, economic and social ramifications that could last several decades.

The ripples will reach all corners of the world. The world has enjoyed low inflation thanks to globalization. But inflation has been building amid rising trade barriers. Many countries are grappling with runaway prices. Reducing their reliance on other countries for imports will cause the opposite of globalization. Companies that went overseas for manufacturing are re-shoring and bringing production back to their home turfs. Re-shoring increases jobs at home, but raises the costs and prices of products and services. A domino effect has sent prices galloping across the globe.

South Korea benefited from globalization, no doubt, like few other nations in history. This country has turned into an economic and trade powerhouse through accumulated capital. Its nominal gross domestic product of $283 billion in 1990, or 17th in global scale, expanded to $1.63 trillion in 2020 to rank No. 10. Exports expanded from $68 billion to $513 billion and imports from $74 billion to $468 billion during the same period. It’s not a cliche or a triteness to say Korea cannot survive without trade.

If globalization is at risk, so is the Korean economy. The Ukraine war has pressured Korean companies to make choices. They are struggling to come up with countermeasures to the de-globalization move. Hyundai Motor Group Chairman Euisun Chung said the conglomerate is endeavoring to strengthen its forecast ability. Policy makers must devise policies from an entirely new perspective. South Korea is heavily reliant on imports of energy, raw materials and food. To survive the wave of protectionism and deglobalization, this country must enhance its self-sufficiency.