Leaders at the annual meeting of the World Economic Forum warn of fragmenting globalization, saying it will threaten the economy worldwide.
- Davos leaders say that global geopolitical rivalries are threatening businesses as the world nears geoeconomic fragmentation.
- Between Russia’s invasion of Ukraine, the U.S. making new restrictions on overseas trading, and other trade tensions, it has restricted trade around the world, pushing toward higher prices and rising inflation.
- The leaders at Davos believe the effects of this have yet to show up in trade numbers, but it can be seen across the market as trading tensions rise.
- Although the exact impact is unknown, studies show that fragmentation could shrink global economic output by up to 7%, or as much as 12%, in some countries.
Why it’s news
Leaders at Davos are warning that fragmenting globalization could happen soon as trading tensions rise worldwide, leading to higher prices and increased inflation.
“We are very concerned about geoeconomic fragmentation,” says the number-two official at the International Monetary Fund Gita Gopinath. “this is something that comes up a lot.”
Officials warn that as the U.S. continues to move electric-vehicle manufacturing internally, blocking out China and reducing trade from both China and Russia as the country continues its attack on Ukraine, it is pushing toward fragmentation.
“If America is going to pay $20 billion, $30 billion, $5 billion for companies to be established in America, that’s not the kind of free competition that we think can exist in other parts of the world,” says Alsara Investment Group founder Rachid Mohamed Rachid. “These are threats from disintegration and the backing up from the globalization we’ve seen over the past two decades.”
Many countries have been battling inflation for months, and if fragmentation takes over, prices will continue to rise, making it much harder to control inflation.