When the Cold War ended, governments and companies believed that stronger global economic ties would lead to greater stability. But the Ukraine war and the pandemic are pushing the world in the opposite direction and upending those ideas.
Important parts of the integrated economy are unwinding. American and European officials are now using sanctions to sever major parts of the Russian economy — the 11th largest in the world — from global commerce, and hundreds of Western companies have halted operations in Russia on their own. Amid the pandemic, companies are reorganizing how they obtain their goods because of soaring costs and unpredictable delays in global supply chains.
Western officials and executives are also rethinking how they do business with China, the world’s second-largest economy, as geopolitical tensions and the Chinese Communist Party’s human rights abuses and use of advanced technology to reinforce autocratic control make corporate dealings more fraught.
The moves reverse core tenets of post-Cold War economic and foreign policies forged by the United States and its allies that were even adopted by rivals like Russia and China.
“What we’re headed toward is a more divided world economically that will mirror what is clearly a more divided world politically,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “I don’t think economic integration survives a period of political disintegration.”
“Does globalization and economic interdependence reduce conflict?” he added. “I think the answer is yes, until it doesn’t.”
Opposition to globalization gained momentum with the Trump administration’s trade policies and “America First” drive, and as the progressive left became more powerful. But the pandemic and President Vladimir V. Putin’s invasion of Ukraine have brought into sharp relief the uncertainty of the existing economic order.
President Biden warned President Xi Jinping of China on Friday that there would be “consequences” if Beijing gave material aid to Russia for the war in Ukraine, an implicit threat of sanctions. China has criticized sanctions on Russia, and Le Yucheng, the vice foreign minister, said in a speech on Saturday that “globalization should not be weaponized.” Yet China increasingly has imposed economic punishments — Lithuania, Norway, Australia, Japan and South Korea have been among the targets.
The result of all the disruptions may well be a fracturing of the world into economic blocs, as countries and companies gravitate to ideological corners with distinct markets and pools of labor, as they did in much of the 20th century.
Mr. Biden already frames his foreign policy in ideological terms, as a mission of unifying democracies against autocracies. Mr. Biden also says he is enacting a foreign policy for middle-class Americans, and central to that is getting companies to move critical supply chains and manufacturing out of China.
The goal is given urgency by the hobbling of those global links over two years of the pandemic, which has brought about a realization among the world’s most powerful companies that they need to focus on not just efficiency and cost, but also resiliency. This month, lockdowns China imposed to contain Covid-19 outbreaks have once again threatened to stall global supply chains.
The economic impact of such a change is highly uncertain. The emergence of new economic blocs could accelerate a massive reorganization in financial flows and supply chains, potentially slowing growth, leading to some shortages and raising prices for consumers in the short term. But the longer-term effects on global growth, worker wages and supplies of goods are harder to assess.
The war has set in motion “deglobalization forces that could have profound and unpredictable effects,” said Laurence Boone, the chief economist of the Organization for Economic Cooperation and Development.
For decades, executives have pushed for globalization to expand their markets and to exploit cheap labor and lax environmental standards. China especially has benefited from this, while Russia profits from its exports of minerals and energy. They tap into enormous economies: The Group of 7 industrialized nations make up more than 50 percent of the global economy, while China and Russia together account for about 20 percent.
Trade and business ties between the United States and China are still robust, despite steadily worsening relations. But with the new Western sanctions on Russia, many nations that are not staunch partners of America are now more aware of the perils of being economically tied to the United States and its allies.