Leela de Kretser and Dan Burns

DAVOS, Switzerland (Reuters – World leaders as well financiers and chief executives announced that they will be leaving the World Economic Forum next week feeling strongly about the urgent need to redefine and reboot ‘globalization.

As trade disputes fuel economic nationalism and pandemics expose the fragility global supply networks, the framework of open markets has become less stable over the past three decades. A war in Europe may reshape geopolitics.

At this week’s WEF reboot, a gathering of world’s wealthy, worry over the signs that this is happening was palpable. The WEF’s annual meeting of well-off globalists, many of whom are champions of globalization, saw a lot of concern.

Kristalina Georgieva, International Monetary Fund’s Managing Director summarized the atmosphere of the event.

Georgieva stated that she is more concerned about the possibility of a global recession than “the chance that we will walk into a world where there’s greater fragmentation and with currency blocs, which would separate what was until now an integrated global economy.”

“The trend toward fragmentation remains strong,” she said.

Davos was a meeting of corporate executives that decried the return to economic and political cooperation, rather than political alliance.

Jim Hagemann Snabe (OTC:) chairman of the German industrial powerhouse Siemens AG said, “We can’t let globalization reverse.” This thought will keep me from leaving Davos. “I will be leaving Davos with the belief that more collaboration is needed.”

Volkswagen (ETR) CEO Herbert Diess expressed concern about discussions regarding new bloc construction as Volkswagen’s American production ramps up.

Open markets are the foundation of Europe and Germany. He said during briefing at summit that he would try to maintain open borders.

Officials stumbled upon new terminology to describe a new type of globalization. “Multilateralism”, a favorite among buzzwords like “reshoring”, friendshoring, “self-sufficiency”, and “resilience”, was one example.

“Multilateralism works!” German Chancellor Olaf Scholz stated that multilateralism works. “It is also necessary for stopping deglobalization.”

PARTY’S OVER?

Some are not happy with the state of globalization since January 2020 when officials and executives last met, right before the outbreaks of the coronavirus.

Brazil’s Economy Minister Paulo Guedes stated that Brazil is out of tune with the rest, calling it “Brazil”. “We did not join the party. It was the 30-year celebration of globalization. All took advantage. All of them integrated the value-chain. We cursed ourselves for being out of the game. Now, we’re blessed.”

The 1990s saw global trade accelerate as countries signed regional pacts to lower tariffs. China was then the largest low-cost product producer.

These networks enabled the widespread adoption and wide acceptance of just-in time supply chains that allowed for faster delivery and lower cost of goods, which contributed to the low level of inflation that existed in years prior to the pandemic.

This led to a decline in manufacturing jobs in advanced economies such as the United States, Europe and Japan. Guedes called it “global labor arbitrage”, but he believes that this trend is coming to an abrupt halt.

Before COVID-19 ended those supply chains, economic nationalist policies such as those promoted by former U.S. President Donald Trump had been criticized. There has been no shortage of talk about a breakup since the conflict in Ukraine.

Even with all the talk of “deglobalization”, the evidence is not clear that countries are separating through trade. Russia, however, has been subject to a series of trade and sanctions.

Global indexes of global trade volume from CPB Netherlands Bureau for Economic Policy Analysis fell by 0.2% in February, but are still 1% below their record-setting high from December. The index remains at 2.5% above its level a year prior and is 11% higher than the pre-pandemic levels.

However, this could change in the future as more companies shift production to reach their markets. This will help to prevent single-source dependency within their supply chain.

SULFICIENCY

VW CEO Diess stated that the transition to self-sufficiency due to disruptions in global supply chains should be temperated by concerns for maintaining markets open, even within his company.

There is an increasing risk that the world will become too dependent on nations and large blocs. We are losing our competitive edge. We are looking for and hoping for open market opportunities, which will be better for all of us.

While global supply chain dependence may seem problematic now, they “help people communicate with each other,” he stated.

Snabe from Siemens stated that many businesses could easily withdraw from Russia after the invasion of Ukraine, as most companies were not exposed to Russia.

“What if China was the case? Snabe stated that it was a completely different situation and had a totally different dependence.

“In many ways, the Russian and Ukrainian situation is for me a wakeup cry… and I’m hoping it’s an opportunity to collaborate more.”