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Bloomberg New Financial system: Globalization runs aground within the Suez Canal


Bloomberg New Financial system: Globalization runs aground within the Suez Canal


In the complex networks of globalization, nodes can become choke points at the same time, notes Stephen J. Kobrin, economics professor at the Wharton School. If one of them goes down, it threatens the entire network – a reality that became almost comically apparent this week when a container ship the length of the Empire State Building wedged its bulbous nose into a bank of the Suez Canal, blocking the waterway, causing one Ship protection to the north to the Mediterranean, south to the Red Sea and beyond.

Puny by comparison, the image of an excavator attempting to free the colossal vessel instantly became a social media meme. To put it more prosaically, the stranded Ever Given has become a fitting symbol of the fate of globalization, the latest wave of which – somewhat ironically – was fueled by the invention of the shipping container in 1956. (The Ever Given can carry up to 20,000 of them transport large metal boxes that each fit on a tractor-trailer.)

While the 2008 financial crisis exposed the risk of contagion from global financial integration, the pandemic highlighted the dangers of unbridled interdependence in trade. The first shock helped impoverish the middle classes across the industrialized West and sparked a populist backlash against globalization. Covid-19 has damaged the globalization project even further by highlighting the fragility of supply chains as well as the increasing risks of virus contamination in a connected world.

An excavator clears the area around the bow of the stuck Ever Given on March 25th.

Source: Suez Canal Authority

This week in the new economy

Global manufacturing has become too concentrated, reflecting a corporate obsession with cost and efficiency over safety and sustainability. As the coronavirus spread across the United States, it made it clear that nearly half of the country’s personal protective equipment is made in factories in China. Suddenly these production nodes became bottlenecks.

Now that an unexpectedly rapid economic recovery seems to be taking hold, knots are cramping everywhere. Semiconductor foundries cannot keep pace with automaker demand. Ports are congested, especially in Los Angeles, America’s largest, and shipping containers are scarce. Japanese company Ever Given exacerbated these problems by severing a critical artery that normally carries 12% of world trade.

Proponents of globalization tend to focus on connections enabled by digital technologies like zoom video conferencing that office workers kept busy during the Covid lockdowns. “I’m a technological determinist,” said Tom Friedman, the New York Times writer of The World is Flat. He adds that “Technology not only connects the world, it actually makes the world interdependent.”

So excessive, warn the skeptics. And while the advance of technology may be inevitable, the manner in which production has become highly specialized creates dangerous uncertainties.

refers to Bloomberg New Economy: Globalization is running aground in the Suez Canal

A chip wafer from Taiwan Semiconductor Manufacturing Co.

It turns out that nearly 90% of the most advanced semiconductors are assembled by one company – Taiwan Semiconductor Manufacturing Co. – making the island nation a strategically important (and already political) bottleneck in the US-US Cold War technology of China . Beijing deliberately created a stranglehold on the production of rare earths, which are used in a variety of high-tech products, and has talked about restricting their export to the United States

The blockade of the Suez Canal, meanwhile, has underscored China’s own vulnerability to disrupting maritime nodes. As my Bloomberg News colleagues David Fickling and Anjani Trivedi report, China imports nearly three-quarters of the oil it consumes and about four-fifths of the iron ore behind its frantic infrastructure expansion.

The uncertainty these facts create drives, in part, the destabilizing efforts of the nation to take control of the South China Sea.

refers to Bloomberg New Economy: Globalization is running aground in the Suez Canal

Stephen J. Kobrin

Photographer: Rick Maiman / Bloomberg News

In the latest installment of our Bloomberg New Economy Conversations series this week, we highlighted that there is no future for our planet without the kind of globalized effort that groundbreaking Covid vaccines have produced. Scientists and researchers around the world have worked together to develop diagnostics and therapies that will (hopefully) soon return the global economy to normal.

A smaller, but similar, international effort is underway in the Suez Canal to get the Ever Given afloat.

In too many ways, globalization is defined more by its risks (the bottlenecks) than its benefits (the connections). Fixing this, as Professor Kobrin argues, will mean finding a better balance between economic independence and integration. The challenge is to find that harmony without disrupting the project as a whole.


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