Will the Russia-Ukraine battle thwart the ahead march of globalization? Satish Nambisan
CLEVELAND — It is becoming evident that the ongoing Russia-Ukraine conflict – even if it ends soon, which hopefully it will – could have a lasting impact on international trade policies and agreements, and more broadly, on globalization. While the immediate focus is on bringing the war to a close and on lessening the associated human suffering, in the longer term, attention will surely shift to its effect on global companies, markets, and consumers.
Post-Cold War, economic globalization forces were ascendant all over the world and resulted in a relatively free flow of goods, services, capital, and knowledge, allowing multinational companies to expand their global footprint rapidly.
In the last 15 years, the pace of globalization accelerated even further as digitization took hold in global business, unleashing powerful forces of digital connectivity across the world. Companies such as Airbnb, Etsy and Uber as well as established multinationals such as Johnson Controls and John Deere have all benefited from the global portability and scalability of digital business models, goods and services.
Such “digital globalization” — globalization fueled by digital technologies — has radically transformed how companies create and deliver value to global markets. And, as consumers, we have enjoyed the benefits — whether it be renting an Airbnb villa in Italy, purchasing a fast fashion item on SHEIN, or viewing the latest viral video on TikTok.
Yet, these benefits that we now take for granted may not last long if stronger deglobalization forces take hold as a result of the ongoing Ukraine conflict.
Even before the current conflict, geopolitical tensions and rising nationalistic sentiments had cast a shadow on the promise of digital globalization. Last summer, Chinese shoppers led a boycott of major Western retailers such as H&M and Nike due to their expressed policy of not sourcing products from the Uyghur region. Similarly, many European Union (EU) members expressed digital sovereignty concerns in limiting the deployment of Huawei 5G technologies.
The realignment of geopolitical forces that will follow the Russia-Ukraine war may have a much more far-reaching impact by creating new sources of friction for globalization. There are two pathways for deglobalization forces to advance further.
First, the rupturing of existing trade agreements with Russia (for example, the Nord Stream 2 gas pipeline project) could lead to permanent schisms in the global economy, particularly between the EU and Russia’s Eurasian Economic Union. And, if China views this as a strategic opportunity to curtail Western economic dominance and allies itself with Russia, it could radically reshape the global business landscape. And it may not be just China. As part of its Belt and Road initiative, China has built considerable influence among many of its trading partners. It is also a member of the Regional Comprehensive Economic Partnership, a 15-member Asia-Pacific trade bloc. All of these may take us back to the Cold War era wherein the world was divided into different non-trading economic blocs.
Second, the foundation of modern global trade is not the international highways or the shipping routes. It is the digital connectivity across national borders. Indeed, cross-border digital flows now constitute a big part of global trade in value. However, this presumes that countries will keep open their digital networks and infrastructure for foreign companies. The realignment of geopolitical forces from this conflict may result in some countries deciding to selectively limit access to their digital networks, creating what has been termed as “splinternet.” Both China and Russia already practice this to a certain extent. The end result will be the loss of global digital connectivity that drives today’s globalization.
Will the above deglobalization scenarios come to pass? Only time can tell. But are they feasible? you bet
Satish Nambisan is the Nancy and Joseph Keithley Professor of Technology Management at the Weatherhead School of Management, Case Western Reserve University, and the author of “The Digital Multinational: Navigating the New Normal in Global Business,” (MIT Press, 2022).
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