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The Starting of a New Globalization

Financial

The Starting of a New Globalization

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Globalization of capital will, on the contrary, go into reverse. Here the reasons are geopolitical — although to some extent also fiscal, as the imposition of a global minimum corporation tax of 15 per cent makes tax avoidance through selective accounting less attractive.

The geopolitics concerns increasing tensions and conflict between the US and Russia and China. Whatever the outcome of the standoff over Ukraine (at this writing totally unpredictable), Russia will be subjected — whether next week or next year — to comprehensive financial and trade sanctions. This would basically cut a chunk of the world economy out of financial globalization.

True, Russia is not a huge chunk: its gross domestic product is some 3 per cent of global GDP (at purchasing-power parities), its exports just over 2 percent of the world total. But the message is unambiguous, especially if considered in light of the similar US sanctions levied against Iran, Venezuela, Cuba, Myanmar, Nicaragua and so on — more than 20 countries are currently targeted in one way or another.

As this list indicates, these sanctions are extremely difficult to overturn. Nobody can buy a Cuban cigar in the US. The embargo is now more than 60 years old and, despite a modest effort under Barack Obama’s presidency, nothing has changed. In effect, Donald Trump’s administration reversed some earlier decisions and imposed a slew of new sanctions. It’s the same story when it comes to Venezuela, Syria, and Iran.

The stickiness of US sanctions can best be illustrated by the Jackson-Vanik amendment, which targeted Soviet trade in response to the inability of Soviet Jews to emigrate to Israel. The amendment was introduced in 1974 when emigration from the Soviet Union was (to put it euphemistically) very difficult. But after a liberalization under the reformist leadership of Mikhail Gorbachev in the 1980s, followed by the break-up of the Soviet Union, it is estimated that 2-3 million Jews left the USSR or later the Russian Federation for Israel or other countries.

Yet the amendment remained on the statute books, its non-application contingent on annual verification by the US administration that Russia was not in contravention. It is hard to imagine a more absurd situation. Eventually, Jackson-Vanik was respinded — but only to be replaced by the Magnitsky Act, whose objectives are the same, even if the rationale (the death in prison of an eponymous tax lawyer, investigating a huge fraud purportedly involving Russian tax officials) was different.

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