Geopolitics and the great fragmentation

Geopolitical pressures and other non-economic factors have put the global economy on a path towards fragmentation.

Beyond its inherent risks, this trend will not only have profound implications for economic stability and growth but also could jeopardize efforts to combat climate change.

G Heightened geopolitical tensions, especially the escalating rivalry between the United States and China, are the primary catalyst of fragmentation. China, which emerged as the world's largest exporter more than a decade ago, overtook the US as the world's largest economy (in purchasing-power-parity terms) around 2016.

At the same time, the decline in US manufacturing jobs, partly attributed to the surge in Chinese imports, has fuelled Americans' discontent with globalization and reshaped their views on china.

Contrary to many Western analysts' expectation that increased trade would put China on a path to democratization, the country has gone in the opposite direction. under President Xi Jinping. Instead of liberalizing and pursuing promarket reforms, Xi has gravitated towards a state-centric system controlled by the Communist Party of China.

Former US President Donald Trump's administration responded to these developments by initiating a trade war with China, a move widely viewed outside the US as a protectionist aberration that reflected Trump's "America First" agenda. But President Joe Biden's administration has maintained the tariffs.

This should not come as a surprise. The new US consensus on China seems to be, "The more we trade with them, the more they use it against us." The Sino-American trade war has become an integral part of a broader US geopolitical strategy backed by both Democrats and Republicans in Congress. Technological decoupling, which entails curbing high-tech exports to China and restricting the use of Chinese equipment in the US, is central to this strategy.