Realignment; Rearrangement; Recoup?
Globalization hailed the unity of nations. It paved the way for MNCs (be it Western or Eastern) to expand their businesses globally multiplying their customer base and market exposure. Individuals around the world got access to American products, technologies, services and media, European luxury goods, Japanese and German cars, Japanese technology and so forth. MNC’s like Coca Cola brought the world together spreading happiness; Toyota become known for its lean manufacturing and quality standards that intrigued the West , McDonalds introduced the concept of standardization and glocalization, Gen Z are frenetic for K-Pop and K-drama, Social media giants like Facebook, Twitter and LinkedIn connected individuals, Google made searching for information easier. Globalization proposed the premises that nations shall focus on their strengths (designing, technology, innovation) whilst outsource and offshore activities and services that cost them cheaper elsewhere. Migration of individuals and skills promoted economic activity, mélange of cultures and diversity, new ideas and innovation. Rampant consumerism boosted sales and economic activity around the world, symbolic of the epitome of a capitalist way of living. US became the hegemonic superpower having an influence on each and every corner of the world by their product and service offerings, media, science and innovation. However, since the past 2-3 years the world seemed to jostle with multifaceted crisis. The resultant are the words and phrases that are doing rounds in the political and corporate grapevine- self-sufficiency, de- globalization reshoring, the changing world order, hesitancy regarding the dollar as the reserve currency. In order to revive from the coivd-19 woes, numerous nations adopted quantitative easing as a solution to get the economic engines working during the pandemic. However this monetary stimulus burgeoned inflation in the US that was a rare phenomenon until now. Nevertheless, as the world aimed to recalibrate to the post pandemic world, the Russian invasion of Ukraine played a major blow to the world economy, essentially Pax Americana (the period since America became in charge of the world order (post world war II) The war presents unsurmountable challenges for the world in terms of supply chain disruption, dearth of essential resource and commodities, scarcity of food (as Russia and Ukraine were the mega exporters), a challenging year for Europe as it prepares for a winter that will not be powered by Russian gas. The decline of Pax Americana itself is a significant debate doing rounds in news reports, news telecast, economic and business reports. Hence virtually trembling the hegemon of America as the world order that existed since the last 2-3 decades. Individuals from around the world are pouring and proposing their views of plausible solutions or how would the world appear amid this crisis. A world that flourished in the cradle of globalization is standing divided on the solution to this crisis. In fact it is not only Coivd 19 or the current geopolitical situation that pose these challenges but an amalgam of events that irked these ramifications over years such as the trade war between the US and China (decoupling), new protectionist immigration policies in the US and Zero-Covid19 policy by China (massive impact on the functioning of the supply chain). Not to forget the incessant quantitative easing practiced by the US since decades. The resultant a possible wreck to the world economy as different nations are impacted in multifaceted ways. A new form of war between countries ‘the economic war’ as proposed by Zoltan from CreditSussie. Profound questions are being raised with regards to the changing world order, the US dollar as a reserve currency, decoupling of nations, possible new alliances (friend shoring) In the US the pandemic sparked inflation due to excessive quantitative easing , government sending paychecks to individuals despite them being employed or not and a disrupted global supply chain. Though paychecks increased demand, supply plateaued for physical goods due supply chain issues at ports or throughout the whole supply chain journey. The solution to this is the tried and tested formula of quantitate tightening by raising interest rates and inducing a slight recession. However Ray Dalio proposes that the world may encounter a phenomena of a possible stagflation (whether there is economic growth or no, inflation will be inevitable) suggesting that inflation is not going anywhere anytime soon. What worked in the past will not necessarily work in the present as circumstance and situations change. There are two options to curb this economic turbulence in the US, that essentially is having an impact on the global economy Soft landing implies reduction in inflation rates, wait for commodity prices to be corrected organically that is seen in the case of copper and more commodities; sufficient level of monetary tightening followed by brief recession of slight negative economic growth v/s an economic growth collapse. Hard landing works on the premises of surging interest rates beyond limits that would induce negative economic growth. Moreover negative economic growth coupled with new geopolitical surprises or unexpected upsurge in oil prices could lead to inevitable conflict and civil unrest or war – the worst-case scenario. Hence it is imperative for central banks to focus on and induce soft landing to maintain balance in the world economy and bear small consequences than suffer from paying high price due to unexpected ramifications. Zoltan highlights interesting facts about the deflationary period and how the US (Pax Americana period) flourished as globalization thrived, benefiting from cheap goods produced in China, access to cheap labour for service industry via immigration thus wage rates remained constant, Europe thrived on access to cheap Russian gas producing goods and lastly the quantitative easing that has been prevalent in the US. Today inflation comes as a shocker to the US economy as it propels a complete change in the lifestyle for the country. A nation where individuals were not accustomed to high inflation and rising interest rates presents a challenge for the economy and citizens. Today due to the onset of nativism and new immigration rules America is facing colossal consequences of shortage of labour. At the onset
