Apocalypse & Armageddon

Terrifying Economist article: The global economic order is on the brink of collapse – the downfall will be rapid, harsh, and irreversible

Upon initial observation, the global economy appears to be resilient despite recent challenges: The American economy is thriving, notwithstanding the intensifying trade war with China.

Germany has managed the loss of Russian gas without experiencing an economic disaster. Similarly, the conflict in the Middle East has not triggered an oil shock; missile attacks by Houthi rebels have had minimal impact on the global flow of goods., the Economist reports.

Trade, measured as a percentage of global GDP, has rebounded from the pandemic’s impact and is projected to experience solid growth this year. However, according to The Economist, if you dare to peer beneath the surface, you will discover that everything is precariously balanced on a fine thread.

“The order that has dominated the world economy since World War II has eroded and is about to collapse.”

A multitude of events could precipitate a slide into anarchy, with military might dictating law and war resurfacing as the instrument of choice for major powers. Even absent a full-blown conflict, the repercussions of a world where economic rules are disregarded could be rapid and harsh.

Signs of the crumbling old order are apparent everywhere. Sanctions have quadrupled since the 1990s, with America recently implementing “secondary” sanctions on groups aiding the Russian military.

A chaotic and catastrophic crash could erupt at any moment

According to The Economist, the breakdown of the established order is evident everywhere. Sanctions have become a more prevalent tool, now used four times as often as they were in the 1990s. The United States has recently enacted “secondary” sanctions against entities aiding the Russian military. Concurrently, a subsidy war has erupted, with many countries emulating the green production policies of China and the United States.

Despite the dollar’s continued dominance and the resilience of emerging economies, there is a noticeable fragmentation in global capital flows. The World Trade Organization will celebrate its 30th anniversary next year, yet it has been inactive for over five years due to American inaction.

To date, this fragmentation and disintegration have exacted an unseen cost on the global economy, which is discernible only to those who know where to look. History warns that more severe and chaotic breakdowns are possible and could occur abruptly once a decline sets in. World War I ended what was considered an everlasting golden era of globalization.

In the early 1930s, following the onset of the Depression and the Smoot-Hawley tariffs, America’s imports plummeted by 40% within two years. In August 1971, Richard Nixon unexpectedly ended the dollar’s convertibility into gold. Nineteen months later, the Bretton Woods fixed exchange rate system fell apart.

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Should Donald Trump return to the White House, his zero-sum perspective may further erode institutions and norms.

The apprehension of a second wave of low-cost Chinese imports could accelerate this degradation.

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A direct confrontation between America and China over Taiwan, or between the West and Russia, might precipitate a global crisis. The potential losses in such scenarios could surpass expectations.

China’s integration into the global economy has raised hundreds of millions from poverty. Since 1990, the global infant mortality rate has halved.
In 2005, the rate of the world’s population dying from state conflicts fell to a post-war low of 0.0002%, a rate almost 40 times less than that of 1972.

Recent research suggests that the era known as the “Washington consensus” marked a period of catch-up growth for poorer nations, closing the wealth gap with richer countries.

The dismantling of this system could decelerate or reverse this progress. Once dismantled, it’s improbable that it will be replaced by a new set of rules.

Instead, world affairs may spiral into anarchy, which encourages theft and violence. Without trust and a cooperative institutional framework, it will be increasingly challenging for nations to address the 21st century’s challenges.

Countries may attempt to address these issues in like-minded groups. While this approach can be effective, it often leads to greater coercion and resentment, as seen with Europe’s carbon tariffs or China’s disagreements with the IMF. As cooperation is replaced by armament, the incentive for countries to maintain peace diminishes.

For the Chinese Communist Party, Vladimir Putin, or other skeptical leaders, a power-centric system is not a novelty. They perceive the liberal order not as a manifestation of high ideals, but as an expression of waning American hegemony.

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Gradually and then suddenly

Indeed, the post-World War II system has successfully blended America’s internationalist ideals with its strategic interests. This liberal order has also delivered significant advantages globally. Yet, the IMF’s struggle to address the sovereign debt crisis post-Covid-19 has left many of the world’s impoverished in distress. The IMF finds itself in a dilemma, torn between the green agenda and the need to maintain financial stability. Moreover, entities like the International Court of Justice are perceived to be influenced by specific interests.

Recently, American politicians, including Senate Republican leader Mitch McConnell, warned of sanctions against the International Criminal Court should it issue arrest warrants for Israeli leaders, who are also facing genocide accusations from South Africa at the International Court of Justice.

Middle-income nations such as India and Indonesia are capitalizing on the disintegration of the previous order to advance their economies, yet their success hinges on a cohesive and stable global economy. Similarly, the economic well-being of many developed nations, particularly trade-dependent ones like Britain and South Korea, is crucially linked to international trade. While robust American growth might suggest the global economy is resilient enough to withstand any crisis, this belief could be illusory, as posited by The Economist.

Despite appearances, the global economy’s ability to weather all challenges, even with American support, may be overestimated.

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