by Kari Grenade, PhD Regional Economist and Macroeconomic Advisor
Over the past 30 years or so, on balance, the economic integration of nations and the interplay of international economics and geopolitics (referred to as geo-economics) have, for the most part, served humanity well.
Aided by advances in technologies, the convergence of geo-economic and political forces has created unprecedented economic opportunities worldwide, raised national incomes, boosted productivity, improved living standards, and lifted billions of people out of extreme poverty.
Notwithstanding, many people especially in developing countries have been disadvantaged by the forces of global competition and globalisation. Indeed, the Covid-19 pandemic and the Russian-Ukraine war exposed globalisation’s failures as reflected in broken supply chains, food and energy insecurities, and profits being put above people (in the case of billions of people being denied vaccines while big drug companies made billions in profits).
Not only has the fragility of globalisation been laid bare, but perhaps more concerning are emerging risks of geo-economic disintegration, which have important implications for the global economic order. The chief economist of the International Monetary Fund (IMF) warns of a world fragmenting into “distinct economic blocs with different ideologies, political systems, technology standards, cross-border payment and trade systems, and reserve currencies.” In fact, some prominent global economists predict that in the coming three years the world will see higher fragmentation in markets for goods, technology, and labour.
There are a few key factors stoking risks of geo-economic disintegration. One such factor is protectionism. While some national protections are important for a country’s economic development and security, protectionism, which is the deliberate action (such as the use of tariffs) by countries to shield their domestic production from external competition, has the effect of lowering global trade and investment and decreasing wealth creation prospects. Protectionism appears to be increasing especially among developed countries to address some of the adverse effects of the pandemic and the Russian-Ukraine war, such as supply chain disruptions, shortages, and surging costs and prices of essential commodities. Developed countries in particular seem to be favouring security and certainty in production and domestic supplies over efficiencies that supply chains once bought. Increasingly, countries are looking inward, which is having discernible fraying effects on global economic integration.
The seemingly waning importance of the US dollar is another factor driving risks of geo-economic disintegration. The US dollar has long been the predominant global reserve currency. However, IMF research indicates that “the US dollar’s share of global foreign exchange reserves fell below 59% in the first quarter of this year, extending a two-decade decline.” In recent times Russia and China have reduced the use of the US dollar in their bilateral trade and have developed their own payment system. Russia also has requested payments for its oil and gas in its local currency (the Russian ruble). The development of parallel international payment systems is another factor that is adding to disintegration risks.
The consequences of a fragmented global economic system are severe, especially for developing countries such as those in the Caribbean. Already, a number of countries worldwide are restricting trade in food, energy and many other commodities; the IMF has identified close to 30 such countries. Trade, investments, and the transfer of technology, knowledge and skills will be restricted and ultimately wealth creation constrained should a large number of developed countries engage in protectionism or in reshoring (relocating a business or part thereof from overseas back to its home country). The IMF estimates that technological fragmentation alone can lead to losses of 5% of GDP for many countries. Furthermore, should additional countries develop parallel disconnected payment systems, the transaction costs for people and companies would be prohibitive, restricting global trade and investments, increasing uncertainties and economic volatility, and ultimately complicating economic policymaking for developing countries like those in the Caribbean.
Indeed, turbulent times must activate ideas and actions to mitigate fragmentation and bolster cooperation towards a more connected world and integrated global economic system for the benefit of humanity. Caribbean countries need to actively monitor the emerging risks to geo-economic integration and forge new and stronger modes of collaboration. Only through global collaboration can pressing global challenges such as food shortages, high inflation, income and gender inequalities, and climate change, be effectively addressed.
I will add, the notion that countries should leave production to other countries who are better at making a product is dangerous. For example, Japan is good at making cars, therefore, it will be waste of resources for a country as Grenada to attempt to make cars. This may be true as it will cost Grenada billions and use of imported know-how just be able to make cars. So it’s easier to buy a car made in Japan.
However, this argument should never be made for food production. Grenada must be able to grow and produce food.
During world War two the region would have suffered the consequences when cargo ships did not make port calls because of the war.
The rush to integrate takes resources and attention from important internal matters. While there are benefits of integration, there must statesmen who stand on guard to make sure the basics are never let behind.
The World is too integrated as a result, it takes one conflict to disrupt global trade.
It’s time for mass production alternative to wheat flour.
When a hurricane hits the Caribbean there is hardly a global impact. Why it is then when there is a conflict outside of the Caribbean, the region is so adversely impacted?
While the region economy remains fragile. The U.S and Canada protect their own. The U.S and Canada are two major trade partners, yet they don’t have full access to each other’s market.
I remember years ago, CARICOM/OECS agreed to charge the same amount per cruise passengers only to most reneged.
“Only through global collaboration can pressing global challenges such as food shortages, high inflation, income and gender inequalities, and climate change, be effectively addressed.”
The only way to address the economic maladies is through geo-economic disintegration.
World economic power is controlled by the elite G7 who dictates to others what they can and can’t do?
Who is the IMF? Where does the IMF gets its money from? Who pays into it? In whose interest does IMF operate? The same can be said about WTO.
Countries, more so third world countries, lost most of their sovereignty through global trade blocs.
How can you explain Sri Lanka food shortages when the country is blessed with fertile soil? Where is production capacity? Where is there a poor balance of Trade.
The Caribbean Islands signed up to NAFTA directly or indirectly and became a dumping ground. Do you know what the windward island banana industry was like prior to NAFTA?
The Caribbean has close geographical proximity to the U.S but not its market.
Dole/Chiquita took the conglomerates which bought windward island bananas to court saying conglomerates were given preferential treatment. Dole/Chiquita won and pretty much decimated the banana industry. No more banana boat to windward islands.
At the same time all of Dole/Chiquita plantations are in central and South America. No investment in islands yet the islands were economically deprived/stagnant.
Wouldn’t be nice to bananas from Grenada, SVG, St. Vincent and Dominica next to Dole/Chiquita in the U.S. Can you imagine Grenada import bananas?
I am at a loss when countries with sufficient lands that can feed the world are in poverty.
The economic terrorists are at play. This is facilitated through control of capital. Even if places like Grenada signed on, there no economic benefits. Instead, countries like Grenada have give up their sovereignty.
Grenada once had bilateral agreement with Indonesia and created Spice cartel. To me the real statesmanship will be involved in working with bilateral partners who directly brings economic and socioeconomic benefits Grenada.
How it is can the G7 tell Grenada to end it’s CBI program? Let me be clear I am totally against CBI program because I believe it contributes to social injustice. Grenadians cannot compete with rich foreigners yo buy lands. Can you imagine Grenadians who remained in Grenada and worked honestly and tirelessly can’t afford or qualify to buy lands? What kind of society are we creating?
Regional and international integration is only fair when everyone benefits, not when handful of members exploits the benefits to the detriment of others.
The textbook that we read are written through the bias eyes of Western influenced authors.
Places like Grenada has certainly lost its independent will and more so just tag along with crowd.
Sorry for incoherent rambling.
This is a great article. Very well written. In Grenada, as a new administration begins, it’s vital to plan and prepare for downside risks on the horizon. Other Caribbean countries should do the same, irrespective of where they may be in the political cycle; given these geo-economic risks and climate risks. In addition to Dr. Grenade’s excellent article, readers may wish to consider Ray Dalio’s book:- The Changing World Order. It’s very well researched and is very much in line with this illuminating article by Dr. Grenade.
Interesting reading