Consequence of Corona and war: Globalization in transition

Companies and states are reacting to the consequences of the pandemic and the Ukraine war. Why do some experts speak of the end of globalization in its current form and others even of a turning point?

About 9,000 kilometers as the crow flies separate the world’s largest port in Shanghai from Europe’s largest port in Rotterdam. In the globalized economy, such a distance seems only a stone’s throw away. However, this world has cracked. The war in Ukraine is presenting companies with the question of how they want to produce in the future – and where to buy their goods.

Experts recommend companies to diversify

“Many regions of the world are now reflecting on their own strengths, on their own economic cycles – so they want to make themselves less dependent on the global economy,” says Martin Lück – he is chief investment strategist at the world’s largest asset manager Blackrock. “And that is triggering a change in globalization as we know it.”

So what does the new world of business look like? “Companies will have to diversify more, they will also become more regional in their production and in their supply relationships,” says Andreas Scheuerle, economist at Deka Bank. “This is a new world.”

War in Ukraine exacerbates corona developments

A new world in which economic dependencies on other countries are increasingly in question. There are different reasons for this. The war in Ukraine is challenging trade partnerships – especially those with autocratic countries.

From the German point of view, the question of energy supply is the focus – but it is only one aspect of a development that has picked up speed with the corona pandemic. In the lockdown, the supply chains got out of step – important parts or raw materials were suddenly missing.

Many companies are already changing course

So is globalization already visibly on the way back? No, says Holger Görg from the Kiel Institute for the World Economy in an interview tagesschau24. “We’re still seeing trade, international investment, continuing to grow – but growing at a slower rate now than it did ten or twenty years ago.”

In a survey last summer, the Munich ifo Institute found that companies do not necessarily want to rely on domestic supply chains, but plan to expand their warehousing or increase the number of suppliers.

Connections are under scrutiny

These are findings to which protectionist measures have also contributed in recent years – for example by former US President Donald Trump, who opted for tariffs rather than free trade. “I think that has raised awareness that there are risks: political risks, but also risks from natural disasters, wars and conflicts that have to be factored into the planning of global value chains,” says expert Görg.

The world of business therefore remains globally networked. However, the connections between companies and trading partners are being put to the test – not all will continue to exist, others will be expanded. Globalization does not end – but: it shows a new face.