Gabriel Felbermayr gives the all-clear: Globalization is not about to come to an end and Europe does not need a completely new economic model. That said the director of the Austrian Institute for Economic Research at the Munich Economic Debates of the Ifo Institute and Suddeutscher Zeitung. But the way world trade is conducted will change in the future. According to the economist’s analysis, countries such as America and China are already beginning to strengthen their positions on the world market.
However, this contradicts the ideas of the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT). They are based on removing trade barriers and creating the prosperity of many countries through the division of labor. This should produce few losers but many winners.
Now the world’s economic powerhouses are becoming increasingly protectionist, says Felbermayr. They considered how they could become more economically independent of other countries. “The idea is not new.” The economist Adam Smith, who developed a liberal economic policy in the 18th century and is considered a “champion of free trade”, said that “defending one’s own strength is much more important than general prosperity”. At the time, the English feared that the Dutch could become economically stronger than themselves and finally had their ports closed to ships from the country. Today you can see parallels to this in Hamburg. The Germans are afraid of China’s strength.
In Germany there are some dangerous dependencies
And countries also want to become more independent when it comes to trading goods. In Germany, at the latest, when sanctions were introduced against Russia, people realized that dependence on other countries could be dangerous, says Felbermayr. Because promptly there was a lack of gas. Now other dangerous dependencies would also emerge, which Felbermayr pointed out at the presentation in Munich. For example with chemical substances, raw materials such as lead or special foods.
What cannot be deduced from this analysis is which products could be produced elsewhere: “If you ask which countries we depend on and how strong this dependency is, you don’t really know,” says Felbermayr. And you won’t be able to find out either: “We will not be able to introduce an algorithm that tells us what a strategic good is.” It is often not possible to diversify the trade in such goods because they cannot be identified.
What economists can determine, however, is what happens if the European Union seals itself off from its trading partners in the short term, for example through sanctions, says Felbermayr. In the case of Russian gas, there was no collapse. And that could also be the case with other sanctions: the threat alone could crash a country’s economy. The economy later returned to normal levels. They would therefore not lead to a de-globalization shock, but in the worst case to “slowbalization”, ie a slowdown in globalization.