The new global economy: How is it Changing?

The first significant change in the world economy occurred with transoceanic voyages in the 15th and 16th centuries. Thanks to that, the first empires were established, and they took advantage of trading with each place’s products. Globalization developed strongly from the middle of the 19th century, with the industrial revolution, and was interrupted by the outbreak of the First World War. The war meant closing the borders, which obviously affected trade.

Crisis = Opportunity

But wherever there is a crisis, there is always an opportunity. As supply chains were cut off, the different local economies developed strongly, and new companies and producers of raw materials emerged.

Then other great moments altered world trade; the Great Depression was one of the triggers of the Second World War when trade was again interrupted. Other types of companies sprang up, and the manufacture of war materials took up most of the available workforce.

Countries that were not involved in the war in any way became the granaries of the world, supplying grain, meat, and raw materials.

Once the war was over, reconstruction also meant great opportunities for many. For example, the metallurgical, automotive, shipbuilding, and aircraft factories that had been consolidated during the war took all the know-how and implemented it in civil society. It was a time of tremendous growth in which most people in the Western world wanted to enjoy and consume.

The Rise of Globalization

Globalization involves all sectors of industry and commerce throughout the world.

As technology developed, more complex products were manufactured, requiring more and more skilled labor. This led to a worldwide search to find out who could manufacture each component with the best quality and price.

Because of this phenomenon, a car, for example, could be assembled from components that were manufactured at different points around the globe. The same was true of a ship whose parts could be manufactured in various shipyards and then brought together for final assembly.

This was the case until not so long ago with almost all sectors. Still, even before the pandemic, a desire to change some habits was beginning to be glimpsed, spurred on by the empowerment and overdependence that was becoming increasingly dangerous from Russia and China.

Russia became Europe’s leading supplier of energy and raw materials. China, in turn, served as host to most of the factories of technological products of all brands, thanks to incentives and changes in labor legislation for foreign companies.

Pandemic and War

During the closures and blockades caused by the Covid-19 pandemic, a crisis erupted that led to widespread shortages worldwide; this was partly due to the closure of factories and partly due to the impossibility of meeting deliveries because of border closures.

Despite the end of the pandemic and blockades, deliveries have not yet normalized, and major supply problems still affect many sectors worldwide.

U.S. sanctions on Chinese companies, or any company that uses products manufactured by Chinese companies, created another challenge in finding substitutes to keep up with demand.

Russia’s invasion of Ukraine is causing a massive energy crisis in Europe, forcing governments to be creative in finding viable solutions to replace the shortage of gas, oil, and other raw materials from Ukraine and Russia. The former is the world’s leading wheat, barley, and corn exporter, and the invasion caused millions of tons of crops to be lost.

On the Russian side, the imposed sanctions closed the doors of trade with Europe and allied countries. But it did not feel the impact, as it could reposition its commodities in China, India, and other countries.

Nearshoring and Friendshoring

The constant throughout history is the search for solutions to problems to keep international relations on the course, despite crises that force initiative and creativity.

With all of the above, the idea began to spread that globalization was dying or had already died.

But this is only partially correct; what is simply happening is that new alliances are being established.

Due to the numerous supply problems caused by:

  • The delay in deliveries,
  • the increase in the price of fuel, which has a direct impact on manufacturing costs and the final price of the finished product,
  • lack of raw materials,
  • penalties.

Companies and governments are implementing new policies, including “Nearshoring,” a very catchy term, but which means nothing more than prioritizing trade with geographically close countries, which translates into considerable savings in logistics costs and a reduction in delivery times.

Another policy, a bit more radical, speaks of “Friendshoring,” which translates as trading with those countries that are ideologically aligned with Western ideas of trade and labor.

This case may involve simply moving factories from China to Singapore or Taiwan. But it is not that simple since the relocation of factories is conditional on respecting European or American labor standards, which is not the case in some Asian countries.

We already see repercussions, and many Latin American companies are benefiting and have increased their production and trade with the U.S. and Europe. They are also doing so with China. As we have been saying, there is always a new opportunity in the face of a crisis.

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