If Putin’s war on Ukraine has finally killed off globalisation, with all its benefits – and costs – does it really matter? Two years of global pandemic had left the patient terminally ill, anyway. Whatever the war’s outcome, it is now generally accepted that world trade and the economies involved, both big and small, will never be the same again. And most leading economists see it as a significant change for the worse, bringing an end to the main thrust behind the world’s economic growth over the past half a century.

As last Friday’s Wall Street Breakfast podcast noted, the economic globalisation seen since the end of the Cold War was coming to a close well before Putin invaded Ukraine. It had relied heavily on the interconnectedness of national economies for cross-border movement of goods, services, technology and capital. But in recent years, protectionism and self-reliance have stepped-up, replacing multilateral free trade agreements with bilateral (or group) deals and reversing the popular promotion of economic liberalisation as a means to increasing living standards. Six years ago, a US economic think-tank warned that ‘slower economic growth, major economic imbalances, the rise of China and the rising inequalities that free-trade entails, if not handled properly at the policy level, could lead Western voters to elect governments that will enforce radically protectionist agendas. This is how globalisation could go further into reverse’.

So now it has. Mini-trade wars and increasing tariffs morphed into an outright rejection of the complex multinational supply chain, with pandemic restrictions exacerbating supply shortages before the war in Ukraine dislocated world trade and endangered food and energy security. The pandemic’s disruption of supply chains, coming on top of China’s use of trade as political ‘punishment’ (as in its ban on Australian goods like barley and wine) naturally prompted corporations to start diversifying supplier locations and entities, increasing inventories and bringing production closer to final markets to maximise reliability. The Ukraine war added further momentum toward reorienting production and supply networks away from pure cost minimisation and toward resilience and risk tolerance. As US Federal Reserve member Bostic said, it changed Just-in-Time inventory management to Just-in-Case.

Wall Street leaders like BlackRock’s Larry Fink and Oaktree’s Howard Marks have now added their warnings of the economic consequences of Putin’s folly, with Marks commenting in a letter to investors: ‘The availability of ever-cheaper goods like cars, appliances and furniture produced abroad was a major contributor to the benign US inflation picture in this quarter-century. On the other hand, offshoring also led to the elimination of millions of US jobs, the hollowing out of the manufacturing regions and middle class of our country, and most likely the weakening of private-sector labour unions. The recognition of these negative aspects of globalisation has now caused the pendulum to swing back toward local sourcing. Rather than the cheapest, easiest and greenest sources, there’ll probably be more of a premium put on the safest and surest.’ Consumers will ultimately pay added costs.

Last week Fink startled the market with the statement that, ‘The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades. We had already seen connectivity between nations, companies and even people strained by two years of the pandemic. It has left many communities and people feeling isolated and looking inward’. Fink sees Putin’s invasion as the latest manifestation of global turmoil that has seen more and more people embrace authoritarianism and political divisiveness. ‘I believe this has exacerbated the polarisation and extremist behaviour we are seeing across society today.’ And the consequences of all this? According to the US Peterson Institute, ‘It now seems likely that the world economy really will split into blocs, each attempting to insulate itself from and then diminish the influence of the other’. The omens are bad.

But Fink and Marks differ on what the war means for green energy, as leaders of the rush to zero emissions like President Biden have scrambled to increase fossil fuel output (with Britain even re-opening coal mines) to offset the damaging loss of Russian supplies. Marks forecasts that to ensure energy security, countries will opt for more readily accessible sources of fuel, even if they’re not the cleanest. While Fink accepts that, in the short term, the war will prompt countries to increase reliance on domestic oil, gas and even coal, slowing the world’s progress toward a clean energy future, he nevertheless looks in the longer term to an acceleration in the adoption of clean energy. ‘More than ever, countries that don’t have their own energy sources will need to fund and develop them – which for many will mean investing in wind and solar power’. Previously sceptical about cryptocurrencies, Fink wrote that the havoc caused by Russia’s invasion could boost virtual currencies: ‘A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.’

Even the free trade proselytising Economist magazine conceded in mid-March that Putin’s warmongering did raise an ‘uncomfortable question’ about globalisation; it had already told its readers two years ago to ‘Wave goodbye to the greatest era of globalisation – and worry about what is going to take its place’, as it warned that even before the pandemic, globalisation was in trouble, having given way to a new era of sluggishness – ‘slowbalisation’. Now it asks whether it is prudent for open societies to conduct normal economic relations with autocratic ones, such as Russia and China, that abuse human rights, endanger security and grow more threatening the richer they get? ‘In principle, the answer is simple: democracies should seek to maximise trade without compromising national security. In practice, that is a hard line to draw. Russia’s war shows that supply chains need redesigning…’. But it then retreated into its free trade catechism, concluding: ‘…the world cannot afford a self-defeating lurch towards self-sufficiency’. The reality is that both alternatives place the world’s economic future on red alert.

‘Australia retreating from globalisation like we have seen in other countries is not the answer to our economic problems’, according to former Treasury secretary Ken Henry six years ago. ‘It would be far more damaging to living standards, especially those of the less well off, than anything that might properly be ascribed to post-war globalisation’. But while it has been a factor in Australia’s increased wealth, the inequality of outcomes, with even losses for some, with the perception that elites have benefitted at the expense of blue-collar workers, has generated the sort of disenchantment with globalisation that gave Trump such strong support and boosted Britain’s anti-EU vote. Whatever the outcome, Bloomberg summed it up last weekend: ‘The Ukraine conflict could mark a lasting change in the way the world economy works — and the way we all live our lives’.