The war in Ukraine has led some pundits to declare the end of globalization. We heard that after 9/11, after the Great Recession, after the US/China trade war, and again after Covid, and none of those predictions have panned out. Ukraine will likely be no different, as the threat of war actually makes the argument for globalization stronger.
There are two valid arguments for sanctions. First, denying money and material to an enemy nation can reduce their ability to wage war. Second, the threat of sanctions makes countries less likely to “go rogue”.
In general, I am rather skeptical of the efficacy of sanctions. I believe they are used far too often. And yet even I would not have favored allowing US firms to sell steel and oil to Germany and Japan during WWII. I don’t have strong views on what sanctions are appropriate for Russia today, except that the case for sanctions against Russia is stronger than for almost any other situation since WWII.
But sanctions only work when there is globalization. If a country is an autarky, i.e., relying solely on domestic production, then sanctions are ineffective.
People say, “Obviously globalization doesn’t work, as we still have bad things happen in the world.” Yes, the advantages of globalization have been oversold. (Recall the McDonald’s test.) But what is the counterfactual? Suppose we end globalization and each country becomes as autarkic as North Korea. Does that make the world more peaceful or more violent?
Our best hope for world peace is to enmesh every country so deeply in a web of interdependence with its neighbors that even our dimwitted leaders will be able to see the negative sum nature of war. Globalization may not prevent war, but it makes war less likely at the margin. And if war does break out, economic interdependence gives us a weapon to use in place of violence.
Globalization also makes the world a richer place. Economic development doesn’t guarantee peace, but greater wealth does make countries more peaceful, on average. They have more to lose from war.
READER COMMENTS
E. Harding
Mar 14 2022 at 7:02pm
Sumner, that is not the correct graph. The correct graph is this, which shows that globalization peaked in 2008:
https://fred.stlouisfed.org/graph/?g=MWqG
I don’t think globalization is over, simply because trade among the rich countries will continue and Russia will reroute its trade to countries poorer than it.
Arc
Mar 15 2022 at 10:27am
I am confused by this graph. Using the FRED tool to create one that divides real imports by RGDP produces one that displays growth since 2008-2010. How can the ratio be different in nominal terms?
Scott Sumner
Mar 15 2022 at 12:59pm
Fair enough, but 2008 is distorted by the oil price surge, and you’d probably want to divide goods imports by goods GDP, to account for the growing importance of services.
Jai Kamal
Mar 15 2022 at 6:47am
Nice Article. Just an observation.
Globalization, per se, is neither good nor bad. There is no doubt that economic sanctions will work well in the case of an interconnected country that is open to the rest of the world. Also, one cannot ignore that globalization brings prosperity, especially when several supporting pieces of evidence exist. However, we shouldn’t rule out the possibility of globalization playing a pivotal role in creating a war situation for two reasons. First, it allows the country to easily purchase weapons, equipment, and technology from other countries to fight a war. Second, countries can use the economic prosperity arising from globalization to fund the war.
Scott Sumner
Mar 15 2022 at 1:01pm
Would you agree that richer countries are more peaceful, on average?
Jai Kamal
Mar 15 2022 at 1:34pm
Yes, I agree that richer countries are more peaceful, on average!
Michael Sandifer
Mar 16 2022 at 5:45pm
Scott,
I would qualify that. Rich countries are more peaceful with respect to each other. However, the rich world often isn’t nearly hesitant enough to wage war against poor countries that offer no real economic or military competition.
Student of Liberty
Mar 17 2022 at 3:12am
It depends a little bit on your view of the world. The best argument for free trade (thus globalization) is that it is the best way to ensure (no guarantee unfortunately) peace. I read this post as an assertion to it and this is also what was meant by Bastiat’s best apocryphal quote: “If goods and services do not cross borders, soldiers will”.
If you have any better way to promote peace, do not hesitate to let us know.
Jai Kamal
Mar 18 2022 at 11:18am
Let us look at the main reason for large-scale conflicts: differences in two identities. However, the basis of identity is not limited to nationality; it could be religion, race, sexuality, etc. To promote peace, all need to learn to live with the differences and make a conscious effort to accept people belonging to other identities. The direct way to promote peace is to eliminate (or minimize) this root cause of differences.
Globalization may help promote peace through two mechanisms – a) economic dependence b) cultural convergence. The interdependence of countries reduces the conflict for economic reasons. However, all checks and balances should be there to ensure that it is interdependence (not the one-sided dependence of country A on country B). Consider country A heavily dependent on country B. Do you think country A will be in a position to impose economic sanctions? I agree that cultural convergence does help reduce the differences in two identities to some extent.
Globalization is good with proper checks and balances, and it could lead to negative consequences if we are not careful enough. That’s why I believe that globalization, per se, is neither good nor bad.
David S
Mar 15 2022 at 7:43am
I hope that Xi Jinping is doing some careful thinking about the risk vs. reward on selling Putin military equipment.
Matthias
Mar 17 2022 at 6:53am
I suspect he might sell a token amount to preserve precedence of independent action, but not enough of an amount to really irritate the west?
Alan Goldhammer
Mar 15 2022 at 8:24am
While I agree with the thesis of this post, I think the potential for economic war is significant. We’ve seen how global supply chain issues and the pandemic have caused significant disruption. OPEC is still around and can manipulate world oil prices and that Russia still controls a significant portion Europe’s gas and oil is problematic as well.
While the US is self sufficient in some product areas, they are reliant on foreign trade for many others as a number of industries have been off shored because of cost considerations. We had to get some new cookware for our induction range (only stainless or cast iron will work) and for stainless, the only US made pots come from All Clad. Cast iron is easier to source but not enameled coated cast iron (e.g., La Cruset).
China is again going into shutdown mode because they have not sufficiently vaccinated their populace and this will cause further disruptions. What if this is not a Covid incident but state controlled economic manipulation? Stranger things have happened.
Capt. J Parker
Mar 15 2022 at 8:32am
So true. And the biggest failure of U.S. and European foreign policy is how it totally ignored this advice when it came to Russia. Economic sanctions on Russia in response to the Crimea dispute did nothing to change Putin’s behavior. Sanctions probably did more to incite Russia into the current invasion than deter Russia.
I can’t help but feel this sorry mess is a replay of the 1930s. Using the military to expand access to resources closed off by trade barriers erected during the depression was one of the factors that ignited WWII.
Carl
Mar 16 2022 at 5:02pm
Doesn’t the nature of the interdependence matter. I assume Russian sanctions would have been less severe if the Europeans had been more reliant on Russian gas than they are and the banking sanctions would have been less severe if Russia had been more involved in the administration of the SWIFT system. Alternatively, had Russia been equally interdependent with the West but more focused on product and service substitutability with international producers and consumers they would more easily be able to evade sanctions.
Michael Sandifer
Mar 16 2022 at 5:42pm
Yes, and let’s have more integration into super-national institutions, such as the WTO, and not less. Let’s move forward again toward trying to codify the liberal world order in international law.
Such arrangements should properly be understood as cartels, which exist for the benefit of the member nations. The conspiracy theories regarding this sort of thing are ridiculous. The idea that the WTO runs US trade policy, or that the UN might take over one day are so stupid that it can hardly be believed such fears exist, yet they are not uncommon.
Such fears are similar to thinking the NFL will dominate the 32 football franchises that comprise it. It’s the owners who are in charge, not the commissioner. The commissioner is a coordinator, of sorts.
Ernest Martinson
Mar 17 2022 at 5:09pm
Sanctions reinforce us as the enemy in the eyes of the sanctioned. Sanctions have not worked in Cuba.
David Dzidzikashvili
Mar 20 2022 at 8:18am
What is happening in Ukraine today these events had been happening for the past 20+ years, when Putin came into power by bombing his own people – civilian apartments and committing atrocities against the Chechen people. The response from the US, EU and NATO had been just complete silence and welcoming Putin to the summits and holding red carpet meetings for him. This further emboldened Putin who attacked Georgia in 2008 and conquered Abkhazia and Samachablo. What did the Western powers do? Absolutely nothing! Reset by the Obama Administration and warm handshakes by Merkel, total ignorance of the international laws and Putin’s war crimes against the Georgian people. What happened afterwards? Putin invaded Crimea and Eastern Ukraine. What did the Western powers do? Bare minimum of symbolic sanctions that continued to feed Putin’s war machine. Then Syria, use of chemical weapons, more atrocities… What did the Western powers do? Absolutely nothing!
So we are here as a result of Putin’s false perception that he could chew more than he could bite and the 20+ year ignorance from the EU, US and the NATO. Today there is strong response and sanctions that will take the Russian economy back to the 1990s indicators, however it is too late and too little. Ukraine needs the Patriot missiles, S-400s, S-300s, missiles to shoot down airplanes and incoming rockets at much higher altitudes than Stingers could reach, Ukraine needs much more firepower and the ability to control and close its own skies. Lets help Zelensky establish the No Fly Zone! The Biden administration looked weak, but slowly they are starting to wake up and see the true face of evil – Vladimir Putin who is trying to restore the new Russian empire…
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