| In the complex networks of globalization, nodes can simultaneously become "choke points," notes Wharton School business professor Stephen J. Kobrin. When any one of them fails, it threatens the entire network—a reality that became almost comically apparent this week when a container vessel the length of the Empire State Building wedged its bulbous nose into a bank of the Suez Canal, blocking the waterway and causing a shipping backup north to the Mediterranean, south to the Red Sea, and beyond. Puny by comparison, the image of a digger trying to extricate the colossal vessel became an instant social media meme. More prosaically, the stranded Ever Given has become an apt symbol for the fate of globalization, the latest wave of which was spurred—somewhat ironically—by the invention of the shipping container in 1956. (The Ever Given can transport up to 20,000 of these big metal boxes, each of which can fit on a tractor-trailer.) If the 2008 financial crisis exposed the risks of contagion as a result of global financial integration, the pandemic has highlighted the perils of unbridled interdependence in trade. The first shock helped immiserate the middle classes across the industrialized West and led to a populist backlash against globalization. Covid-19 has damaged the globalization project even further by highlighting the fragility of supply chains, as well as the mounting risks of viral contagion in an interconnected world.  A digger clears the area around the bow of the stuck Ever Given on March 25. Source: Suez Canal Authority This week in the New Economy Global manufacturing has become over-concentrated, reflecting a corporate obsession with cost and efficiency over safety and sustainability. When the coronavirus took off in the U.S., it exposed the fact that almost half of the country's personal protective equipment is made in factories in China. Suddenly, those production nodes became choke points. Now that an unexpectedly swift economic recovery seems to be taking hold, nodes are seizing up everywhere. Semiconductor foundries can't keep up with demand from carmakers. Ports are congested, especially at America's largest in Los Angeles, and shipping containers are in short supply. The Japanese-owned Ever Given has exacerbated these problems by severing a critical artery that usually carries 12% of global trade. Advocates of globalization tend to focus on linkages enabled by digital technologies, like Zoom video conferencing, that have kept office workers busy during Covid lockdowns. "I am a technological determinist," declared Tom Friedman, the New York Times author of "The World is Flat." He adds that "technology is not just interconnecting the world: it's actually making the world interdependent." Excessively so, caution the skeptics. And while the march of technology may be inevitable, the way production has become ultra-specialized is fueling dangerous uncertainties.  A chip wafer made by Taiwan Semiconductor Manufacturing Co. It turns out that almost 90% of the most advanced semiconductors are assembled by one company—Taiwan Semiconductor Manufacturing Co.—which makes the island nation a strategically important choke point (it's already a political one) in the technological Cold War between the U.S. and China. Beijing has deliberately created a chokehold over the production of rare earths used in a wide array of high tech products, and has talked about restricting their export to the U.S. The Suez Canal blockage, meanwhile, has underscored China's own vulnerability to maritime node disruptions. As my Bloomberg News colleagues David Fickling and Anjani Trivedi report, China imports amost three-quarters of the oil it consumes, as well as about four-fifths of the iron ore behind its frantic infrastructure buildout. The insecurity these facts generate is in part driving the nation's destabilizing efforts to assert control over the South China Sea.  Stephen J. Kobrin Photographer: Rick Maiman/Bloomberg News In the latest installment of our Bloomberg New Economy Conversations series this week, we highlighted how there is no future for our planet without the kind of globalized effort that produced breakthrough Covid vaccines. Scientists and researchers all over the world have worked together to develop diagnostics and therapies that will (hopefully) soon return the global economy to something approaching normal. A smaller, yet similar international effort is underway in the Suez Canal to refloat the Ever Given. In too many ways, globalization is coming to be defined more by its risks (the choke points) than its benefits (the linkages). Fixing that, as Professor Kobrin argues, will mean finding a better balance between economic independence and integration. The challenge will be to find that harmony without upsetting the project altogether. __________________________________________________________ Like Turning Points? Subscribe to Bloomberg.com for unlimited access to trusted, data-driven journalism and gain expert analysis from exclusive subscriber-only newsletters. Arm yourself with the latest developments from the world of global trade and shipping—sign up to get Bloomberg's Supply Lines newsletter in your inbox daily. Download the Bloomberg app: It's available for iOS and Android. Before it's here, it's on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can't find anywhere else. Learn more. | 
Post a Comment