[2023 Global Outlook] The End of the 'Era of Globalization'... The World Changed by the Ukraine War

EU Border Opening Principle Shaken... Security Risks Increase
Multinational Companies Without Borders Largely Join Sanctions Against Russia

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] "Globalization is almost dead. Free trade is the same. I believe they will never return."

On the 6th (local time), the statement by Morris Chang, founder and chairman of Taiwan's TSMC, the world's largest semiconductor foundry company, was widely circulated worldwide. It was noted as a statement symbolizing the completely changed international situation before and after the Ukraine war.

The Ukraine war, which occurred for the first time in over 30 years since the end of the Cold War, overturned the globalization trend that had continued until then. It even weakened the European Union (EU)'s open border policy, which was a pillar of globalization. The supply chain relocation that the U.S. had been pursuing against China expanded to include Russia, spreading as a global trend.

Some predict that the globalization that had been actively progressing between the Western world and the Third World will shrink, and a half-hearted globalization limited to the West and its allies, that is, a 'Reglobalization' phenomenon, will accelerate.

◇A world changed in 30 years... EU Schengen Agreement also shaken

[Image source=Reuters Yonhap News]

According to AFP on the 13th (local time), the EU Council of Interior Ministers announced on the 8th that Croatia was accepted as a member of the Schengen Agreement, allowing free border crossing among member countries, but the accession of Bulgaria and Romania, which also requested to join, failed.

Croatia joined the EU in 2013, while Bulgaria and Romania joined six years earlier in 2007. Therefore, it was expected that the two countries would have a more favorable chance of joining, but the result was different. Some countries, including Austria, opposed the accession of the two countries, fearing illegal immigration influx due to the flood of Russian and Ukrainian refugees into Bulgaria and Romania caused by the Ukraine war. This led to the failure of their accession. Even in the EU, which was a symbol of globalization, regionalism was at work.

This contraction of the globalization trend is expected to accelerate further due to the Ukraine war. The New York Times (NYT) analyzed, "Since World War II, the share of international trade in global regional GDP peaked at 61% just before the 2008 financial crisis and has been steadily declining," adding, "Countries have imposed retaliatory tariffs and raised protectionist barriers, then the COVID-19 pandemic broke out, and the Ukraine war raised border barriers even higher."

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics (PIIE), pointed out in an interview with CNBC, "Russia's invasion of Ukraine will be a turning point marking the end of globalization."

◇Multinational corporations also heavily participate in sanctions against Russia

[Image source=Reuters Yonhap News]

Multinational corporations such as Coca-Cola, which symbolized the post-Cold War era, also participated massively in sanctions against Russia immediately after the Ukraine war and withdrew from the Russian market, which is regarded as a symbol of deglobalization.

According to the British BBC, Coca-Cola eventually decided to completely withdraw from the Russian market in June, unable to withstand the global boycott movement urging participation in sanctions against Russia. This is the first time Coca-Cola has decided to withdraw due to wartime sanctions.

During the outbreak of World War II in 1939, Coca-Cola did not withdraw from its German factory but created the brand 'Fanta' to circumvent the U.S. government's raw material export ban. In 1965, during the Cold War, it actively entered the Bulgarian market, the first among communist countries at the time.

Not only Coca-Cola but also multinational corporate brands such as Starbucks and McDonald's, which symbolized the end of the Cold War, simultaneously withdrew from the Russian market, citing participation in sanctions against Russia.

The U.S. think tank Center for Strategic and International Studies (CSIS) evaluated, "It is unusual that multinational corporations, which had no border barriers until now, reluctantly participated in global sanctions against Russia," adding, "In the future, companies will bear the huge risk of having to prepare for market withdrawal at any time depending on the political situation of each country and the trend of international public opinion."

◇"Strengthening U.S.-Europe Atlantic trade... Not deglobalization but reglobalization"

[Image source=AP Yonhap News]

Some predict that a reglobalization phenomenon limited to the West and its allies, similar to the Cold War era, will occur in the future.

According to Bloomberg, U.S. consulting firm McKinsey emphasized in a report last month that "the ongoing phenomenon is not deglobalization but reglobalization." Unlike countries hostile to the West such as China and Russia, supply chains and trade among the U.S., Europe, and their allies are rather strengthening, and globalization is partially continuing.

In fact, according to U.S. statistics, in September, the scale of goods imported by the U.S. from the EU and the UK was $50.7 billion (about 66 trillion won), surpassing the $49.2 billion scale of imports from China. This is analyzed to be due to the activation of Atlantic trade amid supply chain relocation centered on the U.S. and Europe.