Three Phases of Modern Globalization

A New Era of Globalization | Chapter 1

1. Commodities transmit geopolitical tensions to supply chains and markets

Natural resources like fossil fuels, food, as well as critical metals and minerals are prime candidates for geopolitical weaponization bygreat powers.
Episodic disruptions of commodity supply chains – whether due to extreme weather, climate events or geopolitical strains – can be transmitted more broadly to the global economy and markets.

2. Less efficiency and productivity in select sectors

If globalization optimized for highest productivity and lowest cost, it follows that near-shoring and friend-shoring – which can create redundant sources of supply – may be less efficient.
In the case of sophisticated, precision manufacturing like advanced semiconductors, much of this new capacity in new locations is not likely to be as efficient or productive as legacy capacity.

3. Upward pressures on inflation and term premia

With economic and national security vulnerability considerations on the rise, efficiency and productivity no longer prevail as sole drivers for supply chains – and this will weigh on economic growth. Furthermore, these new supply chains are often more costly ones.
This inflationary force can be amplified by key intermediary goods – like energy and semiconductors. That is, they are critical inputs into a wide range of goods and services and can spread the inflationary pressures more broadly.
The potential for higher and more volatile inflation going forward as well as the increased government spending from industrial policy may lead to less compressed term premia than previously.

While the tussle between globalization and nationalism has played out over many cycles and centuries, we have entered a new era where globalization has essentially splintered into two distinct and separate tracks.

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