GeoTech Wars - Global Economic Fragmentation with Bloomberg Chief Economist Tom Orlik

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In this episode of GeoTech Wars, Kirti and Andrew explore how a growing emphasis on national security priorities over economic efficiency is fragmenting the international economic system. They are joined by guest Tom Orlik, chief economist for Bloomberg Economics. Tom is an expert in both global economics and China, having over a decade of experience reporting in Beijing and authoring two books on the Chinese economy, Understanding China's Economic Indicators and China: The Bubble That Never Pops

As Tom explains, the post-World War Two international system encouraged globalization, binding the world economy together. By bringing millions of new workers into the labor force and encouraging companies to conduct business wherever they could operate most efficiently, globalization delivered cheap goods in abundance while keeping inflation rates low. 

Over the last several years, however, the international system has begun fragmenting. The United States and China are increasingly at odds, while turbulent events such as the COVID-19 pandemic and Russia's invasion of Ukraine prompted governments to confront the implications of globalization on national and economic security. While the intensity of these specific events is beginning to subside, the underlying structural forces dividing the world into different political blocks remain. Governments are now prioritizing national security objectives over economic efficiency.  

Undoubtedly, national security priorities such as increased supply-chain resiliency for critical technologies have economic benefits. Semiconductors, for example, are critical to the global economy and national security, and disruptions to their supply have severe consequences. This was clearly reflected during the COVID-19 pandemic when semiconductor shortages hampered economic growth.  

At the same time, however, de-globalization curtails the advantages brought by globalization. De-globalization increases the risk of inflation by fragmenting supply chains and the global labor market. Existing business models will become unsustainable, and barriers to trade and business will ultimately create a world of lower growth and permanent risk of higher inflation. 

Despite the economic risks, the rollback of globalization is likely to continue. In the United States, hostility towards China is the only point of agreement between Democrats and Republicans. Global economic growth is less of a priority than in the past; instead, focus is on the relative gains for the United States vis-á-vis China. If China will benefit more from a certain action than the United States, this will ring strategic alarm bells in D.C. 

Instead of taking a broad approach, however, the United States should focus on building “a high wall around a small garden” of critical economic sectors. Chinese access to critical dual-use technologies should be restricted, but all non-strategically significant technologies should proceed uninhibited. If the United States is not careful, export controls and other restrictions may slowly increase in scope until they surround the entire U.S. economy, choking off access to the revenue, capital, and partnerships needed to maintain world-leading technologies. The United States must use a scalpel, not a sledgehammer in its approach, as it is not prepared to create a disruptive trade and technology environment and still achieve long-term success. 

Global fragmentation is having a profound impact on the world economy, and the risks stemming from de-globalization cannot be ignored. The United States must focus on defending technologies that are strategically important, while only cautiously restricting other critical technologies. Only by taking measured and strategic steps can the United States minimize the risks of higher inflation and ensure continued economic growth. 

This piece summarizes the discussion in GeoTech Wars, “Global Economic Fragmentation with Bloomberg Chief Economist Tom Orlik.” It does not represent the opinions of the hosts. 

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Kirti Gupta
Senior Adviser (Non-resident), Renewing American Innovation Project
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Chris Borges
Program Manager and Associate Fellow, Geoeconomics Center