Macroscope | What ruptured globalisation means for international finance
As recognised by Canada, the fracturing of the global economy is in full swing. Policymakers and businesses should expect it to continue
Canadian Prime Minister Mark Carney does not mince his words. Writing for The Economist last November, Carney argued the post-Cold War had collapsed and said the world was “entering an era of ‘variable geometry’” involving “pragmatic coalitions, built around shared interests, and occasionally shared values, rather than shared institutions”.
He urged the world’s middle-sized countries to reduce “the leverage that enables coercion … diversification internationally is not just economic prudence – it is the material foundation for honest foreign policy”. Carney, a former central banker, also argued it would be a mistake to mourn the demise of the rules-based order. “Nostalgia is not a strategy”, he said.
Few leading policymakers have spoken so frankly and publicly about the damage wrought by US President Donald Trump’s assault on the global trading system and the profound consequences of his administration’s evisceration of the rule of law.
Carney put his finger on two increasingly important yet underappreciated megatrends: economic fragmentation and geopolitical realignments. While a number of investment banks, notably Morgan Stanley, have published research on the economic and market implications of the shift to a multipolar world, investors are notoriously bad at assessing and pricing geopolitical risk.