IN THE NEWS: Russia war ends era of globalization that kept inflation low

  Whenever there's a war, it affects economies of various countries, and in the case of Russia's war on the Ukraine, it has had global repercussions. Here's an excerpt of an article from the Associated Press that explains why we  in the U.S. are experiencing Inflation as a result:

Russia war ends era of globalization that kept inflation low

Associated Press, March 30, 2022

Larry Fink, CEO of the investment management giant BlackRock, wrote last week in an annual letter to shareholders that Russia’s invasion “upended the world order that had been in place since the end of the Cold War” and “put an end to the globalization we have experienced over the last three decades.’’

“A large-scale reorientation of supply chains,” Fink warned, “will inherently be inflationary.”

Adam Posen, president of the Peterson Institute for International Economics, wrote in Foreign Affairs that “it now seems likely that the world economy really will split into blocs — one oriented around China and one around the United States.”

Though the rift has been years in the making, Russia’s war against Ukraine may have completed it. It likely concludes an era in which countries with clashing political systems — democracies and authoritarian states alike — could trade and mutually benefit. With Russian missiles killing Ukrainian civilians, it seems almost quaint to recall that unfriendly nations could take their disputes to the World Trade Organization and expect a peaceful resolution.

A flood of Chinese imports gave American consumers access to inexpensive toys, clothes and electronics. U.S. policymakers dared to hope that freer trade would nudge Beijing and other authoritarian regimes toward political openness, too.

But strains emerged. Europe became reliant on energy from Vladimir Putin’s Russia. In 2011, an earthquake and tsunami damaged auto parts plants in Japan. A resulting parts shortages idled factories in the United States, a reminder that supply chains that spanned the Pacific risked disruptions.

Then COVID-19 outbreaks closed Chinese factories and ports, snarling supply chains, causing shipping delays and higher prices and forcing U.S. companies to consider bringing production close to home.

The geopolitics got nastier.

American manufacturers accused China of foul play. They asserted — and many global analysts agreed — that Beijing manipulated its currency to make its exports less expensive and U.S. imports costlier, illicitly subsidized its own industries and restricted Western companies’ access to China’s market. The United States posted gaping trade deficits with China. Many U.S. factories succumbed to the competition.

Riding a backlash against globalization to the presidency, President Donald Trump launched a trade war with Beijing. Direct investment between the two sides tumbled, a consequence of Beijing’s drive to keep money from leaving China, tighter U.S. scrutiny of Chinese investments in the United States and corporate efforts to move some supply chains out of China.

Now, Russia’s war is accelerating the economic breakup between democracies and autocracies. Putin’s aggression spurred Western sanctions against the Russian economy and financial system. China, alone among major nations as a Russia ally, has sought to strike a balance. It has criticized the Western response to the war but done nothing that would clearly violate the Western sanctions.

Some companies have responded to Moscow’s status as an economic pariah by leaving Russia. BP and Shell abandoned investments. McDonald’s and Starbucks stopped serving customers. Ukrainian President Volodymyr Zelenskyy has criticized Nestle, Unilever, Johnson & Johnson, Samsung and LG, among others, for continuing to operate in Russia.

FULL ARTICLE:    AP News Full Article