DEGLOBALIZATION NOT POSSIBLE

DEGLOBALIZATION: WHAT YOU NEED TO KNOW

INTRODUCTION

During the last three years and to date, global mobility, and intense complication emerged after some events which negatively affected human lives and livelihoods. Therefore, many countries and experts on the global economy forecast a hint of disintegration of global fabrics and reconstructions and the moving of two power centers to a single power.?Deglobalization may be picking up pace as a result of the war in Ukraine, the COVID-19 pandemic, geopolitical disruption, high volatility and uncertainty mixed environment, and the need for the green transition. Following nearly a century of globalization, successive global shocks and the movement to confront climate change appear to be turning the tide. But some regions and sectors are deglobalizing faster than others. The Govt. ?and global companies are seeking security and resilience over the benefits of global value chains. The rise of globalization was never entirely smooth or assured. The reduction of global trade at the end of one period by the two world wars was followed by 60 years of increased globalization. This included the hyper-globalization period from 1990 to 2008. 'Globalization' following the 2008 financial crisis had compelling reasons and created an environment that appeared to be a hint of deglobalization. However, the 2008 financial crisis, trade wars, disenfranchised middle classes in developed economies, and rising concerns about over-reliance on trade with single partners led to a period of relatively stagnant "globalization". China's recent direct face-to-face confrontation with the USA has also emerged as a reason.

DEGLOBALIZATION

Since the end of the second world war, globalization has surged — but that era may be coming to an end.?Database. Data from 1960 onwards for World from IMG, WB, and Barclays Research suggested immense scope of mutual profitability in a win-win situation. Today, "slowbalisation" appears to be moving towards deglobalization. Recent disruptions to global value chains such as the COVID-19 pandemic, the war in Ukraine, growing ideological differences, and the green transition have prompted governments and corporations to reconsider external dependencies. They are looking closer to home and to trusted partners for more resilient growth models. This sentiment is surpassing media headlines and political pomposity and is becoming part of the general corporate way with words of eloquent.

?According to Barclays’ Investment Sciences team, a small but notable fraction of 4% of corporate transcripts mentioned onshoring in 2022. Striking, when this has been under 1% prior to the pandemic. What's next for the global economy? Experts talk about inflation, stagnation, and (de-)globalization at Davos 2022?and DAVOS 2023 and it has seen taken seriously. Considering the very critical importance of Davos 2023, a very deliberate discussion happened to avoid disintegration. Deglobalization isn't completely global, M&A and jobs data suggest that deglobalization is occurring, but it is not happening uniformly across the planet. Increased onshoring of jobs is taking place primarily in Asia. Domestic employment is also increasing in the US and Europe, but this appears to balance local resignations, and the net trend in both regions is still towards globalization, albeit among more junior roles.

Barclays also found evidence a few announced M&A deals have been completed recently than historical patterns. Moreover, deals between target firms in Europe and North America are less likely to succeed when the acquirer is outside these regionally b lly for target firms in industries such as advanced technology, finance, and retail. On the other hand, deals targeting firms in, for example, consumer staples, are more likely to succeed. Similarly, the slowdown of M&A activity may not be caused solely by macroeconomic trends, but also by regulatory concerns, as the European Commission and the UK antitrust authority increase scrutiny on deals. The slowdown of M&A activity may not be caused solely by macroeconomic trends, but also by regulatory concerns.?

Deglobalization and the green transition

Energy is a key sector to watch in terms of both globalization and deglobalization. The common incentive for nations to address climate change has been a major source of globalized cooperation in recent years. Yet the mechanics of the green transition itself also necessitate a more local focus. The push towards a long-term increase in the share of energy coming from renewables is being driven by the reduction of carbon-intensive transportation infrastructure and carbon pricing mechanisms acting as de facto tariffs. Rising concerns about energy security and fossil fuel pricing volatility have also heightened interest in domestic renewables. Energy is a key sector to watch in terms of both globalization and deglobalization. However, as the green transition is a global challenge, Barclays suggests the need for a globalized approach?one that complements local and regional solutions. Although the rise of renewables will basically reshape fossil fuel trade flows, the green transition will have to be supported by the minerals industry which will be used to build its infrastructure. This will result in the increased trade integration of mineral-endowed countries. The era of globalization may be coming to an end. What replaces it remains to be seen, but it is clear that global cooperation is necessary to confront shared challenges.

THE SPECTER OF DEGLOBALIZATION?

The post-Cold War era highlighted intense globalization, proven in expanding links between countries in economic, technological, demographic, and cultural areas. Today there is increasing fear that globalization is being replaced by rising nationalism, protectionism, territorial aggrandizement, and a new form of Cold War marked by contestation over great power spheres of influence. Although many tendencies to deglobalization are present, they have not yet brought about a complete breakdown of the globalization process, and the power of antilocalization forces may be overstated. Parallel trends suggest that a form of “truncated globalization” may be emerging, even as antilocalization backlashes continue in some domains. Even when the forces of deglobalization are present, parallel forces of globalization, shocked and condensed, are at work in the world system. Emerging nationalism and protectionism, territorial aggrandizement by Russia and China, and the return of Cold War tensions in new forms have prompted predictions that the intensified globalization of the post–Cold War era is coming to an end, beset by archaic forces. Historically, patterns of “two steps forward, one step back” or vice versa, have often produced geopolitical convulsions, preceded by domestic conflicts cleverly used by political leaders who engineer social revolutions and wage war on their neighbors. But the world order needs to deteriorate much further, as it did in the 1930s before countries will jettison globalization altogether.

Even the designs we find today show many tendencies toward deglobalization, but the globalization process has still visible. ?Parallel trends in this ongoing process will continue, and a new form of “truncated globalization” may be emerging even amid the backlash underway in some regions. The deterioration of global market forces could produce more state regulation and control, in a reaction not unlike Austro-Hungarian economist Polanyi’s concept of “double movements,” whereby powerful markets impelled demands for greater social protection. No country can confront contemporary global and national challenges single-handedly. States are taking steps to rub their nationalist credentials, reflecting its form of economic protectionism and national industrial production, mostly in the high-tech sector, and also promoting globalization anyway. The capacity of anti-globalization forces and actors to fund upset the globalization process may be inflated. Globalization is a multilayered process in which economic, technological, social, and political changes lead to the intensification of relations among states and societies, with greater integration across borders. The most significant aspect of this process is the expansion of economic activities beyond national borders as companies spread their operations worldwide, generating manifold growth in global trade and investment. Increased labor mobility and technological diffusion were key manifestations of the intensified globalization that occurred in the aftermath of the Cold War. Starting in the 1980s, and especially since the early 1990s, the neoliberal ideal of free markets and the associated policy remedies known as the “Washington Consensus” became the mantra of many countries. In the globalized world, states’ ability to manage and regulate their economies declined as corporations and other nonstate actors gained more clout. The social dimensions of globalization promoted the notion of global citizenship, while political globalization has resulted in the spread of democracy to all parts of the world. New technologies, especially in the information domain, link corporations, people, and societies in unparalleled ways, cutting across national boundaries. Economic globalization increased the wealth of many countries, especially China and India. It produced a growing middle class in these and many other lower-income nations, adding momentum to globalization with new consumers. It also helped to stabilize inflation in advanced countries. As domestic production costs increased, offshore facilities offered cheaper goods to meet growing consumer demand. Deglobalization is the reverse process. It leads to diminished interaction and integration of national economies. It also brings a reassertion of nationalist policies among states, manifested in increased economic and technological protectionism and cultural atavism.

Is progress getting reversed?

Augmented globalization was facilitated by the US’ near-unipolar ascendancy during the first two decades of the post–Cold War era. It also reflected the firming of the liberal international order, characterized by three core elements: growing economic interdependence, an increasing role for international institutions, and widening democratic space. But recent trends have reversed progress in all three elements. This has raised fears of deglobalization in many quarters, especially among business leaders. The US itself has been limiting and taking nationalist positions, denying the globalist policies it once upheld. Increasing protectionism and tariff wars, started by the Trump administration and continued by President?Biden, show the rising influence of anti-global forces in Washington. Two recently passed bills, the US Innovation and Competition Act of 2021 and the America Competes Act of 2022 are intended to boost internal production capabilities and reduce reliance on China, particularly in high-tech fields such as semiconductors, AI, QC biotechnology, and renewable energy development. In October 2022, the Biden administration also imposed export controls to stunt China’s access to advanced semiconductor technology.

GLOBALIZATION IS NOT A LINEAR PROCESS.

In geopolitical terms, the relative decline of the US and the rise of China, and the aggressive reassertion of Russian power under Vladimir Putin, have brought fears of a new Cold War dividing the world once again. Some warn that these trends will result in a further reduction in interactions among states, with allies preferred as partners in trade and investment while adversaries are restricted or shunned. This new geopolitical competition, with intense jockeying over great power spheres of influence, is characterized by both hard and soft-balancing coalitions. Hard balancing relies on military alliances and arms buildups, whereas soft balancing mechanisms include restraining a threatening power through international and regional institutions and economic statecraft such as sanctions. The process of deglobalization has intensified since the global financial crisis of 2008–9 with the protectionist policies adopted in its wake by the United States and other countries. Although concerted efforts by many countries, including the rising powers in the so-called BRICS grouping of five major emerging economies—Brazil, Russia, India, China, and South Africa—helped to dissipate the financial crisis, the trend line has been one of retrenchment by governments and the near collapse of global trade negotiations.

What has caused millions of deaths, the pandemic has been contained to an extent by the quick discovery of vaccines, and their availability across the world on an amazed basis. But supply chain disruptions partially caused by pandemic restrictions have produced high levels of inflation; the cost of living has risen in all countries, especially in the West. In the global South, millions who were brought out of poverty, partially due to the benefits of globalization, have now fallen back to lower living standards. Meanwhile, democratic backsliding has occurred worldwide, with problems challenging the liberal order’s political component. According to the 2022?Freedom in the World?report issued by the US nongovernmental organization Freedom House, authoritarianism and other illiberal forces have been ascendent during the past 16 years; today only 20 percent of the world’s population lives in fully free countries, with 41 percent in “partly free” and 38 percent in “not free” countries. The annual survey rates countries based on criteria such as self-government, human rights protection, and equality under the law.

Even established democracies have witnessed the rise of populist leaders and movements that thrive on illiberal policies and nationalist rhetoric. The United States experienced this most vividly with the 2016 election of Donald Trump as president and the perpetuation of Trumpism by the Republican Party, despite revelations about his role in encouraging January 6, 2021, riots at the US Capitol after he refused to accept his defeat in the 2020 election. Other countries, such as Russia, India, Turkey, Hungary, and Brazil, have elected or reelected populist or authoritarian leaders, all of whom have employed nationalist rhetoric based on ethnic or racial majoritarianism. Extreme right-wing parties have increased their share of the vote in many European countries, including Germany, France, Sweden, and Italy, where a far-right party placed first in September 2022 elections and heads the new government. This raises the risk of these countries tilting into illiberalism and losing their liberal-democratic credentials, weakening the European Union in the process.

Trade Turbulence

While a certain level of retrenchment in globalization and its key components is apparent, many other trends suggest that the reverse is happening. The economic contraction in the first part of the pandemic was followed by an upsurge in global trade: after declining, the trade-to-GDP ratio is now increasing in many export-driven economies. In the third quarter of 2022, the challenge to supply chains continued; growing inflationary pressures led to sharp interest rate hikes by central banks. Yet many see the solution to the inflation problem not in more protectionism, but in strengthening the production base in parts of the world with lower labor costs. The Biden administration even lifted some of the tariffs that Trump had imposed on China, after initially retaining them. Trump-era trade policies—including the promotion of inward foreign direct investment (FDI), local content requirements for government procurement, and domestic production capabilities for critical technologies—have had only limited impact. Some such policies have continued under Biden, but there is a growing realization that domestic production is not sufficient to meet the growing demands of the population or facilitate cost containment. Protectionism as a policy to boost competitiveness also has limitations: corporations need export markets and global collaboration to maintain their lead in ever-changing tech industries.

Earlier phases of globalization were led by Western multinationals, but companies from China and elsewhere have increasingly engaged in global expansion. Some 133 Chinese companies are listed in the Fortune Global 500, exceeding the number of American companies, though Western companies score much higher than the average Chinese company in the Transnationality Index. Political challenges at home and abroad, as well as particular management cultures, may explain why more Chinese companies have not become fully multinational, despite efforts to do so.

China has benefited from globalization and from expanded ties with the West and the rest of the world. It has also been a contributor to globalization, despite its recent restrictive policies in various areas such as the cross-border flow of capital, goods, and migrants. The supply chain disruptions caused by Chinese COVID-19 lockdowns have generated pressure in some countries for renationalizing companies. But products, especially consumer goods and industrial components, can no longer be produced solely in any one nation’s own manufacturing facilities without massive price increases. Despite some major hiccups, there is no evidence that China has lost its supply chain leadership role for good, even though other countries, including Vietnam, Mexico, and India, have poached some of the businesses. It may take several years to see the extent of the shift of global production facilities out of China and judge whether that portends the end of globalization as we know it—or just re-globalization or truncated globalization in the economic and high-tech spheres.

In 2020–21, global trade underwent first a decline and then some resurgence, including an increase in trade with China. FDI has also been picking up momentum. According to the United Nations Conference on Trade and Development, global trade totaled $28.5 trillion in 2021, an increase of over 25 percent from 2020, and up 13 percent from 2019. Global FDI flows sharply rebounded from $929 billion in 2020 to $1.65 trillion in 2021, a 77 percent rise. These numbers show that economic globalization is here to stay, but its form and content might have been altered to some extent. Increasing regionalization in trade and investment has emerged at a time when global trade talks shepherded by the World Trade Organization are showing little progress. Beijing’s Belt and Road Initiative has created dependency relationships between China and some weak states. But however, debilitating the effect of the debt burden on weaker participants may be, the additional infrastructure projects and competing ones built by Western interests, in fact, might help extend economic globalization by opening new markets, especially in Africa and Central Asia. The war in Ukraine has had short-term impacts on global growth and poverty reduction. According to the World Bank, both global trade and the GDP growth rates of low-income countries will be reduced by 1 percent in 2022–23 as a result of the war, while total global GDP will be cut by 0.75 percent. The long-term impact will depend on how long the war continues and on whether governments, especially in Europe, will be able to implement effective mitigating policies, most urgently in response to energy supply disruptions. Geopolitical convulsions of this nature, if confined to a specific region, can have more short-term than long-term impacts since countries typically recover in subsequent years, as happened in Europe and East Asia in the post–World War II era.

THE UNITED STATES ITSELF HAS BEEN RETRENCHING.

India has been the second-biggest beneficiary of globalization, particularly in terms of GDP growth. Prime Minister Narendra Modi has attempted to achieve?Atmanirbhar?(self-reliance) through “Make in India” industrial policies while pursuing a Hindu nationalist agenda at home. Yet India’s trade has increased with a number of countries with which it has struck bilateral trade deals, including the United States. Regional trading blocs are boosting globalization. The Asia-Pacific region is seeing more trade between China and its regional neighbors since the height of the pandemic. The 15-nation Regional Comprehensive Economic Partnership, which took effect in January 2022, and the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership, launched in 2018, are designed to reduce tariffs, liberalize trade in services, protect investors and intellectual property, and promote better labor and environmental standards. These agreements are likely to accelerate member states’ growth and advance regional trade and investment in Asia even further, even though the United States has not joined either of them. Although opposition to illegal migration remains strong, the globalized workforce is still propelling immigration to advanced countries. Whereas the United States has imposed some restrictions on foreign workers and students settling in the country, states such as Canada have increased their immigration and foreign student intake. Decreases in population growth and shortages of skilled labor are pushing many Western countries to them accept more migrants, partly to address the needs of businesses. Due to domestic electoral pressures, a form of truncated globalization is likely to occur in migration patterns, especially to some of the advanced countries.

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Confronting the West

In recent years, several noneconomic avenues for globalization—particularly in the social and political spheres—have witnessed retrenchment. The most arresting development is the global trend toward democratic backsliding. Traditional democracies are implementing illiberal policies, often aimed at minorities and migrants. Yet parallel trends exist: social movements in many countries are demanding better-quality democracies. The 2022 Freedom House report showed that there is strong demand for rights in many countries, along with some successes in advancing democratic reforms in South America and Africa. But that is not likely to become a global trend without a major push by supporters of democracy and freedom. The Russian invasion of Ukraine, launched in February 2022, has brought down a new Iron Curtain. Western countries immediately imposed sanctions on Russia. But the fact that Russia’s economy is not especially globalized, except in oil, gas, and weapons exports, indicates that the constraints on militarism that interdependence can impose on globalized states may be missing in this case.

Expansionist efforts by a more globalized China, meanwhile, are creating potential flashpoints in Taiwan, in the South China Sea, and along the India–China border. But the escalation of those conflicts may be constrained by China’s greater economic interdependence in comparison with Russia. Restrictive policies implemented by Xi Jinping’s regime have depressed Chinese economic growth and curtailed the limited freedoms that Chinese citizens had gained since the reforms of the Deng Xiaoping era. Hong Kong has lost its limited autonomy as Beijing has tightened its grip on the special administrative region and removed many of the constitutional and political liberties that its residents had enjoyed. Nonetheless, China has a great interest in the continuation of high levels of global trade, of which it will be the chief beneficiary as its geopolitical ambitions increase. Even when offshore production centers are opened in competing countries, China is likely to continue promoting economic globalization—though more on its own terms than before. As for Russia–China military alignment, it is not yet clear whether it has teeth. Both nations have reasons not to form an active hard-balancing coalition. They seem to agree on the virtues of authoritarianism and share a desire to overthrow the Western-led international order, but they differ on how to do it. Each harbors suspicions of the other’s geopolitical ambitions.

Among all factors, increased unpredictability in great power relations will have the most debilitating effect on globalization. Geopolitical convulsions could further accentuate deglobalization—for example, if Russia expands its aggressive policies toward other former Soviet republics and China follows suit with an attack on Taiwan. But none of this is inevitable. Defensive and deterrent capabilities prevent outright conquest in most situations, even though “salami-slicing” tactics of more incremental territorial aggression could continue. China may well be restrained by the force globalization has unleashed, particularly the prospect of economic decline if Western markets are closed to Beijing in the event of a protracted war. International institutions, the third pillar of liberal peace, have declined in performance. The UN Security Council has been moribund in major security crises. But the EU and NATO have made efforts to strengthen themselves in response to the Russian invasion of Ukraine and possible further threats to Europe. And increased international cooperation has been visible in global health and other areas, such as global warming.

Backlash Against Neoliberalism

In a boomerang effect, the trend toward deglobalization is partially caused by a backlash against liberal policies, especially the neoliberal agendas that were actively supported by Washington and key international lending institutions. Though neoliberal policies have spurred overall economic growth in some countries, they have accentuated inequalities to an unprecedented level, creating massive dislocations for the working class. In 2020, the top 1 percent of the world population accounted for over 46 percent of global wealth, whereas the poor and the lower middle class have seen relatively marginal improvements in their economic fortunes. In countries like China and India, globalization has lifted millions from poverty. But many have fallen back during the pandemic, with unemployment remaining high. Intensified globalization has helped to increase popular expectations in rising powers, but class divisions have generated opportunities for savvy politicians to invoke ethnic and racial varieties of nationalism to build support for illiberal policies. In previous eras, working-class solidarity produced social revolutions, but in today’s world, other identities, including race, are becoming more prominent. Illiberal politicians have sought to suppress the political and economic rights of minorities whose presence they find threatening to their majoritarian agendas. Neoliberal policies have also diminished the reach of the state, weakening the protective role it once played. Without welfare programs, the lower and middle classes suffer the most, further threatening the security and integrity of fragile states. In some cases—an extreme example is Sri Lanka, where an elected government was toppled in the summer of 2022 as a result of an economic collapse—the weaker sectors of society have none of the cushioning that was once provided by the state in times of crisis. At the global level, a lack of leadership is clearly visible in a series of issues, such as finding solutions to geopolitical convulsions, climate change, and global health challenges, particularly those caused by the pandemic. Defenders of democracy are scarce; the United States itself is faltering in democratic rankings, making its rhetoric less credible around the world. Democracy previously spread to different countries partly due to supportive policies of the United States and the EU countries. The weakening of its own democratic credentials has undercut America’s leadership role in this area. In previous eras of crisis, the liberal world saw US presidents such as Franklin Roosevelt, Lyndon Johnson, Bill Clinton, Barack Obama, and even Richard Nixon taking leadership roles. During the 2008 financial crisis, the BRICS countries showed much leadership in helping restore global economic growth, in tandem with easy money policies adopted by Western central banks. The rise of authoritarian China as a potential model has also challenged democracy, but few other countries have actually followed the Chinese example. Even populist leaders have not fully abandoned democracy, but rather have tinkered with liberal ideals such as minority rights. Expanding membership and tightening relations among the G-7 and NATO may be the dual effects of globalization and geopolitical tensions in the years to come, creating a more truncated globalization model. These patterns need not last forever, however. Democratic backsliding could fuel another series of pro-democracy movements in authoritarian states, and social forces could succeed in restoring some of the democratic achievements of past decades.

Despite the nationalist and protectionist policies of states, multinational corporations have an interest in continuing globalization. Many of them will find that domestic markets and internal labor and production facilities are not sufficient to support their survival and expansion. Global technology diffusion, especially among national partners and multinational corporations, is likely to continue. Although political elites are failing to cooperate, multinationals have found ways to shift their operational bases from one country to another and overcome some of the constraints imposed by protectionist policies.

Similar Forces

In 2022, global travel increased dramatically as pandemic-driven restrictions were relaxed in many countries. People around the world with resources are likely to keep boosting travel and connectivity among countries, even though this may mean quicker spread of diseases like COVID-19. The relaxation of travel restrictions in countries such as the United States, Canada, Australia, New Zealand, and Japan occurred as a result of the realization that closing national borders cannot stop the disease. Vaccination diffusion to different parts of the poorer world was slow, but it did occur, and there has been a growing awareness of the global nature of the challenge presented by the pandemic. Even when the forces of deglobalization are present, parallel forces of globalization, staggered and truncated, are at work in the world system. Major geopolitical crises and substantial setbacks involving global health and climate change can upset progress. But historically a pattern of “two steps forward, one step back” has prevailed, though intermittently the process has been reversed or arrested. There is definitely not a linear progression toward unimpeded globalization, but rather a curvilinear pattern—marked by ups and downs, yet persisting. Even countries that adopt deglobalization policies may have no choice but to revert to globalization. That has been evident in the supply chain crisis and the unwillingness of countries to go fully national. Intermittent victories by authoritarian and populist forces are possible in this period of uncertainty and change. But democratic and progressive forces could reassert themselves globally once again, given that populists have rarely offered sustainable solutions for the national problems they face. This could bring violence and further crises, which will need to be managed and contained. But globalization is here to stay, however, truncated it may become. In recent years, the global economy has appeared to be drifting away from multilateral engagement and collaboration, toward nationalism-fueled competition. Some – particularly emerging economies – attempted to resist this trend. November was an extraordinary month. Global leaders gathered for four major meetings: the ASEAN meeting in Cambodia, the G20 summit in Indonesia, the Asia-Pacific Economic Cooperation (APEC) forum in Thailand, and the United Nations Climate Change Conference (COP27) in Egypt. What was striking wasn't the timing of the meetings, but rather the evidence they produced that the tide might be turning away from confrontation toward renewed cooperation in the international arena.

In recent years, the global economy has appeared to be drifting away from multilateral engagement and collaboration, toward nationalism-fueled competition. Some – particularly emerging economies – attempted to resist this trend, such as by refusing to back Western sanctions on Russia. But such efforts appeared to have had minimal impact. As numerous observers have noted, a complete reversal of globalization would be virtually impossible. According to research by the McKinsey Global Institute, no region, let alone a country, is close to being self-sufficient. But that has not stopped some countries and leaders – in particular, the United States – from pursuing it. And even the partial deglobalization they have brought about would have far-reaching consequences, some of which – such as increased inflation and heightened debt risk – are already becoming apparent. The growing damage caused by the shift toward deglobalization has lately amplified resistance to economic fragmentation and polarization. Europe is a case in point. Russia's invasion of Ukraine bolstered the transatlantic alliance, owing not least to American and European alignment on sanctions against Russia. But European leaders are beginning to express discomfort with America's approach to China, which, as French President Emmanuel Macron has pointed out, risks dividing the world into competing blocs.

Concerns stem primarily from aggressive efforts to impede Chinese technological development. While few objects to the US increasing investment in key technologies or pursuing some re-shoring, many fear that sweeping new restrictions on exports of advanced technology, software, and equipment to China may mark a shift from broadly constructive strategic competition to a zero-sum approach. Driven by these concerns, Macron has articulated the need for a clear European position, differentiated from that of the US. Dutch Prime Minister Mark Rutte – whose country is home to ASML, the sole maker of the extreme ultraviolet lithography machines required to manufacture the most advanced semiconductor chips – is likewise seeking to assert independence from the US in this area. German Chancellor Olaf Scholz paid a visit to China this month in pursuit of a middle path. Emerging economies, for their part, strongly defended global interdependence at this month's major international meetings. They recognize that a divided global economy shaped primarily by great-power competition is highly detrimental to their interests, not least because it will put the much-needed global energy transition even further out of reach. As the University of Chicago's Raghuram G. Rajan recently explained, economic fragmentation and mutual suspicion will severely impede effective climate cooperation.

The emerging economies are not alone. The World Trade Organization and the international financial institutions point out that maintaining openness in trade, finance, and technology flows is essential to support the global economic recovery. Already, that recovery is facing powerful headwinds from inflation, war-related shocks, climate change, the COVID-19 pandemic, population aging, labor-supply problems, declining productivity, elevated debt ratios, and pockets of financial instability. As for the US, President Joe Biden’s administration increasingly seems to understand that cooperating with nearly everyone except China is not an option. Photo: Reuters Growing fragmentation will compound the challenges ahead, such as by impeding the operations of key players like MNC, which will struggle to cope with inconsistent or contradictory rules and standards, and even heightened legal liabilities, across economies. The increasing complexity and rising costs of operations will weaken the companies' incentives to invest. Given that MNCs play a crucial role in the diffusion of technology, adverse effects on global productivity and growth can be expected. Growing recognition of these risks is important. But it is the global economy's two main protagonists – the US and China – that will determine whether the current course will be altered. Fortunately, there is the reason for hope here, too. Chinese President Xi Jinping – well aware that his country's "economic miracle" would have been impossible without globalization – has repeatedly called for openness and inclusiveness. But he must recognize that these calls lack credibility when accompanied by displays of solidarity with countries like Russia, whose actions and rhetoric incite division.

As for the US, President Joe Biden's administration increasingly seems to understand that cooperating with nearly everyone except China is not an option. While a full reversal of trade restrictions is unlikely, especially for sensitive technology goods with national security or strategic economic implications, Biden's latest meeting with Xi suggested that the two sides are ready to engage in a more constructive dialogue on critical issues. Biden also reiterated support for the "One China" policy, indicating tacit continuing acceptance of China's diplomatic "red line" regarding Taiwan. It is possible that we will one day look back at November 2022 as a turning point in the deglobalization saga. But the obstacles to constructive international engagement remain daunting. For starters, voicing support for a better balance between cooperation and competition cannot compensate for a lack of trust. Unless the US and China can find ways to build confidence and goodwill, cooperative arrangements will remain on shaky foundations. Second, leaders remain committed to building economic resilience through supply-chain diversification that favors reliable or like-minded trading partners, and to allowing national-security considerations to shape economic policy. This new economic reality will require the development of a new, more complicated iteration of multilateralism. Finally, for this new multilateralism to work, international organizations will need to be strengthened, through governance reforms and increased capitalization. Perhaps most important, countries will have to commit to respecting these organizations' authority – and not only when it is convenient. The global economy's dire and deteriorating prospects, together with the scale of the climate challenge, have opened leaders' eyes to the risks that deglobalization poses. It remains to be seen whether this realization will be followed by the actions needed to change course.

Michael Spence, a Nobel laureate in economics, is a Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University.

Deglobalization is unlikely, and the economy to coalesce into two blocs centered on the US, and China. As long as a crisis is avoided and the fracturing results only in a partial rollback of prior decades of integration, economies, and financial markets will adapt gradually to the new environment, says the chief economist of Capital Economics The US dollar will maintain its dominant position and the US financial system.

NO SIGNAL YET SO WE CAN GO INTO DEGLOBALIZATION HAVE NO POSSIBILITY

REASON NO.1

Inflation over the past three years demonstrates the above factors in action. In 2020, the economic collapse, unprecedented stimulus programs, and surprise V-shaped rebound left US inflation at about 2%. Then, in 2021, inflation initially rose steam as higher demand from pandemic lockdowns jerked up against commodity market and supply chain dislocations, and businesses began raising prices. Energy prices were still elevated when concerns about a Russian invasion of Ukraine drove them higher at the end of 2021, ultimately bringing US inflation close to 9%. In 2022, these factors were compounded by and finally overtaken by demand-driven wage pressures, which became the dominant driver of inflation, and inflation expectations rose. If US inflation had increased each year along with 2.2 percent pre-pandemic annual expectations,?then by the end of September 2022, the?level?of prices would have been 6.2 percent higher. Even the total increase in the price level since January 2020 was 14.9%. Two-thirds of those extra 8.7% points can be credited, either directly or indirectly, to commodity and supply chain shocks. The remaining third was largely the result of an increase and shift in the composition of demand that outstripped companies’ capacity to produce and the wage and price increases that followed. This demand was supported by stimulus programs, accumulated savings, and accommodative monetary policy.

The eurozone story starts similarly, with inflation rising because of pandemic-era commodity and supply chain shocks. Unlike in the US, policymakers and business leaders in the eurozone were able to keep workers attached to their jobs through existing furlough programs and job subsidy channels that reduced labor market disruptions and wage inflation. However, the impact of the Ukraine invasion on eurozone inflation was far greater than in the US, abruptly raising energy prices across the continent. So, eurozone inflation has been almost exclusively caused by the continued direct impacts of energy supply shocks combined with the aftermath of supply chain disruptions, and the pass-through of these costs-sector job openings averaged 6.4 million per month. First, the US population is aging quickly, so part of the decline in labor participation is due to entirely normal retirement behavior. The 16- to 64-year-old group increased by 1.5 million people between January and November; however, in the same period, 3.5 million baby boomers reached age 65. In any typical year, 80 percent of those turning 65 retire and about 26 percent of those aged 16 to 64 don’t join the labor force.?Normal behavior patterns would thus explain why, within these age cohorts, 2.8 million people retired and 400,000 others did not work

Second, there is evidence of a lasting?jobs–skills mismatch?in the wake of the “layoff” of 2020. Workers did not simply re-up with their same jobs when the pandemic subsided. Instead, shifts in demand across industries and geographies occurred and workers moved, lost or gained skills, or took new and different jobs. We estimate that in 2022, it took an average of 40 percent longer for an employer to fill a vacancy than it did in 2019.18?By November 2022, the differential recovery of employment across industries had changed the mix of jobs, as workers found employment in growing sectors (Exhibit 5). The persistence of excess vacancies demonstrates that the mismatch of skills and geographies. The third reason for scarce labor is due to?more workers reevaluating what they want?from a job—and from life. Employees are leaving traditional employment for temporary, gig, or part-time roles, or are starting their own businesses. Some are quitting because of life demands—they need to care for children or elders. Health problems for many persist. Some workers are ready for a break and feel confident they will find another job when they want one. There is evidence of a lasting jobs–skills mismatch in the wake of the “layoff” of 2020. Workers did not simply re-up with their same jobs when the pandemic subsided. None of these three factors will be easily or quickly resolved. But they are knowable and business leaders can change their approach to?the talent equation.

REASON NO.: 2

When the pandemic struck, the primary sources of uncertainty for individuals, businesses, and governments were?the impact of the virus’s spread and the effectiveness of responses. Other concerns just had to wait. When Russia invaded Ukraine, uncertainty regarding the duration and?scale of the disruption, sanctions, and policy responses?was the focus. Today, a complex and varied set of forces is?potentially introducing a new era, with multiple sources of risk, opportunity, and potential transformation. Leaders must weigh how the world order, technology, demographics, energy and resources, and capital will evolve and affect their businesses . With these forces in mind, there are two primary dimensions that define McKinsey’s new scenario framework. The first dimension is?the state of long-term structural balance and international cooperation. This dimension captures how well the supply of materials and manufactured goods, and the people, data, and capital they require, can satisfy global demand at affordable prices. It is strongly influenced by local regulations that determine supply responses as well as by the institutions and frameworks that govern diplomatic relations and international exchange. A key example of an issue within this dimension is how effectively the world can establish the regulations and relationships required to deliver an affordable energy transition. The second dimension is?the short-term level of fiscal support and state of monetary policy. This dimension captures how well government spending and market-based incentives are targeted. It also captures how central banks affect the availability of credit and overall financial conditions. It is strongly influenced by national political dynamics. A key example of an issue within this dimension is how effectively current moves by central banks can rein in inflationary pressures. The first dimension is?the state of long-term structural balance and international cooperation.?The second dimension is?the short-term level of fiscal support and state of monetary policy. How these two dimensions vary and interact shape choices made by individuals, businesses, and not-for-profits (including nongovernmental organizations [NGOs] and universities) to spend, invest, and pursue innovative solutions. The interplay between dimensions will largely determine the range of macroeconomic outcomes in McKinsey’s new global scenarios, including how fast productivity, wages, and profits might grow; how labor force participation could rise or fall; how much consumers may spend and businesses invest; what heights inflation may reach; and how affordable the energy transition could be. The following two scenarios, labeled A1 and C2, depict the range of outcomes that CEOs and their executive teams will most likely need to consider entering 2023. A third scenario, C3, portrays a sobering downside reminiscent of the economic experience of the 1970s (see sidebar “The C3 scenario: Deep recession, long-term growth limitations, and significant regime change in inflation management”). A recent tally of economic forecasts shows a wide range of GDP growth estimates for 2023, from a low of –1.4 percent to a high of 1.2 percent in the United States, and –0.8 to 0.8 percent in the eurozone.19?The McKinsey scenarios illustrate this range and include additional downside risks that should be considered.

The A1 scenario: ‘Soft landing,’ accelerating into prosperity with target inflation

In the A1 scenario, individuals, businesses, and governments renew their commitments to accelerating global cooperation. Societies commit to absorbing the costs of ensuring resilience, reliable access to critical sectors, the vitality of local economies and communities, and promoting regulations that expand affordable supply. The conflict in Ukraine and other international tensions escalate no further and perhaps even begin to wind down. Economic policy makers in the eurozone and the United States create incentives to boost public- and private-sector investments that help resolve near-term energy supply–demand imbalances. Coordinated actions by central banks steer 2023 without a recession. Inflation begins returning to central bankers’ 2 percent targets (Exhibit 6) and real GDP growth accelerates to approximately 3 percent as growth returns. The commitment to global cooperation and effective economic-policy choices together creates long-term incentives for investment and innovation and deliver strong productivity growth and supply expansion. This helps counter the demographic headwinds of aging societies and enables an affordable energy transition. Post-2025, a sense of shared prosperity emerges as the US economy delivers more than 3 percent annual real GDP growth, the eurozone maintains growth well above 2 percent, and the income from this growth benefits stakeholders across society.

C2 scenario: Deep recession followed by anemic growth with entrenched higher inflation

The C3 scenario: Deep recession, long-term growth limitations, and significant regime change in inflation management

In the C2 scenario, individuals, businesses, and governments determine that the costs of global cooperation outweigh the benefits. Interregional flows stagnate amid disagreement over new rules to address the effect of outsourcing on local economies, the vulnerabilities of concentrated dependence on raw materials, and the system’s lack of resilience. The conflict in Ukraine continues to reinforce these vulnerabilities. Amid this more difficult international environment, central banks in the eurozone and the United States move more aggressively against inflation, tipping these economies into recession in 2023. Despite the purposeful slowdown, inflation comes down only gradually, forcing central banks to abandon their 2 percent targets to avoid a prolonged downturn. Inflation persists at 3.5 percent or higher while growth in the short term recovers to about 2 percent in the United States and the eurozone. The combination of stagnating global economic cooperation and more restrictive economic-policy choices create poor long-term incentives and slow the rates of investment and innovation. This weakens productivity growth and makes it harder to produce the technology required for an affordable energy transition. In this scenario, investment in energy technology and renewables is insufficient to scale new technologies, creating more reliance on fossil fuels, so global oil prices reach $130 a barrel. Slow growth after 2025 makes it harder to deliver on the promise of inclusivity. The US economy experiences only about 1.7 percent annual real GDP growth, while growth in the eurozone is stuck below 1 percent.??????

REASON NO.3

Scenario-informed perspectives help build strategic insight, commitment, execution, and resilience, Embracing uncertainty, embedding resilience, and enabling growth

Management teams can thrive rather than merely survive in this volatile environment by building both resilience and boldness in their organizations. Leaders who are both prudent and bold hone their organizational performance edges in three ways: in being sharper on insights, deepening their commitment, and accelerating their execution. Business leaders can use scenarios to sharpen insights by analyzing longer-term success factors before zeroing in on the near term. McKinsey’s new scenarios show a wide range of potential GDP growth rates for 2025–30, and leaders need to understand whether alternative growth outcomes require a fundamental change in where and how they choose to compete. Consider two real-world examples, the first of which highlights a company for which strategy hinges on macroeconomic outcomes, and the second which demonstrates the opposite. A container shipping terminal operator is emerging from the pandemic surge in container volumes, which produced never-before-seen operational challenges along with record profits. This record volume won’t continue, but there is a fundamental question about whether the terminal operator will see a permanent increase in volume momentum relative to the slowdown experienced since the financial crisis. How volumes are expected to play out will be critical to determining strategy for 2023 and beyond. A polyethylene manufacturer faces the prospects of an accelerating energy transition, carbon taxes becoming a reality, and increasing consumer demand for green products. How strong that demand will be is certainly a question, but the real strategic challenge is that the fundamental technologies to compete in this new world are still on the R&D bench. The critical question is whether the executive team and their stakeholders have real conviction that green plastics are the future. Individual industry growth matters and will be influenced by overall GDP, but the moves a company chooses to make and how it responds to trends make the biggest difference to performance.20?These scenarios can help provide the foresight that can improve the odds of success. Working with these scenarios can also help executive teams build shared conviction about their operating and competitive environment and, consequently, act more decisively when it’s time to commit, be bold, and accelerate execution; or hold back, remain agile, and preserve optionality. We believe that the effort to build commitment and resilience around scenarios and scale execution should be planned in a separate effort that reports directly to the CEO and by design avoids disrupting current operations. This?plan-ahead team?must also evaluate what new infrastructure and people may be needed to execute against multiple scenarios in existing business processes recognizing that key capabilities (for example, financial planning and analysis) may require additional resourcing. With the right prioritization, leadership commitment, and shifts in organizational incentives in place, the new plan-ahead initiatives can be executed with confidence and speed.

Many business leaders see?2023 as a continuation of the most challenging environment?management teams have ever faced—and for good reason. The scenarios we have shared can help give you the insight into the range of operating environments you could face, the opportunities and risks of the commitments you make, and where you need the discipline and strength to accelerate execution and build resilience. They can help you?set your top priorities?and prosper in a 3 × 3 world where uncertainties are multiplied.

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REASON NO.; 4??Top of Form

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( A )Bottom of Form

The complication of concentration in global?trade

Concentration in the origins of traded products is widespread, prompting questions about whether to diversify or decouple. No region is close to being self-sufficient.?Every region relies on trade with others for more than 25 percent of at least one important type of good. About 40 percent of global trade is “concentrated.”?Importing economies rely on three or fewer nations for this share of global trade. Three-quarters of this concentration comes from economy-specific choices.?In these cases (30 percent of global trade), individual countries source a product from only a few nations, even when global supply options are diversified. Over the past five years, the largest economies have not systematically diversified the origins of imports.?All have vulnerabilities, some more than others. Informed reimagination of global trade requires a granular approach??both in mapping concentrated trade relationships and in deciding on action—whether to double down, decouple, or diversify. We live in a highly interconnected world. Every region relies on imports for more than 25 percent of at least one important type of good, according to recent McKinsey Global Institute (MGI) research.1?Interconnections have created broad benefits over time, improving efficiency, increasing global product availability, and fostering economic growth. But recent supply chain disruptions, Russia’s invasion of Ukraine, and rising tensions between China and the United States have highlighted the importance of resilience. Firms and policy makers alike are examining where inputs come from and, in some cases, contemplating reconfiguring or even breaking certain long-standing trade ties.

Concentrated global trade creates complications. On the one hand, concentrated trade relationships can reflect and drive efficiency gains. On the other, interruption of concentrated trade flows can be particularly disruptive if products are harder to replace on short notice due to a lack of visibility and alternatives. Where do concentrated trading relationships exist across products and between countries? In the face of new disruptions, how should companies and countries adjust these relationships, if at all? To examine these questions, this article builds on the findings of MGI’s recent research on global flows, analyzing concentration across more than 120 countries, roughly 6,000 products, and eight million individual trade corridors.2 About 40 percent of global trade is “concentrated” For many products, countries rely on a diversified pool of trade partners. This is particularly true for larger economies. For example, China imports crude oil from more than 40 economies, and the United States imports cars from more than 25 nations. However, for 40 percent of global trade, the importing economy relies on three or fewer nations for the supply of a given resource or manufactured good . These “concentrated” trade relationships exist in all sectors, at all stages of the production process, and in all economies. Narrowing the focus further, about 15 percent of global goods trade corresponds to cases where the importing economy relies on only two or fewer nations. Laptops, chromium, and palm oil are all examples.

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REASON NUMBER: 5

Three-quarters of concentrated trade comes from economy-specific choices

A tale of two commodities: Global versus economy-specific concentration in soybeans and wheat.In some instances, concentration arises because only relatively few economies export a given product, defined as “global concentration.” Soybeans are an example; Brazil and the United States account for more than 90 percent of globally traded supply. However, most concentration arises when individual countries source from only a few trading partners even when global supply options are diversified, defined as “economy-specific concentration.” Wheat provides an illustration; while 15 economies provide 90 percent of globally traded supply, most countries import wheat from only two or three economies. A tale of two commodities: Global versus economy-specific concentration in soybeans and wheat. Important examples of economy-specific concentration abound across all sectors, from raw materials to final products. Economy-specific concentration is particularly pronounced in the food value chain, both in agriculture—including in staple central crops such as wheat, rice, and maize—and in food and beverages for many everyday goods ranging from fresh beef to beer. Concentration is high in both mining and electronics, in both cases driven in part by concentrated globally traded supply. Electronics has the highest proportion of globally concentrated trade of any manufactured goods sector, driven by mobile phones and laptops originating in China. In mining, 50 percent of all trade by value is in products supplied by three or fewer economies, most prominently iron ore, of which Australia and Brazil are the primary exporters.

Most energy resources are not particularly concentrated for individual economies, but pipeline natural gas is. Because of the infrastructure needed to transport it, most countries import their pipeline supply from geographically proximate partners. Over the past five years, the largest economies have not systematically diversified the origins of imports. Every country participates in concentrated trade relationships. Every country sources at least 20 percent of imports (by value) from three or fewer trading partners.3??Imports to smaller economies, which have smaller trading volumes, are, on average, 50 percent more concentrated.4??But even large economies often develop concentrated relationships with trading partners for specific products. For example, the United States imports nearly all of its semitrailer trucks and light goods vehicles from Mexico, while Mexico imports nearly all of its maize, propane, and refined petroleum products from the United States. Looking at a range of large economies across regions—Brazil, China, Germany, India, South Africa, and the United States—each has a distinctive “concentration fingerprint.” Economies have often been most vulnerable to disruptions in sectors where domestic consumption relies on inputs that come from a concentrated set of trading relationships. China relies more on concentrated relationships in mining; for Germany, it is energy resources and agriculture; and for Brazil, India, South Africa, and the United States, it is electronics.

In the year 2021, these large economies largely did not diversify origins of imports. In fact, for all countries examined, concentration fingerprints remained fairly stable, with most sectors not registering more than a 10 percent change in concentration. It has yet to be seen whether the political and economic disruptions of 2022 triggered shifts that register in sector-level trade data. Double down.?Some concentrated trade relationships are sources of competitive advantage, for instance providing access to technologically advanced inputs. Reinforcing such relationships to make them more resilient may be optimal.

Decouple.?Concentrated trade relationships may create levels of risk beyond the appetite of the business, for instance if policies restrict flows between countries, and it may make sense to spin off or divest such flows while pursuing new domestic sources of production. However, by trimming sources of supply, decoupling tends to increase rather than decrease overall levels of concentration.

Diversify.?Countries and firms can often address economy-specific concentration by reconfiguring trade relationships by tapping into additional sources of supply, or by partnering to pool sourcing risk. When alternative supply is not an option, such as when trade is globally concentrated, business and policy makers may look to redesign products or production processes to shift away from concentrated inputs.

By having a clear-eyed view of concentration, decision makers can calibrate effective strategy and reimagine, rather than retreat from, their global footprints. This is not only about managing risk. A transparent and up-to-date understanding of concentration, combined with the right measures to manage interdependencies, can be a source of competitive advantage. Organizations that demonstrate thoughtful management of concentrated exposures are likely to be more resilient in a changing world.

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REASON NUMBER 6

2023, a testing year: the macro-scenario range could?not??be narrow

Volatility from macroeconomic?and geopolitical factors has dominated the business environment lately and tested management teams in ways that may once have seemed unimaginable. However, at the outset of 2023, energy prices are off their peaks, inflation is no longer accelerating, and economic growth appears to be holding up. These positive signs make it tempting to expect a narrower range of potential macro-outcomes and, as in any new year, seek a fresh start. We see 2023 as a test of whether such a fresh start is now possible. how the environment plays out and what calibrated risks they should pursue in a bid to move their companies boldly forward. Some might conclude that their business model and strategic moves would remain largely the same across the macro-outcomes they consider plausible, while others may see different opportunities and risks. To put the scenarios into context, we begin with our views on the top issues of 2022: inflation and labor market dislocations. We believe it is important to lay out the facts on these topics, which have thus far avoided consensus, so leaders can create lasting solutions.1?We then share McKinsey’s new macroeconomic scenarios, focusing on the United States and the eurozone. We find that?the best leaders and companies navigating these volatile times?are both prudent about managing the downside and aggressive in pursuing the upside. We hope such leaders can use these scenarios to make practical decisions to reach their goals.

Understanding 2022’s economic headlines: Inflation and labor markets

Looking back one year, the world was facing numerous tests. In January 2022, the COVID-19 Omicron variant was spreading fast. Logistics teams continued to struggle with fractured supply chains amid record demand. Commodity prices were up 30 percent, global container shipping rates nearly tenfold, and inland freight haul rates soared.?Labor market imbalances, most acute in the US and the UK, boosted wages up to two times the pre-COVID-19 pace. Inflation was reaching what appeared at the time to be generational highs. Even so, there was hope that the worst pandemic repercussions were over. Then, in February, hope turned again to anxiety when Russia invaded Ukraine. Many businesses joined the?chorus of condemnation,6?and the ensuing war ignited the worst?humanitarian crisis?in Europe since World War II, a global food and energy crisis,?and an acceleration of the?negative disruptions already under way.

How did the world end up with the highest inflation in a generation?

From March 2020 to November 2022, consumer prices rose nearly 16% in the US, 15% in the eurozone and the UK 16 % in India, and 2 % ?in Brazil. These increases are two to three times greater than what would have been expected based on pre-COVID-19 outcomes. Even in Japan, which has been fighting deflationary pressures for decades, prices in November 2022 were up 3.8 percent during the previous 12 months, the highest monthly inflation rate recorded in more than 40 years. From March 2020 to November 2022, consumer prices rose nearly 16% in the US and 15% in the eurozone and the UK. Many competing views have been offered about the current inflation’s origins and the reasons for its persistence, but we see the facts as much simpler than the debate suggests. Recent work by economists at the Brookings Institution and the FRB of San Francisco provides a useful analytical framework to explain the origins of US consumer price inflation, which we adapt here.?In addition to nearly 25 % normal annual inflation, the following three factors should be considered: The direct impact of commodity shocks and supply chain dislocations:?disruptions in oil, gas, and basic food markets, and supply–demand mismatches (for example, when semiconductor shortages caused used car prices to spike). The pass-through of businesses’ higher material costs:?commodity shocks and supply chain dislocations slowed production and raised business material costs. The pass-through of higher wage costs:?the shock to labor markets led to a doubling of wage growth as businesses competed for scarce workers to meet surging demand.

CONCLUSION

When was very hard to go for business in various countries has become so even n the most traditional water route was more used navigate by water. But visits of mutual countries mostly use this for selling their product. Slowly most countries open their economy the traveling by road, air, and water with a very improved version of?that time. People also started going to other countries for education, job, business, industry- it has made the global distance not very relevant. The Internet has further made the global small. Now we are so interdependent so impossible to eliminate the open door policy. There are so many problems that cannot be solved by one country. They need each other o solve he time present today.