U.S. President Joe Biden signs an executive order banning trade and investment between individuals in the United States and two breakaway regions in eastern Ukraine recognized as independent by Russia, at the White House in Washington, U.S., May 21 2 year 2022.
White House | Reuters
Since the mid-20th century, with the advent of thermonuclear weapons, the entire planet has been consumed by worries about the prospect of World War III.
But a new global danger is emerging: the advent of economic warfare.
It is true that armed military conflict remains a threat to global stability, as in the case of Russia’s invasion of Ukraine. The response to kinetic warfare can be increasingly economic.
As the Western world imposes sanctions on Russia, there may be similar penalties for other bad actors with more military leanings.
China, closely watching the West’s reaction to Russia’s annexation plot, may one day attack Taiwan, creating a multifaceted military challenge for the US, UK, EU, India, Japan, Korea and Australia.
The notion that the Allies would try to fend off Russia and China on the streets of Kyiv and Taipei is unthinkable, as many nuclear superpowers might be tempted to, at some crucial point, participate in the unthinkable.
Against this backdrop, the use of far-reaching and widespread economic sanctions aimed at isolating Russia and China from the Western capitalist and democratic world would be a much more likely and impactful response. .
Old grudges have surfaced
Although such a scenario has been unthinkable since the fall of the Berlin Wall and the opening of China in the late 20th century, there is now a clear possibility that old hatreds and animosities have come to an end. rise on the surface of foreign affairs.
This geopolitical divide has re-emerged as the world economy is in the process of de-globalization. Until recently, globalization was thought to be a stabilizing force that would harmonize international economic interests while reducing the risk of devastating global war.
Regrettably, it seems that the ghosts of a supposedly bygone era are resurrected, suggesting that “the end of history“is a conceptual construct that has no basis in practice.
Furthermore, the pandemic poses an unequal trade-off between supply chain efficiency and supply chain security.
As each country seeks to rebuild not only its vital infrastructure but also vital domestic industries, a scenario in which economic war becomes more likely makes sense in this context. current scene.
Global economic consequences
It will have consequences for the global economy and financial markets.
Global markets reeled after Ukraine’s invasion.
The Russian stock market — which has fallen sharply since its October peak, even amid rising oil prices, depending on that — has fallen more than 30% this week.
That was before full Western sanctions were introduced.
It is not hard to imagine a series of similar and equally punitive measures aimed squarely at Beijing should it move to attack Taiwan. That could include targeting China’s Communist Party elites, the country’s billionaires and wealthy generals, and most importantly, cutting off China from Western markets, where it on which the country still relies heavily to sustain its already slowing economic growth.
If that moment comes, it will not be able to replace the risks of kinetic warfare, certainly not on a regional basis.
But globally, economic war can shake up growth and stability, especially if it includes cyberattacks that can cripple critical systems. That ranges from the most basic financial transfers to the toughest critical infrastructure, from water purification to global electrification.
The United States is less prepared for a retaliatory response of that nature than Russia and China are to be isolated from the rest of the world.
It may not be the war our generation has always feared, but it could be the war this generation faces next, with far-reaching and lasting consequences.
– Ron Insana is a CNBC contributor and a senior advisor at Schroders.
