The Globalization Trend Has Broken... The 'Economic Bloc Formation' Triggered by the Ukraine Crisis

Volodymyr Zelensky (on screen), President of Ukraine, is delivering a speech via video link to the United Nations Security Council (UNSC) at the UN Headquarters in New York on the 5th (local time). President Zelensky referred to the 'Bucha massacre' carried out by Russian forces within his country and demanded Russia's expulsion from the UN Security Council. [Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Seulgina Jo, Reporter Hyunjin Jung] "Russia's war is bringing an end to globalization." (Larry Fink, CEO of BlackRock)

"The nightmare of economic decoupling has come closer than ever." (David Dodwell, Head of the Hong Kong-APEC Trade Policy Research Group)

Russia's invasion of Ukraine is reshaping the global economic order. As the Western bloc increasingly tightens economic sanctions, the globalization trend built over the past 30 years has collapsed, triggering "economic bloc formation" centered around the major axes of "the US and Europe" versus "China and Russia." Especially, the supply chain and trade disruptions that have lasted nearly three years due to the COVID-19 pandemic have further accelerated this trend.

Experts analyze that the aftermath of this war is largely manifesting as a conflict between the Western countries represented by the US, EU, and the Group of Seven (G7), and the bloc centered on China and Russia. This fracture in the global economy poses a significant threat to South Korea's export-driven economy and its companies.

The Western bloc, including the US, on the 5th (local time), announced additional sanctions against Russia, accelerating economic separation from Russia, which invaded Ukraine. Following the US-led ban on Russian crude oil, the EU has unveiled a ban on Russian coal imports.

Meanwhile, China and India continue to maintain pro-Russian relations by purchasing large volumes of Russian crude oil at discounted prices despite successive Western sanctions. In response, Russia is wielding export restrictions as a countermeasure against Western sanctions, pressuring countries highly dependent on Russian raw materials.

Russian President Vladimir Putin stated on the same day, "It is necessary to closely monitor food exports to countries hostile to us," hinting at restrictions on food exports to unfriendly nations. This is a declaration to weaponize food, following energy. Approximately 30% of the world's wheat exports come from Russia and Ukraine.

Experts believe that this atmosphere will ultimately accelerate economic bloc formation. The international supply chain paralysis caused by the COVID-19 pandemic had already shown deglobalization tendencies, and the Ukraine crisis has dealt a direct blow to this trend.

Adam Posen, President of the Peterson Institute for International Economics (PIIE) in the US, said on the public radio NPR, "Russia's invasion of Ukraine is accelerating the 'corrosion' of globalization," adding, "The global economy may now split into China-centered and US-centered blocks." Dodwell said, "The nightmare of economic decoupling has come closer than ever due to the pandemic and the Ukraine war," and predicted, "The disruptions during the pandemic will become structurally entrenched, ultimately changing corporate growth, strategy, operations, and resource allocation comprehensively."

Since Russia's invasion of Ukraine, more than 450 global companies have withdrawn or reduced their operations in Russia. There is analysis that, in the worst case, supply chains could bifurcate.

This bloc formation is also evident at the United Nations (UN) General Assembly. Six days after the outbreak of the war, on the 2nd of last month, at the UN emergency session, 141 out of 193 member states condemned Russia, but 5 countries voted against, and 35 abstained.

US media highlighted that 17 African countries abstained, reporting, "An increasing number of African and South American countries are outwardly declaring 'neutrality' and avoiding joining the pressure on Russia." This is interpreted as showing indifference to the invasion of Ukraine and effectively supporting Russia.

The Federal Reserve Bank of St. Louis recently released a report titled "Trade Connectivity in the Shadow of the Russia-Ukraine War," describing this contrasting atmosphere and analyzing that "it shows the dividing line of the future global economy with weakened integration."

However, the St. Louis Fed also analyzed that if this bloc formation deepens, pro-Russian countries may suffer more damage. Based on voting data, their trade data analysis showed that 76.8% of total imports of anti-Russian countries were intra-block trade, whereas intra-block trade for countries that did not condemn Russia was less than 40%.

Eddy Beckers, Research Economist at the World Trade Organization (WTO), analyzed, "If the global economy splits into a US-centered block and a China-centered block, the world's wealth in 2040 is estimated to decrease by 5% compared to now."

This content was produced with the assistance of AI translation services.