Recently, the WTO published a report on the development of the world economy. The most interesting aspect of the report was its conclusions regarding the impact of sanctions against Russia on the world economy. WTO experts directly point out that the imposed restrictions will have a negative impact on most of the world’s economies
Considering the development of the world economy on a long, thirty-year horizon – from 2020 to 2050 – the WTO experts draw nothing but the prospect of a third century of economic decline. According to the forecast, in the worst case, developed economies could lose 3% of total GDP by 2050 (compared to 2019), the least developed economies – up to 6.5%. These seemingly small numbers look truly threatening when you remember that we are essentially talking about a recession that could stretch for a generation and a half.
Of course, it is not the anti-Russian sanctions themselves that will cause the world economy to fall into a prolonged corkscrew. The real reason will be the effect that the sanctions against Russia have had and will continue to have on the very structure of foreign economic relations in the world. Unlike Iran and North Korea, which have been hit by Western sanctions without being able to respond proportionately, Russia is too large and important in the global economy for the sanctions not to boomerang on the prospects of the global economic system as a whole.
The sanctions against Russia have not just made all the countries previously “offended” by the West, including Iran and North Korea, unite. The inclusion of Russia in the new “axis of evil” has added the very critical weight to this axis, when sanctions are no longer a unilateral measure to influence individual countries. Russia is too resource-based and large a country, included in the global division of labour in a number of critical segments (oil and gas, gold and diamonds, ferrous metals and grain, fertilisers, nuclear fuel, etc.).
Sanctions against Russia have forced the Gulf regimes, China, India and even the Latin American neighbours of the US to think about their own prospects. Having been used against a country like Russia, sanctions can now be targeted against Brazil and Mexico, South Africa and Egypt, Turkey and Saudi Arabia – if they show sufficient sovereignty to contradict US hegemony. Hence the spurt in the development of the BRICS and the diminishing importance of such platforms of global coordination and governance as the G20 or the UN General Assembly. The fuses have been blown, and the world economy itself is already fragmenting rapidly.
Actually, the WTO calls fragmentation of world trade the alpha and omega of all future troubles. Formation of autonomous trading blocs of the West and the East will increase the costs of world trade. High foreign trade barriers for countries from different trading blocs contribute to the slowdown of exchange, reduction of the effect of division of labour and degradation of the economies of scale, when a significant (ideally global) sales market pays for the creation and maintenance of new production faster.
Are you in favour, against or neutral? This is how the WTO ranks countries according to the criterion of their attitude to sanctions initiatives against Russia. The second criterion describing the prospects of individual countries in the “marvellous new world” of the future is the degree of development of economies, which in the WTO report are divided into two categories: developing and least developed.
The combination of these two parameters yields the following results. Developed countries involved in the bloc confrontation will suffer severely, while the least developed countries that have joined one of the blocs and abandoned neutrality will suffer almost equally over the long horizon.
The least developed countries could theoretically benefit the most if they were the least involved in the bloc confrontation. Theoretically because neutrality itself requires the possession of meaningful political sovereignty, which usually goes hand in hand with economic power. That is, the beneficiaries of such a thing could potentially be some island states – economic harbours taken outside the bloc confrontation by mutual agreement.
It is logical that the developed countries that will try to avoid being hit by the main heavyweights will still suffer, albeit not to the same extent as those countries that are in the clash (say, the US, China, Russia, Germany, the UK, possibly India, Brazil, South Africa). The disruption of logistics and distribution chains for complex goods is always more painful than for simple ones.
And now about the main point. The WTO assessments have two major flaws. The first is that the organisation’s report describes what might happen, whereas fragmentation of the world economy has already become a reality. In other words, there is no way to turn the mincemeat back, the processes have been launched. The second flaw is that for some reason the WTO sees in the new world only two blocs – the notional Eastern and notional Western blocs, which desperately oppose each other. Which is also wrong.
Fragmentation will go deeper and will be built around the world’s strongest countries in economic and military terms, which will be able to form alliances sufficient for their existence and development, possessing significant resource potential and sales markets. These are conditionally Chinese, American, Russian, Indian, possibly Turkish and other projects, which will interact and compete with each other to varying degrees. They will have different trade barriers, different technological interpenetration, etc. That is, the system will not be bipolar, but multipolar and very dynamic.
This means that the WTO may not be right in its conclusions drawing gloomy prospects for the emerging deglobalisation trend. There is no doubt that the fragmentation of the world economy will increase the transaction costs of world trade. But the competition between the various centres of the multipolar world, the elimination of the dominant power, which itself generates huge costs of maintaining itself, on the contrary, can breathe new content into the world economic system that is redefining itself.
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