IMF warns of economic fragmentation, ‘cost us prosperity’

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In their World Economic Outlook, the IMF and the World Bank warn against fragmentation of the world economy. By that they actually mean the opposite of globalization, says BNR’s house economist Han de Jong. ‘While in globalization economic relations between countries are becoming more and more intensive, things are now moving in the other direction.’

Criticism of globalization has increased in recent years. ‘It has become painfully clear that the benefits of international trade are nevertheless unevenly distributed,’ says De Jong. ‘The low-skilled may even have lost out because they increasingly had to compete with people from low-wage countries and their jobs have partly disappeared. They are insufficiently compensated for that.’

Container ships in the port of Qingdao in China. In their World Economic Outlook, the IMF and the World Bank warn against fragmentation of the economy. (ANP/SIPA USA)

But De Jong maintains that globalization brings prosperity, because it benefits the division of labor. ‘That is beyond doubt.’

Trade war

The fragmentation of the economy, as a counter-reaction to globalization, has been going on for some time, De Jong sees. As president of the United States, Donald Trump unleashed a trade war by taking protectionist measures to protect industrial jobs in America. Democrats were very strongly against that, but now that they are in charge, they are enforcing that policy.’ The US is currently pursuing a very active policy to promote its own industry.

‘Globalization brings prosperity. That stands like a pole above water’

Han de Jong, house economist BNR

Another example of this is the export ban of modern technology to China and increasing geopolitical tensions. “Because of the war in Ukraine, ties with countries that are not our friends are cooling. And we would like to promote ties with friendly countries.’

Consequences noticeable

These effects are also noticeable for the Netherlands. ‘Every day we experience firsthand what will happen if we no longer receive Russian oil or gas. That is an example of fragmentation. And if you look a little further, you see that a company like ASML is no longer allowed to sell the most advanced machines to China under pressure from the United States. For a company like that, that’s a big blow, because China is their biggest market after all.’

We don’t notice much of this in everyday life, says De Jong. Except it’s a missed opportunity. As a country you miss out on prosperity because of things like this.’

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