[The Epoch Times, March 30, 2022]The Russian-Ukrainian war is still ongoing, and the comprehensive economic sanctions imposed by the West on Russia have forced the reorganization of the global division of labor system, which has dealt a heavy blow to EU countries that have both markets and resources. Among the top ten countries in the world in terms of GDP, only the United States, which ranks first, and Canada, which ranks 10th, are relatively less dependent on external markets and resources, and the remaining eight (China, Japan, Germany, India, France, the United Kingdom, Brazil, Italy) countries have serious external dependence, and most of them are market-dependent and resource-dependent. In times of peace, there is no problem with this kind of dependence, but in the event of a war, an economy with strong external dependence will encounter great problems. On February 24, in response to Putin’s war on Ukraine, the United States joined allies and partners in imposing sweeping financial sanctions and tough export controls on Russia. In addition to having a major impact on Russia’s economy, financial system and its access to cutting-edge technology, the sanctions also lead to a brittle break in the EU’s energy dependence on Russia.
At the beginning of globalization, it was limited to the economic level. After the so-called “Battle in Seattle” in which 50,000 leftists in the United States gathered to protest at the WTO Seattle Conference in 1999, the American leftists went from being anti-WTO to supporting globalization. The political views of the American left have changed and deformed. After the “Arab Spring” turned into a long “Arab Winter”, the color revolution, which focused on the promotion of the universal values of freedom, democracy, and human rights, resigned. One is green energy based on climate change. The Russian-Ukrainian war declared that the two major doctrines were on the verge of bankruptcy, but what was more serious were the two cornerstones of globalization—the international division of labor system based on comparative cost advantages and the global flow of capital must be greatly adjusted. A wall has been built among the countries and economies that are related to each other – a BBC article called it the “Iron Curtain”. In fact, according to the current situation, it is a fence because of the existence of a “neutral force” like China.
The reason why globalization can be carried out smoothly is that after the end of the Cold War, the world ushered in a period of peace for a wave of time. At that time, American scholar Fukuyama’s “The End of History” painted a completely different picture for the world than his teacher Huntington: the democratic system will become the last political system in human society, which implies that the white civilization that was still generally accepted at that time is the last Assimilation of all civilizations completely negates the “clash of civilizations” that Huntington emphasized, accompanied by the title of “global village”.
The comparative cost theory in economics is applied to the international division of labor system, which means that some countries have technological advantages, such as Western countries; some countries have resource advantages, such as Australia, which is rich in minerals, and Middle Eastern countries, which have oil. And Venezuela; some countries have low-cost labor and land, such as China; some countries (Latin American countries) have the advantage of producing agricultural products of a single product, and just adjacent countries such as the United States have huge demand, in order to maximize benefits, Capital knows no borders, flows freely around the world, looks for cost depressions, and allows each country to produce its own best products or provide its own cheap resources. With what I have, I can satisfy you with what you have, so that the whole world can enjoy the price. Inexpensive variety of products. This was indeed the case in the early stage of globalization. From clothing, hats, shoes, food raw materials, to high-tech products, people from all walks of life from New York to Africa all over the world use the same brand of products according to their spending power.
The international division of labor system will inevitably form a global industrial chain, and the security of the global industrial chain depends on the security of capital. The elements of capital security are free flow and the respect and protection of private property rights. The basic principles of globalization accepted by China are the basis for the safe flow of globalized capital.
Fragile global industrial division of labor ended by Russian-Ukrainian war
For nearly 20 years since the 1990s, all countries in the world have fully enjoyed the material benefits brought about by globalization. However, since 2013, the negative consequences of globalization have appeared. Due to the transfer of industrial chains from developed countries to developing countries, the manufacturing industry in developed countries has fallen into decline, and unemployment has increased sharply. Many industrial workers have lost their jobs and their incomes have declined due to globalization. Living conditions deteriorated. Branko Milanovic, a visiting professor at the City University of New York (CUNY) and a former senior economist at the World Bank,He tracks changes in income growth worldwide between 1998 and 2008, concluded that middle-class incomes in China and India increased by 60 to 70 percent between 1998 and 2008, while middle- and working-class incomes in the United States stagnated. His research shows that globalization, on the one hand, has reduced inequality around the world (or between countries), while increasing inequality within countries. The former is undoubtedly related to the rise of emerging middle classes in Asia, while the latter is mainly reflected in inequality within high-income countries, typically the stagnant income of blue-collar workers in developed countries. His research sparked a debate that was joined by three heavyweight economists: MIT economist David Autor, Spanish Monetary and Finance David Dorn of the Center for Monetary and Financial Studies, and Gordon Hanson of the University of California, San Diego. The three economists analyzed the impact of globalized trade and technological progress on employment and came to the same conclusion.
Because of the above reasons, in the 2016 U.S. election, the Democratic Party, which advocated globalization and took care of vulnerable groups in the world (excluding domestic taxpayers) as its own political responsibility, lost, and Trump won. The world has changed dramatically since then, with the Covid-19 pandemic sweeping across the globe in 2020, exposing weaknesses in global supply chains: a crisis that could fundamentally force consumers to change their expectations of what they want at any time. However, the epidemic has not yet ended. In late February 2022, the Russian invasion of Ukraine broke out. Western countries jointly launched sanctions on Russia on an unprecedented scale, ranging from SWIFT kicking Russia out to imposing relevant sanctions on the Russian government and individuals, enterprises and officials. , including the confiscation of capital, bank financial assets, wealth, real estate, etc., and the “cancellation culture” of the Western left to Russian music, ballet, literature, and even Russian cats and trees. Russia has also imposed sanctions on many countries and regions, including a complete ban on food imports from Australia, Canada, Norway, and Japan. The purpose of the sanctions is to hit the Russian economy, hopefully contributing to the collapse of the Russian ruble and the financial crisis.
Globalization, which began after the Berlin Wall was torn down, has finally become two major types of economies separated by a fence this year. President Clinton of the Democratic Party of the United States, who took office as the first driver of globalization, is still alive today. Globalization has returned to the origin of global division. How do you feel?
Why did Germany and the EU get into trouble first?
Relying on their dominant economic position, Western countries have launched economic sanctions against many small African and Asian countries in the past. Some have achieved their goals and some have not. It all depends on what position the sanctioned countries occupy in the international division of labor system.
The international division of labor system presupposes a set of “product substitution theory” for the reorganization of economic dependencies. The general idea is that once the cost of products in a certain country or place rises, capital will chase cost depressions, abandon high-cost production areas, and look for low-cost production areas. Because made in China is at the low end of the global industrial chain and has relatively low technology content, after the rise in labor and land costs over the years, foreign capital has withdrawn and moved to Southeast Asia, Latin America and other countries with relatively low production costs, proving that low-tech products have some Strong alternative.
However, EU countries’ dependence on Russia’s energy resources was broken through sanctions, and they could not find alternative suppliers for a while, so they were hit very hard. Oil is Russia’s main source of export revenue. After Russia invaded Ukraine, the U.S. imposed sanctions on Russia’s oil exports on the grounds of cutting off the source of funds for Russia’s war machine. Of course, it hit Russia’s seven inches, but the impact of this sanction on the participating countries is not the same. Less reliant on Russian energy – 4% of British natural gas and 8% of crude oil are imported from Russia. The United States does not import natural gas from Russia, and crude oil imports from Russia account for only 7% of its total crude oil imports. 45% of the EU’s natural gas imports, 25% of its crude oil imports, and 45% of its coal imports come from Russia. Poland and the Baltic countries, which are less dependent on Russian resources, support sanctions on Russia’s energy exports, but countries such as Germany and Belgium, which are highly dependent, want to delay.
Taking Germany as an example, 55% of natural gas imports come from Russia. The German Chancellor, Minister of Economy and other political figures have publicly claimed that stopping energy imports from Russia will push Germany and the entire Europe into economic recession. On March 25, US President Biden and EU leaders announced the signing of an agreement for the United States to provide Europe with 15 billion cubic meters (about 11 million tons) of liquefied natural gas by the end of the year, equivalent to 10% of imports from Russia in 2021. .
Germany’s steel and chemical industries are panicking. E.g,Production stalls without energy from Russia, steel industry association warns. For steel company president Hans Jürgen Kerkhoff, both an embargo imposed by the West and a supply freeze on the Russian side would be a “forced shutdown”. The German steel industry, supported by ThyssenKrupp Steel, is the largest manufacturer in the European Union and the eighth largest in the world. The steel produced here is the base material for many other products. Without steel, major problems would also arise in the construction, metal and electrical industries, the automotive industry, and many suppliers. Kerkhoff said there was a risk of “disruption of production, short-term work and possible job losses”. The chemical industry is not as dependent on Russian natural gas as other industries. Only 4% of the required natural gas in the chemical industry can be replaced in the short term. If you just look at the process heat, it’s even only one percent. This is the main reason why Germany wants not to cut off Russian gas.
The reorganization of the global division of labor system has just begun. For developed industrial countries with markets and resources outside, it seems an impossible task to maintain the stability of the two, because the global village is multi-polarized and launched a comprehensive campaign against Russia. Sanctions have had an extremely important impact on the global integration of markets and capital flows, the magnitude of which was foreseen by only a few. The Biden administration in the United States, which is still trying to take on the task of being a world leader, is obviously not prepared for this. This lack of preparation can be seen in the recent changes in the tone and rhetoric of the Biden team’s speeches.
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Responsible editor: Zhu Ying#