Eric Button

Globalization Works—Until It Really Doesn't

U
ntil 2020, black swans—rare and unpredictable events—were a distinctly academic concept and a favorite among intellectuals who read Taleb or managed risk professionally. Since the turn of the century and prior to the Coronavirus pandemic Americans had experienced just two earth-shattering moments that brought business-as-usual to a halt: the 9/11 terrorist attacks and the 2008 financial crisis.

By 2019 the 2001 attacks were nearly two decades removed and 2008 had correctly been cataloged as a predictable outgrowth of financial shenanigans brought on by a lack of accountability in the derivatives markets.

Regular Americans had settled into a form of post-history zen. It was easy to; indeed, it seems that nothing of note happened globally between 2010 and 2015, and the second half of the decade—2016 up until 2020—was similarly uneventful once adjusted for a caustic and hyperbolic media environment in the United States.

The Coronavirus pandemic changed everything; a black swan happened to each of us in real-time. A hyper-connected world turned out to not shield us from global catastrophe but instead accelerate the destruction. We each learned first-hand that we’re far from a post-history future. And now as the global economy falters and governments around the world continue to collapse or descend further into totalitarianism, we’re reminded that history continues in high-definition 4k. No one is insulated.

This black swan virus coupled with a war in Europe has caused us to ask, where else besides pandemic prevention are we barreling toward a cliff? Is it our defense posture in Europe? Our position to defend US interests in the Pacific? Our ability to fend off state-sponsored cyber attacks?

Russia’s invasion of Ukraine has shown us what happens when a belligerent country knows it can wage economic warfare via gas pipelines and grain exports: it produces boldness. But Russia’s economic warfare is just the preview to a far larger storm that’s brewing: the Chinese Communist Party.

While Russia exported $22B to the US in 2019, China exported $450B to the US in the same year.

For the first time in history the US is facing a peer military power that simultaneously accounts for 20% of our imports. How do we defend against a world power that we’ve given so much…power…to?

We don’t know, because it’s never happened. But it’s a terrifying prospect.

Forward-thinking CEO’s are starting to adjust their approach. An analysis of earnings calls transcripts shows that mention of  "deglobalization," "nearshoring," "reshoring" and "onshoring” are up 10x this year over 2019. Economic over-dependence on China is a risk that good leaders are moving to mitigate, fast. But the urgency isn’t enough.

Our best response is a coordinated effort that involves government intervention, private sector initiatives, and a consumer-driven movement to support American business. If our response is lackluster, this black swan threatens to cause more pain than coronavirus and the war in Europe combined. We must regain our self-sufficiency to defend ourselves against the second-most powerful non-conventional weapon: economic warfare.