Macroscope | West’s sanctions war on Russia, China and beyond threatens to trigger an economic catastrophe
- The global economy can only take so many blows but, right now, it is being hit indiscriminately by trade decoupling, Covid-19, war and sanctions
- Inflation, supply chain disruptions and soaring prices of essential goods are just a taster of what will come if major powers continue to put security before the economy
First inflation, then stagflation. What next? The answer is fragmentation and disintegration of the global economy accompanied by financial market turmoil and social stress. This is not a case of “Monday morning blues” but a prediction of how things are likely to develop.
When the global economy has been functioning well for a long time in delivering steady (if not always equitable) growth, price stability and low interest rates, it is tempting to think the system can take indiscriminate and unthinking blows yet remain resilient.
Too many hits from different directions, however, will send it reeling and eventually crashing to the floor of the ring from a knockout blow. But this is where the boxing analogy breaks down because there will be no victor in this contest, just a heap of casualties.
We could characterise what’s happening now as “The Great Unwinding” but it might be more appropriate to call it “Back to the Dark Ages”. From an economic perspective at least, the Barbarians are not just at the gate; they are already inside and seizing control of the levers of power.
Russia may be in open war with Ukraine, and more indirectly with the US and Nato, but the sanctions war that a US-led coalition has launched on Russia and China (with implied threats to strike others that might befriend them) has the potential to become an economic third world war.