Changing Global Linkages: A New Cold War?

Increased mentions of wars/ cold war/world war in papers and speeches.

Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F Presbitero and Petia Topalova in this IMF paper points looks at trade and fiannce flows post Russia and Ukraine war:

Global linkages are changing amidst elevated geopolitical tensions and a surge in policies directed at increasing supply chain resilience and national security.

Using granular bilateral data, this paper provides new evidence of trade and investment fragmentation along geopolitical lines since Russia’s invasion of Ukraine, and compares it to the historical experience of the early years of the Cold War.

Gravity model estimates point to significant declines in trade and FDI flows between countries in geopolitically distant blocs since the onset of the war in Ukraine, relative to flows between countries in the same bloc (roughly 12% and 20%, respectively).

While the extent of fragmentation is still relatively small and we do not know how longlasting it will be, the decoupling between the rival geopolitical blocs during the Cold War suggests it could worsen considerably should geopolitical tensions persist and trade restrictive policies intensify.

Different from the early years of the Cold War, a set of nonaligned ‘connector’ countries are rapidly gaining importance and serving as a bridge between blocs. The emergence of connectors has likely brought resilience to global trade and activity, but does not necessarily increase diversification, strengthen supply chains, or lessen strategic dependence.

James  Dimon, CEO of JP Morgan in his recent letter to shareholders mentions World War II 8 times:

In the policy section, we talk about how we may be entering one of the most treacherous geopolitical eras since World War II.

If you read the newspaper from virtually any day of any year since World War II, there is abundant coverage on wars — hot and cold — inflation, recession, polarized politics, terrorist attacks, migration and starvation. As appalling as these events have been, the world was generally on a path to becoming stronger and safer. When terrible events happen, we tend to overestimate the effect they will have on the global economy. Recent events, however, may very well be creating risks that could eclipse anything since World War II — we should not take them lightly.

What times!