As any driver knows, gasoline prices have risen significantly from their 2020 lows. First, the global economic recovery increased demand for oil, and then Vladimir Putin’s invasion of Ukraine reduced Russian oil exports. But prices at both the gas station and the mouth have stabilized, at least for now. By historical standards, real gas prices – prices in relation to the total cost of living – not so high; in fact, they are lower than they were from 2006 to 2014. And this morning the Texas crude was again below $100 per barrel.
However, while the energy crisis may be a little less severe than some think, global food supplies are in a huge crisis. Indeed, over the past year, the rise in wheat prices has been much larger than the rise in oil prices:
It hurts here in America, but it hurts a lot more in poorer countries where a much larger share of family spending goes to food. What is behind the food crisis?
One part of the story is clear: Ukraine is usually a major agricultural exporter, but that’s hard to do when Russia is bombarding your railroads and blocking your ports. But that’s not all: Russia stopped most of its own grain exports, apparently in an attempt to keep domestic prices down. Kazakhstan, the third largest exporter of agricultural products in the region, followed suit.
Then fertilizer. Modern fertilizer production is energy intensive. Before the war, Russia was the world largest exporterbut Russia now suspended that export. But it’s not just Russia. how new analysis As Chad Bone and Yilin Wang of the Peterson Institute for International Economics point out, China, another major fertilizer producer, cut most of its exports last year, again in an apparent attempt to drive down domestic prices. And, as they point out, such export bans are, if anything, a bigger problem than the tit-for-tat tariff hikes in the US-China trade war.
All this creates big problems for agriculture around the world, especially in emerging markets such as Brazil.
This is bad. It is also an important lesson about the relationship between geopolitics and globalization.
Many people, I think, believe that globalization is a relatively recent phenomenon. However, economic historians know that between 1870 and 1913 a remarkably integrated world economy emerged, made possible by the cutting-edge technology of the time: steamboats, railroads, and telegraphs. In the early 20th century, the British were already dining on Canadian wheat, Argentine beef and New Zealand lamb.
Then geopolitics—wars, the rise of totalitarianism and protectionism—killed much of this first wave of globalization. Trade revived only with the post-war establishment pax americanaand it took about 40 years to restore world trade to the level of 1913:
What is true is that this first wave of globalization was relatively simple and was basically an exchange of manufactured goods from advanced economies for primary products such as wheat. The complex value chains that characterize the modern world economy, in which, for example, cars made in wealthy countries include chips from Japan and wiring harnesses from Mexico and Ukraine, are indeed largely post-1990 developments that are largely degree became possible thanks to containerization and modern information technologies, and also brought world trade to a new level.
But it turns out that both forms of globalization depend on a relatively stable geopolitical environment that we seem to be losing. We are not in Guns of Augustterritory, at least for now, but the air definitely smells like 1914.
And one surprising aspect of the recent economic problems, at least to me, is that they seem to be doing more damage to old-style globalization at the moment – should we call it globalization 1.0? — than to the complex economic relations that developed after 1990. Despite the shortage of containers, props in ports and all, it is still quite easy to buy electronic gadgets that include components from a dozen countries. What’s really hit hard right now is the rougher stuff like the wheat and fertilizer trade.
In any case, even before the invasion of Ukraine, there were a growing number of reasons to think about the future of globalization. We are often told that trade promotes peace, which may or may not be true. However, one thing is certain: the world promotes trade. And as the world becomes an increasingly dangerous place, things we take for granted, such as the large-scale food trade, may be far more vulnerable than anyone thought.
The global fertilizer trade is not new, but in the past it mainly included bird droppings.
A forgotten, bloody war for control of South America saltpeter deposits.
A look at the lockdown’s nightmare Shanghai.
… and what does it do with global supply chain.