Eswar Prasad on the Global Economic Order's 'Doom Loop'

The Shift from Positive-Sum to Zero-Sum Globalization

• 💡 Globalization, once viewed as a positive-sum game benefiting all, is now increasingly perceived as a zero-sum game, even in economic relationships.
• 📉 This shift is driven by the fact that the aggregate benefits of globalization were not well distributed, creating discontent within countries and fueling geopolitical tensions.
• 🌍 The US-China relationship is cited as an example where economic ties were once seen as a buffer for geopolitical disagreements, but now even this economic relationship is viewed through a zero-sum lens.

Fragmentation and Geopolitical Alignment

• 🧩 Globalization is not entirely retreating but is becoming fragmented, with countries increasingly aligning trade and financial flows based on geopolitical alliances.
• 🌐 Technology, while reducing distances and creating progress, is also concentrating economic and financial power, exacerbating dissension.
• ↔️ Middle powers, including countries like India and Europe, are caught between the US and China, struggling to align on specific issues without building deep trust, thus becoming sources of instability.

The US Role and Future World Order

• 📉 The US is receding from its leadership role in the global economy, which is causing other countries to reassess their positions.
• 🔮 The competition between major powers is no longer just economic but is about fundamentally different visions of the world and how to organize economic, political, and legal systems.
• ⏳ The "doom loop" is likely to persist for some time, with a significant reversal being difficult, especially if neo-mercantilist, zero-sum structures are established.

Tariffs and Economic Consequences

• 📈 Tariffs are having a tangible effect on consumer welfare and prices, moving away from lean, mean supply chains towards greater business focus on resilience over efficiency.
• ⚠️ This shift towards resilience, while good for businesses, leads to higher costs for businesses and consumers, less choice, and increased geopolitical risks.
• 🇨🇳 China's growing export-driven economy and trade surplus are causing global concern, with its currency, the renminbi, showing signs of strengthening.

Hope and Institutional Repair

• 🌱 A ray of hope exists if citizens become more engaged globally, inspiring leaders emerge, and institutions are repaired.
• 🇪🇺 Europe has the potential to be a great power but faces challenges in overcoming internal political divisions to become a true economic power, requiring deregulation and deeper economic and political union.
• 🤝 Reclaiming trust and rebuilding the US's position on the world stage will require significant work and a commitment to repairing relationships with allies.