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Russia, De-Globalization and the New Supply Chain

Russia’s invasion of Ukraine has been the biggest thing in the news for weeks.

This has had an excessive impact on the market since before its inception. The prospect of a war in Ukraine was enough to add volatility as early as February.

And it still continues to shake the market.

It’s funny … 2021 was a great year. Calm, not much volatility.

And 2022, pretty good from the start, was a fickle mess. Much of this was due to the Fed pulling back its $ 120 billion monthly liquidity.

Let’s try to understand everything by breaking it down into two parts.

First, I want to show you how Russia is fueling the supply chain momentum.

The chance for another cold war

Now, at the top of the list, every time you see Russia at war, every time we see the West and Russia collide in your head, the first thought that goes through your mind is: Oh boy, World War III, nuclear war. This is going to be the Cold War literature that will come to life.

I do not think this is the risk we need to pay attention to. We can not cancel it completely. Is it possible that the US and / or Europe are entering into a heated war with Russia? Yes. It is possible.

Is it possible that if such a thing happens, it will become nuclear? It’s also possible, though if that happens, we would have had much bigger issues from our stock portfolio at the time.

I hope you have canned goods and shotgun shells and radiation suits because that’s the world we’ve been living in at the moment.

Why the situation in Ukraine is important

Beyond that, why does it matter? Of course we feel terrible for the Ukrainian people. We wish them the best. We hope they will be able to fend off the invasion.

But what does this really have to do with us, our portfolios? How does this affect our bottom line?

It happens in several different ways.

No. 1: It accelerates one major trend that was already in place before all this happened, and that is, for lack of better words, Elimination of globalization.

One of the best spirits in the world economy over the last 30 years has been globalization.

It has reduced costs massively, it has kept inflation in check and it has improved our standard of living as a whole.

Obviously you can find exceptions. There is always the unemployed factory worker or the person whose business has been discontinued because of globalization which has fallen into economic distress.

But for the most part, we all live better lives, in economic terms, more prosperous because of globalization. This has massively lowered the cost of things.

And it was a multi-step process. It did not happen overnight. It started after World War II, when the victors began to crystallize and began to lower trade barriers.

Globalization worldwide

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Globalization has accelerated massively following China’s change of direction 1978, When China decided that communism was not such a good idea – after all, capitalism is not such a bad thing. And it has begun to carry out its market reforms.

You had the largest country in the world by population suddenly integrated into the world economy, while not before.

Communist economies are closed. They are not really part of the system. So it started small, of course. But then it accelerated and in the late 90s, China was a member of the World Trade Organization and it was fully integrated into the world economy. Since then it has only grown.

Soviet Union

Now, not long before that, 1991The Berlin Wall fell, and the Soviet Union, which was, of course, our greatest enemy during the Cold War, fell.

As a result, a large part of its satellite empire in Eastern Europe – Romania, Poland, Hungary, the Czech Republic – all the countries that were formerly part of the Soviet bloc were swept west.

And suddenly, you had a large and educated workforce in Eastern Europe that was just a virgin territory. These were new workers to add to the system and integrate into the global economy.

It was another global factor that helped push labor costs.

India

And then not too much later – most people do not understand this because they think India is a democratic state (and it has been since independence). But India was a close ally of the post-independence Soviet Union. It had an economic model close to communist for most of the first decades of its existence as an independent state.

The fall of the Soviet Union was the wake-up call of India to begin to modernize its economy and begin to integrate more into the world economy.

You now have Indian technology. And outsourcing to back offices is a huge business, which has once again pushed global wages massively.

It raised wages in India but kept wages in the West, which of course allowed the cost of goods and services to go down, which improved our standard of living.

I know I’m giving a lecture on economics here, but it all happened:

  • China has joined the global economy.
  • The fall of the Soviet Union and the former Soviet empire were integrated into the world economy.
  • India has begun to integrate into the world economy.

Suddenly we have this exciting world and globalization. Well, we benefited from that. It kept inflation in check and helped productivity.

It was this tremendous back wind. And it’s probably going to be the other way around.

The new supply chain without Russia

It could be argued that it started some time ago, but COVID-19 was really the first shot over the bow.

When you can suddenly turn off the world, when you can close borders, when you can keep ships away from the port … When everything went wrong, suddenly the risk of globalization became clear.

When you have an overly complex supply chain where you might get parts from China, South Korea, Taiwan, then go back to China for the actual manufacturing process, then send it anywhere, to Japan for someone to add a component there … until it reaches the US shores , You may have parts from a dozen or more countries and different production stages along the way.

So it created risks that were not really appreciated, and the epidemic made a lot of companies understand, “he said.Yes, it’s a risk. We need to keep our production closer to home. We need to shorten this supply chain and we need to de-globalize to some extent. “

So it’s already happening, and part of the big supply chain mess we’ve written about Green Zone Fortunes.

That’s part of the reason we recommended it Huge delivery inventory To Green Zone Fortunes Recently read. Click here To learn how to gain access to a person’s choice and more.

You have had a reorganization of world trade that is part of this shortening of the supply chain, part of fixing this problem … not only for today, but also for fixing it for the future.

All this has already happened, then you have the Russian tanks roll, and now, all of a sudden, Russia is done. Russia is actually out of the world order now. It’s not part of anyone’s supply chain.

Anyone who has done business with Russia in the past is now doing everything in his power to divert from Russia, to cut off Russia.

So if the supply chains have already undergone a makeover, it’s just accelerated.

This is just one way that the situation in Ukraine is changing the world in which we invest. I’ll bring you another one later this week.

To ensure profits,

Charles Seismore, co-editor, Green Zone Fortunes

Charles Sizemore Is the co – editor of Green Zone Fortunes And specializes in income and retirement issues. He is also a frequent guest on CNBC, Bloomberg and Fox Business.

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