Our (Biased) View on Inflation and Its Effect on Globalization

Our (Biased) View on Inflation and Its Effect on Globalization

Recent developments in Europe are worrisome. Ukraine is suffering from wars, and inflation pressures are mounting. However, one may argue that inflation will eventually force countries back to globalization trends.

The country of Sri Lanka, for example, had a protectionist government in power in 2019, launching trade disputes with China on chemical fertilizers and printed large amount of money to subsidize the pain felt by farmers. Now, with the global supply crunch, the Fed's interest rate hikes and massive local currency in circulation, Sri Lanka is cornered to make policies friendly to global trade and productivity.

Small countries will feel the crunch first. However, rich countries may not be intact either.

France is another example. I'm not an expert on French politics but Le Pen seemed to be more, not less, for globalization. One may argue that Le Pen is against migrants. However, if she is willing to do everything to put money into ordinary people's pockets, she may need to forgo some of the "western" ideology and make surprising friendships with western "adversaries" in order to drive productivity growth and eventually living standards based on real purchasing power, similar stance to United Kingdom Independence Party. This may be a boon for global trade.

After all, United States is in a privileged position to enact protectionist policies without significant cost due to US dollar global dominance. Not every country has that privilege.

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