World splits into three economic blocs: a deep dive into economic realignments – Australian expert

Source:Azerbaijan News Date:22May2024

Probably the best article explaining the future of global trade and development

The IMF has outlined two potential scenarios for the world economy over the next century. In a “low ambition scenario”, global GDP would triple, and living standards would double. In a “high ambition scenario”, global GDP could increase thirteenfold, and living standards could rise ninefold. However, the biggest threat to global growth prospects is geoeconomic fragmentation. The structure of trade relations is rapidly evolving, causing significant challenges for some countries while benefiting others. For instance, Europe’s shift away from Russian gas has boosted American liquefied natural gas (LNG) supplies to the continent. Additionally, restrictions on cargo transportation through Russia or the Red Sea have heightened interest in the Middle Corridor and the North-South ITC, with Azerbaijan at the centre of this development.

Coming back to regional trading blocs, breaking the world up into smaller regional economic blocs could make the total factor productivity of each unit of capital less efficient than a truly global trading system, but this also provides opportunities for institution-construction, which could help to create systems that are both more productive and more beneficial for smaller people (labour), smaller enterprises and smaller countries. East Asia and Southeast Asia hold the keys here, as particularly Southeast Asia is at the perfect crossroads to benefit from a new manufacturing system, which could bring capital and wages back into greater alignment with each other.

The ones to lose the most will be those cut off from the global system and forced back into 19th and 20th century regional systems. Land-locked Mongolia and Kazakhstan, for example, stuck with China and Russia, could regress, and will never expand out into the equivalent trading success of land-locked Switzerland or Austria, which benefit from the regional economic bloc they inhabit. The EU shows what is possible in non-United States customs integration and the benefits of economic regionalism. If Southeast Asia and Northeast Asia could create similar structures, then that would determine the future of the global economy.