The paper titled Changing Global Linkages: A New Cold War? by Gita Gopinath, Pierre-Olivier Gourinchas, Andrea F. Presbitero, and Petia Topalova (April 2024) investigates how recent geopolitical tensions, particularly post-Ukraine invasion, are reshaping global trade and investment patterns. The authors observe a shift toward “geoeconomic fragmentation,” with trade and foreign direct investment (FDI) increasingly aligning along geopolitical lines, resembling the divisions of the Cold War era.
Using gravity models, the paper finds that since 2022, trade and FDI between countries in opposing blocs (centered around the U.S. and China) have decreased by approximately 12% and 20%, respectively. However, unlike the Cold War, today’s nonaligned nations are playing a unique role, acting as economic “connectors” that link rival blocs, thereby mitigating the effects of fragmentation. These connectors, which maintain trade ties with both blocs, contribute to the resilience of global trade flows, though they do not necessarily strengthen supply chains or reduce strategic dependencies.
The study concludes that while the current fragmentation is less severe than during the Cold War, the situation may deteriorate if geopolitical tensions persist and trade restrictions intensify. This emerging decoupling poses challenges and inefficiencies, and the shifting economic landscape will depend heavily on policy decisions that either reinforce or mitigate this trend.
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