MUNICH - Inflation seems to be on everyone’s mind nowadays.1 The debate usually centers on whether the United States’ massive monetary and fiscal stimulus will de-anchor inflation expectations and cause prices to spin out of control.2 There is another trend that could also generate inflationary pressure: deglobalization.
Deglobalization has been occurring since the 2008 global financial crisis, but the coronavirus pandemic has significantly accelerated the trend. Using data from the financial crisis, Kemal Kilic - a professor of Data Mining and Machine Learning at Istanbul’s Sabanci University - and I predict3 that the COVID-19 shock is likely to lead to a 35 percent decline in cross-border value chains - the main factor driving globalization over the last three decades.
A recent survey4 by the Munich-based ifo Institute supports this conclusion. The study revealed that about 19 percent of German manufacturing firms plan to reshore production. Of these, 12 percent will begin acquiring inputs from German suppliers, and 7 percent will produce them in-house.
Rising transport costs5 are likely to accelerate the shift away from global value chains. During the pandemic, theThe content herein is subject to copyright by Project Syndicate. All rights reserved. The content of the services is owned or licensed to The Yuan. The copying or storing of any content for anything other than personal use is expressly prohibited without prior written permission from The Yuan, or the copyright holder identified in the copyright notice contained in the content.