How might world politics contribute to a global economic crisis?

World politics is a key contributor to global economic crisis. Politics and economics are very linked, and the decisions made in one will affect the other. Globalization has led to the interconnectedness of economies, making them vulnerable to changes in other countries’ economic systems, as we saw in the 2008 economic crash. Political discrepancies between states could lead to trade wars, which could have a catalyst effect to an economic crisis. Imposing sanctions for violation of human right or others, could also lead to an economic crisis due to the dependency of states. Finally, war has had massive repercussions to the world economy.

For many years, world politics and global relations as a whole have seen a massive increase in interconnectedness between countries, which results in states being dependent on each other, especially economically. Free trade, which has been a pilar for global relations for decades, has led to massive establishment of globalisation. This interconnectedness and low trade barriers have led to many businesses expanding world-wide or diversifying their production line across the globe. Although this has resulted in economic gain, and a lot of people across the world have benefited from it, it also makes countries more vulnerable. If a trade war was to start between two countries, not only these two countries would suffer but many others as well. This was clearly seen in the US-China trade war. Tariffs on imports had little impact, China only experts 3.6% of GDP to the US and the US only 0.6% to China, the trade war had many indirect effects which if prolonged, could damage the world economy greatly. The disruption of supply chains or companies onshoring processes they currently do abroad would result in a fall in investment, which would damage the world economy (Ward & Juvyns, 2019).

Economic sanctions to specific states could also contribute to damaging the world economy which would then fall into an economic crisis. European countries, or the European Union as a whole, has had discrepancies with Russia for many years over many issues such as Crimea, the Balkan States, etc. Although some sanctions have been imposed (European Council, 2020), the European Union cannot take a firm stand against Russia as it provides for 30% of crude oil imports and 40% for natural gas (Eurostat, 2020). If sanctions on Russia were unbearable by the country, this could close of the supply to Europe, leading to a catastrophic economic depression in the EU which could affect the whole globe.

Globalisation has already not only contributed but been key to a global economic crisis.

The housing market had been a bubble for a long time, yet no one expected it to burst with the magnitude it did. The market had been in trouble for some time, with banks going bankrupt and firms having to shut down, nevertheless, what brought the whole world economy to its knees was the failure of Lehman Brothers in 2008. This one financial institution’s failure resulted in the collapse of many financial sector across the world which forced government to bail them out.

If war is only a branch of politics, as Clausewitz believed, war between world players is also world politics. War has had and would have a devastating effect on the global economy. During war, countries would shift production to war efforts and borrow great amount of money to finance the conflict. By the end of the war, countries would either be completely destroyed, such as Germany by the end of the Second World War, or with the economy at its knees, like Britain in 1945. This would mean a fall in consumption across the globe, which would most likely bring the economy into a crisis.

Some might argue that wars are not fought this way anymore, that the US has been in wars in the Middle East for decades and they have not been struggling financially. Although this claim is true, wars do not necessarily mean economic struggle now a days, they could do if the major powers were directly against each other, attacking enemy positions such as industry or civilian population. Nevertheless, the cost of such a war, both financial but also for the civilians, would be so great that it is very unlikely such an event would happen.

World politics will always contribute to a global economic crisis. In a globalized economy, relations between states but also private businesses are key for the world economy. If, or when, these relations collapse, it can cause economic damage for the parties involved but also thirds. Even if these relations stay strong but one country faces economic difficulty, it could damage others too, due to globalization. I am not claiming that globalization and interconnectedness are bad things for the economy, it’s rather the opposite, but they come with their risks.

Bibliography

European Council, 2020. EU restrictive measures in response to the crisis in Ukraine. [Online] Available at: https://www.consilium.europa.eu/en/policies/sanctions/ukraine-crisis/ [Accessed 7 January 2021].

Eurostat, 2020. Shedding light on energy in the EU - A guided tour of energy statistics, s.l.: Eurostat.

Ward, K. & Juvyns, V., 2019. J.P. Morgan Assest Management. [Online] Available at: https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/insights/market-insights/mi-mid-year-outlook-ce-en.pdf [Accessed 7 January 2021].