When Hyperglobalization Meets Chaos

Choke points are everywhere you look

Donald Trump and his minions are having a meltdown. On Saturday, Trump lashed out at the New York Times for an article saying the obvious — that many of his original war goals, whatever they may have been, remain unaccomplished. Just an hour later, he posted a threat to commit massive war crimes, saying that if Iran doesn’t open the Strait of Hormuz within 48 hours — that is, today — he will order U.S. forces to begin bombing civilian power plants.

Why the desperation? The answer is obvious. It’s turning out not just that regime change — if that was really the goal — is hard to engineer, but also that the world is a lot more dependent on the Strait of Hormuz than Trump and co. seem to have realized. And what is becoming increasingly clear is that this dependence extends well beyond oil and natural gas.

In addition to oil and gas, the Gulf region is a key global source of fertilizer. It produces about a third of the world’s helium — and helium isn’t just for party balloons, it’s key to production of semiconductors and has important medical uses. And — this I didn’t know — the Gulf is a choke point for pharmaceuticals, with many key ingredients normally shipped through Hormuz and many final products normally being flown to their destinations via Dubai and other Gulf airports.

So are we learning that the Persian Gulf is a uniquely crucial choke point for the world economy? I don’t think so. It’s certainly an important choke point. But it’s not unique. If the Hormuz crisis seems bad, think about the disruption to global supply chains if China were to attack Taiwan or if North Korea were to attack South Korea. Taiwan accounts for over 60% of the world supply of semiconductors and over 90% of the supply of the most advanced semiconductors. South Korea is a major exporter of memory chips. An ongoing imbroglio between the Dutch government and the Chinese chip company Nexperia, based in the Netherlands, has threatened to upend auto production around the world. India is a major exporter of key pharmaceuticals, including vaccines. Trump backed down on his Liberation Day tariffs imposed on China because it is by far the greatest source of rare earths and retaliated by cutting off the flow. And on and on.

These are not examples of globalization but of hyperglobalization, a term coined by Arvind Subramanian and Martin Kessler. In a classic 2013 paper — updated in 2023 — Subramanian and Kessler noted that world trade had grown much faster than world GDP between the 1980s and the eve of the 2008 financial crisis. In the 80s world trade wasn’t much bigger as a share of world GDP than it had been before World War I; by 2008 it was on a whole other level.

But as they documented, this rapid growth in world trade was not simply a matter of countries trading more, but of world production becoming much more complex and interdependent. For example, if you ask where, say, an iPhone is produced, there isn’t a simple answer. The phone is assembled in China or India, but the components inside the phone are produced in many countries, and these components themselves use inputs produced in many countries.

Over the past 40 years or so we’ve built a world in which national economies are so interdependent that there are potential choke points everywhere you look. Yet this global system of interdependence was reasonably workable as long as a key linchpin – the United States – supported it and made sure that goods, services and money kept flowing freely.

This is not to say that the system was perfect. It’s not clear that we should depend on imports for some vital goods, like vaccines or rare earths. But now we have the worst of both worlds. The world is now highly dependent upon a complex global supply chain and the erstwhile leader of the free world is erratic. Does anyone know what our Iran policy will be a week from now, or even tomorrow? Moreover, the Iran debacle has revealed us to be far weaker than most people realized – so weak that we are afraid to stop Iran from exporting oil even as we threaten to destroy its civilian infrastructure. The truth is, even our allies no longer trust or respect us.

So what we are facing now isn’t simply a matter of consumers losing the ability to purchase imports. Instead we are facing a scenario in which producers lose access to crucial inputs they need to keep producing. The crisis in the Strait of Hormuz is raising prices at the pump, which is bad. But it is also threatening to deprive American farmers of fertilizer during planting season, to cut off essential helium supplies to semiconductor producers in Asia, to deprive pharmaceutical producers of crucial materials, and more.

In short, terrifying as the Hormuz crisis is, I worry that it may be only the beginning. For a world economy that is riddled with multiple potential choke points can no longer rely on a strong, reliable and trustworthy America to act as a guarantor of the system. While things are bad now, they may very well get a lot worse.

MUSICAL CODA

I am, however, all for cultural globalization