“A shock that is confined sectorally and geographically can have devastating global effects”

gwar in Ukraine and energy crisis, global awakening of inflation, pandemic in 2020, subprime crisis twelve years earlier: this beginning of 21^e century has been characterized by events with planetary consequences, global shocks which concern the majority of the world economy.

We often hear that these shocks are the sign of a globalized world, from which it has become impossible to isolate ourselves. However, this is not the first time in contemporary history that such events have taken place. The Spanish flu of 1918 was probably more deadly than Covid-19; wars involving countries producing raw materials, particularly oil, punctuated the 20th century^e century ; inflation was galloping almost everywhere in the 1970s and 1980s; The Great Depression of 1929 remains the most devastating of the modern era to this day.

A global geopolitical risk index developed by two researchers from the United States Federal Reserve offers an edifying quantification (“ Measuring geopolitical risk », Dario Caldara and Matteo Iacoviello, American Economic Review No. 112/April 4, 2022). The index reached its highest values, around 500, during the two world wars. It was worth 300 during the attacks of February 11, 2001, 250 during the invasion of Iraq in January 1991, 167 during the invasion of Ukraine in 2022. In November 2023, it is barely 138 . It would appear that geopolitical uncertainty has diminished since the end of the 20th century^e century. Could thinking that the world has become more risky today than before be the result of a selective perception?

In fact, it is not the underlying shocks that have changed, it is the mechanisms that transform them into global phenomena. And it is not the intensity of globalization that is at stake, but rather its nature.

Risk isolation

Until the end of the 20th century^e century, the globalization of trade was based on “horizontal” trade: raw materials were exchanged for manufacturing products, often between a former colony and its former colonial power. Obviously, a coup d’état in a cobalt or copper exporting country primarily affected the importers of these raw materials. And, in the case of oil, this concerned many importers. But, generally speaking, the consequences remained confined to sectors that use these raw materials intensively, such as the automobile sector during the oil crises of the 1970s.

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