Prime Minister Anthony Albanese made an important speech two weeks ago.

He said “strategic competition” had become a fact of life.

He warned major advanced economies were pouring trillions of dollars into their industrial bases and manufacturing capability, and many nations were drawing explicit links between their economic security and national security.

“We need to be clear-eyed about the economic realities of this decade,” he told Australians.

And to understand what he meant, you only need to look around. 

The world’s economy is fragmenting

In March, a fascinating paper was published with the title, Are We Fragmented Yet? Measuring Geopolitical Fragmentation and its Causal Effects.

It was written by Jesús Fernández-Villaverde (Professor of Economics at the University of Pennsylvania), Tomohide Mineyama (International Monetary Fund), and Dongho Song (Johns Hopkins University).

It looked at the current state of world economic integration and presented its data in a single “geopolitical fragmentation index”.

That index is in the image below. 

Notice how the blue line starts falling from the mid-1990s? 

That reflects how, at that point in history, the global economy was becoming more and more integrated — signalling an “upward trajectory in globalisation”.

That coincided with the collapse of the Soviet Union in the early 1990s, the creation of the European Union in 1993, the implementation of the North American Free Trade Agreement (NAFTA) in 1994, the formation of the World Trade Organization (WTO) in 1995, and China’s entry into the WTO in 2001.

But that trend changed after the global financial crisis of 2007-09.

And from the mid-2010s, following the European Debt Crisis and Arab Spring, the world economy was fragmenting.