Two decades ago, all the countries of the world seemed to be firmly bound together by the strong chains of globalization. Today those chains are completely broken. The rise in populist protectionism after the financial crisis hurt them further. That bond has been permanently broken after the pandemic and now after Russia's invasion of Ukraine.
The most efficient intervention by the US and the EU in the Ukraine war was by excluding some Russian banks from the SWIFT inter-bank messaging system and by imposing personal sanctions on some Russian companies. After this, Russia's central bank was prevented from accessing part of the dollar reserves. These sanctions may not be effective enough to prevent Russia from attacking Ukraine. But he did manage to isolate Russia's unified economy.
The way Western countries have used Russia's economic interdependence with Europe and America as weapons, will ring alarm bells around the world including India and China. Chinese leaders have already started talking about a dual-mode economy, that is, one part of the economy will focus on boosting growth ties with the West while the other will create a domestic network that will protect it from external shocks. There is abundant evidence that globalized trade has been beneficial to both economies, but populist politics in various countries took advantage of the anger of smaller groups and regions that did not benefit significantly from increased trade. In the midst of all this, there has not been much controversy over the globalization of large-scale investment inflows. Such investments were generally welcomed. But now that too is insecure.
Even investment in US government securities by a country is no longer able to save it from the chaos on the external front. For this, people will give the example of the Russian central bank. Russian elites have invested heavily in property and other assets abroad that are unavailable. With the separation of Russian banks from the SWIFT system, Balkanization of an integrated financial system has emerged as an important possibility. John Micklethwaite and Adrin Wooleridge wrote in Bloomberg that capitalism's greatest delusion, the belief that interconnectedness would last forever, had been dealt a severe blow. Yet it is likely that extreme insecurity and thin supply chains are not at the heart of growing economic dependence, which is the foundation of globalization. In the end, even the US cannot bring the entire supply chain (eg the iPhone) to its home country because it would be too expensive and unviable. At most some parts can be transferred to other countries and some additional capacity can be created in their own country so that it can be protected in the event of future epidemics or invasions. It is also true that the decision of unilateralism of the Western reaction was not correct. However, taking it as a sign of insecurity inherent in economic interconnectedness may also be short-sighted. Overall, a situation of true co-dependence is one where both the parties need something from each other. The West wants Russia's oil and gas, and they cannot stop it, because doing so, as the German Chancellor said, could lead to a recession-like situation across Europe.
It is necessary to understand that globalization has greatly limited the economic action against Russia. In such a situation, if China attacks Taiwan in the same way tomorrow, then the effect of coordinated economic steps taken against China will be even less. Taking Chinese banks out of SWIFT will lead to deals in Yuan and China will welcome it. Russia may be struggling to meet the demand for oil export deals in Ruble as very few items can be bought with Ruble, but China does not have such problem. Those who argue with the help of this example that self-reliance policies are better should not think so for two reasons. First, if Russia was truly self-sufficient and had nothing to offer China and India, what would be the situation today? Wouldn't he have been completely isolated? Had Russia not been convinced that it had oil and gas and weapons to sell, would it have waged a war that isolated it? Russia's level of interdependence is what saves it. It is also clear from this war and the reactions to it that economic measures are used only as long as they do not create difficulties for the countries using them. Isolating Russian banks or elites doesn't make a difference to Western economies. In other words, investment in sovereign debt by central banks or investment in real estate by elites does not create interdependence. Nor do European or American companies worry that their investments in Russia will suffer. That's why they are not even lobbying their governments to reduce the restrictions. If, like China, they feared to lose more in Russia, then there would also be economic ban would have been difficult to enforce. In other words, sanctions are affecting Russia a little because it is not interconnected enough.
So the lesson learned from the past few months is that it is only interconnectedness and interdependence that helps preserve strategic autonomy. Plus you're also protected from sanctions if you don't attack your smaller neighbor.