The writer is an FT contributing editor, a visiting fellow at the Hoover Institution, and author of a forthcoming book on globalisation
In the Strait of Hormuz, tankers have been burning, along with what remains of the post-1945 American-led order. Meanwhile, the IMF’s new baseline forecast for global growth this year is exactly the same as it was six months ago and stock prices have gone up. The contrast between a world order on fire and a world economy on autopilot is glaring. Some argue that geopolitical crises only have transitory economic effects. Yet if you look closer, strange and profound changes are under way.
A prime example is the law of one price. It holds that similar products that are tradeable across borders should have similar prices. After 1990, free trade, supply chains and new global rules on intellectual property reinforced the power of this law. The idea of a unitary market for fungible products, in which the nationality of the buyers and sellers didn’t matter, went from a fantasy to a day-to-day reality. Superstar firms built business models to exploit this, which is one reason why iPhones and Bloomberg terminals cost roughly the same everywhere.