Signal Geoeconomic fragmentation is weakening cross-bloc flows

Summary

The KDI report cites IMF research from 2023 showing that as geopolitical tensions rise, trade, foreign direct investment and portfolio flows between geopolitically distant countries are shrinking markedly relative to flows within the same bloc. It also cites an estimate that full fragmentation of the world economy could cost up to 7% of global GDP, around 7 trillion dollars. Korea is especially exposed to this trend. Its exports equal about 40% of GDP and depend on a narrow set of manufactured goods. At the same time, the report suggests that a multipolar and fragmented order may give middle powers like Korea more room for strategic autonomy than a unipolar or bipolar one.