‘Made in America’ is about to make a roaring comeback. That's good and bad.

The war in Ukraine is shaping up to be the final nail in the coffin of globalization, as countries like the US start to rethink the past several decades of moving supply chains abroad.

The US and its allies imposed historic sanctions against Russia, but they now face a huge problem. The measures have driven up the prices of key commodities in recent weeks. Russia's partial removal from energy markets put fresh pressure on global supply.

America and its allies are rushing to fill the hole. In his speech announcing the US's ban on Russian oil, President Joe Biden urged the importance of being energy independent and protecting our economy.

The administration took an even larger step toward energy independence on Thursday, urging Congress to use it or lose it, fines on domestic oil producers to boost home production. The Defense Production Act will be used by the White House to accelerate domestic production of minerals used in batteries.

A senior administration official said that the path to real American energy independence depended on reducing our reliance on foreign oil and fossil fuels.

The message emphasizes the benefits of economic self-sufficiency. The US is considering ways to rely less on others, which can insulate countries from global shocks.

It would come with a price for America. Inflation will probably continue to be a problem if the Russia-Ukraine war leads to a deglobalized economic order.

Reversing globalization means greater independence ... 

With the US already suffering through supply-chain turmoil as a result of the COVID-19 pandemic, it is more attractive to be less economically dependent on others. The war in Ukraine marked a pivot point from globalization to independence, according to Brian Coulton, the chief economist at Fitch Ratings.

This doesn't mean an end to global trade, but it does mean that countries are likely to prioritize domestic production for goods essential to daily life. The global economy could be splintered into smaller blocs that only trade with nearby members.

They need to ensure energy security, they need to ensure food security, and they need to ensure technology security.

The shift in economic sentiment has been years in the making. President Donald Trump ran on the idea of moving manufacturing jobs back to the US, and he justified his trade war with China by saying it would leave the US less dependent on foreign manufacturers. Coulton said globalization probably peaked in 2012 or 2013.

Russia's invasion made the pivot more urgent. The interconnectedness of the global energy market pushed prices higher even though Russian oil accounted for only 3% of US crude imports. That led to a new push for energy independence.

The impulse to wean the US off others is natural, according to a business professor. The economy can adapt to a new world of limited international trade just as it did during the coronaviruses-related lockdowns of early 2020.

Babina said that things are not static and that you can change things and relocate things.

... but also higher prices

Changing to economic independence can help, but it comes with its own challenges. Strong inflation is among them. Deglobalization seems to be the baseline now, which would mean higher prices.

The math is easy to understand. Cheap labor in manufacturing hubs like China and Vietnam made globalization appeal. Lower labor costs kept prices low for all kinds of goods.

The Consumer Price Index shows that prices for durable goods fell from 2000 to 2020. The overall price index, one of the most widely followed measures of inflation, rose over the same period, signaling globalization was hugely deflationary for a broad range of products.

If those jobs were brought back to the US, it would mean higher priced goods. Labor costs are higher in the US, and the shake-up to supply chains could lift material costs as well. The Made in America movement would be a boon for economic independence, but Americans would have to pay for it.

In a March 24 letter to shareholders, Larry Fink, the CEO of the investment giant BlackRock, said that bringing supply chains back to the US would most likely cause inflation to continue soaring.

Deglobalization will not mean complete independence. The Economist Intelligence Unit said in a March 23 report that the world had become two sparring camps because of Russia's actions. Even if the West moves away from autocracies like Russia and China, it will still maintain internal trade partnerships.

China and Russia have a close economic relationship despite China not formally siding with Russia in the invasion of Ukraine. The war in Ukraine would accelerate Russia's eastward shift and cement its alliance with China, according to the EIU.

The EIU said that some countries will take sides, but others will seek to maintain a foot in both camps.