Evolution of Deglobalization
- The years ahead will be defined by a set of shared challenges - climate risk, making the energy transition, disruptive technology and cybersecurity, inequities, and pandemics.
- Yet, the continued growth of global trade has raised questions for countries and businesses, including around the risks of interdependence. Globalization – in which macroeconomic forces, trade policies, and global supply chains link countries and corporations closer together across borders – is being reconsidered due to policy, security, and economic issues. As a result, many governments, business and civil actors are considering the value of moving toward a more insular approach to trade and commerce as countries look to position themselves in a rapidly changing landscape. This shift – sometimes known as “deglobalization”, represents a developing geopolitical risk for businesses.
- One of the significant drivers of the deglobalization movement was the 2008 global financial crisis. In response to global economic instability, some governments refocused their policies and rhetoric around protectionism, introducing limits to the free flow of trade and investment across borders.
- Recently, protectionist policies have been fueled by the global pandemic and Russia’s invasion of Ukraine. Following the invasion, 24 countries implemented export bans, covering basic foodstuffs such as wheat, sugar and oils, according to the International Food Policy Research Institute.
- While some countries benefit economically from globalization, there is growing awareness that global development remains uneven. The increased inequality between countries has created negative effects on social and political stability. Economic indicators such as GDP, inflation rates and business activity can help us understand how globalization could drive economic growth worldwide.
Some markers of deglobalization include:
- Increased trade barriers such as tariffs and quotas.
- Reduced foreign direct investment (FDI).
- Localization of global supply chains.
- Increased regulation.
- Increased geopolitical tensions.
- The following sections examine recent economic trends to gauge how globalization has affected certain countries.
International security: deglobalization vs. globalization
- The geopolitical order has become more precarious as tensions between nations rise, creating geopolitical risks that threaten global trade. The US and China have imposed restrictions and duties on each other’s products. Despite expressing a willingness to continue negotiations and work toward a more comprehensive trade deal, many tariffs on both sides remain in place.
- Although the US and China have agreed to collaborate on global issues such as climate risk and trade, the relationship between the two nations remains complex. How that relationship evolves in the coming years will have far-reaching effects on the movement toward deglobalization. Unresolved issues around trade create an uncertain and unstable environment that is not conducive to global markets.