Explain factors leading to deglobalisation in recent years.
a. Explain factors leading to deglobalisation in recent years. [10]
Introduction
Deglobalisation refers to the gradual retreat from the high levels of economic integration and interdependence that characterised the global economy during the late 20th and early 21st centuries. This reversal is marked by a decline in cross-border trade, investment, labour mobility, and supply chain integration. While globalisation brought undeniable gains in efficiency, consumer choice, and economic growth, recent years have witnessed a significant shift as countries re-evaluate the vulnerabilities it exposes. Two major forces have driven this trend: the resurgence of economic nationalism and protectionist trade policies, and a growing emphasis on economic resilience through strategic reconfiguration of supply chains.
Economic Nationalism and Protectionist Trade Policies
One of the most visible forces behind deglobalisation is the rise of economic nationalism, where governments actively promote policies that prioritise domestic industries and employment over the global benefits of free trade. This often takes the form of protectionism, including tariffs, quotas, and other trade barriers, especially when national interests are seen to be at risk.
A key example of this trend was the aggressive trade policy stance taken by the United States under the Trump administration. In 2018, the U.S. imposed a 25% tariff on steel and a 10% tariff on aluminium imports under the justification of protecting national security and reviving its domestic manufacturing base. These actions triggered retaliatory measures from major trading partners such as the European Union and China, sparking a broader trade war that disrupted global trade flows and dampened investment sentiments.
The European Union’s threat of “proportionate countermeasures” illustrates how protectionist behaviour in one major economy can provoke similar responses elsewhere, resulting in a cycle of retaliation. Such moves undermine the rules-based trading system, reducing the effectiveness of global institutions like the World Trade Organization (WTO). As trust in multilateral trade systems declines, countries are increasingly turning inward, forming smaller regional blocs or focusing on domestic self-sufficiency.
The economic impact of such policies is profound. Tariffs raise the cost of imported goods, making them less attractive to consumers and businesses. This reduces the volume of international trade and shifts demand toward domestically produced alternatives. While this may protect certain domestic jobs in the short term, it often comes at the cost of overall efficiency and economic welfare. In the long run, this weakens the complex global trade networks that were once a hallmark of the globalised economy.
Economic Resilience
Alongside protectionism, a second major factor behind deglobalisation is the strategic push by both governments and businesses to enhance economic resilience. The COVID-19 pandemic, geopolitical tensions, and increasing rivalry between major powers like the U.S. and China have laid bare the risks of heavy reliance on external suppliers, particularly for essential goods such as food, energy, and technology.
The Russia-Ukraine war is a prime example. Europe’s significant dependence on Russian natural gas left it highly vulnerable when supplies were disrupted due to the conflict. At the same time, Ukraine—one of the world’s top wheat exporters—was unable to meet global demand, triggering food shortages and price spikes in various parts of the world. These events served as a stark warning that global supply chains, while efficient, are often fragile in the face of political and military conflict.
In parallel, U.S.-China tensions in the technology sector have intensified. The United States has imposed restrictions on China’s access to advanced semiconductors, citing national security concerns. This has led to the launch of large-scale domestic investment programmes like the CHIPS and Science Act in the U.S., aimed at building national semiconductor manufacturing capacity. Other countries, including Japan, South Korea, and members of the EU, have followed suit, seeking to localise the production of critical components. This “tech decoupling” signals a deliberate retreat from global interdependence in sensitive sectors.
In response, firms are engaging in backshoring (bringing production back to the home country), friendshoring (shifting operations to politically aligned countries), and supply chain diversification. For example, instead of relying heavily on a single country such as China for manufacturing, companies now seek to spread their production across Southeast Asia, Latin America, or even domestic markets. While these steps improve resilience, they also reduce the depth and interconnectedness of global value chains, fuelling deglobalisation.
Conclusion
In recent years, the trend toward deglobalisation has gained momentum, driven primarily by the reassertion of economic nationalism and the pursuit of supply chain resilience. While globalisation previously allowed countries to reap the gains from specialisation and comparative advantage, recent shocks—both economic and geopolitical—have revealed its vulnerabilities. Protectionist trade policies, retaliatory tariffs, and the strategic localisation of supply chains are all indicators of a shift towards more inward-looking policies.
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