The Era of Deglobalization

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The Era of Deglobalization

Deglobalization is the process of diminishing interdependence and integration among nation-states. It describes periods of history when economic trade and investment between countries declines. Notably, while globalization and deglobalization are antitheses, they do not mirror images. Throughout history, periods of “interdependence have come and gone on a cyclical basis.  However, only the most recent wave of interdependence, beginning around 1990, has involved a majority of the world’s population.

In the past 50 years, especially since China’s entry into the WTO in 2000, the speed of globalization has been unprecedented, and its primary impact has been concentrated largely in a few economies, even while touching most of the world’s people. Specifically, since 1970, there has been a worldwide increase in globalization of about 50%.  And the result has been an unprecedented surge in a trade dominated by China, the United States, Germany, and Japan. The rise of this trading system has been highly dependent on the free flow of capital, human resources, information, and technology, as well as the actual exchange of goods and services. 

This age of hyper-connectivity has led to an explosive increase in interdependence across the political, commercial, financial, and social spheres.

Over the 30 years prior to the COVID19 pandemic, this wave of globalization brought accelerated economic growth in both middle-income and high-income economies.  And it contributed to an unprecedented decline in extreme poverty, worldwide. 

Notably, as of 2019, the combined trading activity of China, the United States, Germany and Japan accounted for one-third of global exports. This reflects a high dependence on the globalized economy and implies that the economic transformation required by a reversal in globalization, will be major.

However, globalization also brought new risks to the world, including the risk of over-reliance on vulnerable supply chains.  And these risks have been shockingly exacerbated by our efforts to fight against the pandemic.

The recent rise of deglobalization movements around the world highlights what economists call "local negative externalities" resulting from poorly designed network structures on a global scale.  These include:

  • high social stress derived from immigration shocks,
  • elevated risk of "economic contagion" during financial downturns,
  • increasing income and wealth inequality and
  • social polarization...

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