9.3: De-Globalization and What Might Follow

Learning Objectives

By the end of this section, you will be able to:

• Define de-globalization and one of its features, decoupling
• Understand geopolitics and its role in de-globalization and decoupling
• Identify regionalization as one of the potential futures of globalization

De-globalization

Just like globalization, de-globalization can be understood from a number of different perspectives and disciplines. For example, in international business, globalization is defined as “the process of increasing interdependence among nations” (Witt, 2019). Interdependence involves the interconnectedness and linkages among different actors and relationship systems, going beyond simple interconnectedness. It denotes a connection where two or more parties are intricately linked in a system of actions, causing changes in one party to have a notable impact on the fulfillment of needs, values, and/or desired outcomes for the others (Coate, et. al., 2015) Essentially, the satisfaction of each party's needs and values depends, to some degree, on the behavior of others.

De-globalization is simply the reverse of globalization. It represents the process of weakening interdependence among nations. Just like globalization, de-globalization is a process and not an outcome. So, following the example from above, a hypothetical endpoint of de-globalization as a process would be a completely deglobalized world economy—one without economic activities between countries. This is an inherently unlikely outcome regardless of how far de-globalization progresses.

Bello (2013) understands de-globalization as simply a negative reaction to the economic consequences of global capitalism, which suggests that economics drives de-globalization. Bello contends that neoliberalism produces social and ecological distortions as it pushes to increase economic growth through more efficient production. However, this often takes the form of moving that production to other locations to save costs, and in the process takes away resources and leads to less social investment and ultimately, destabilization. In this scenario, the market becomes ‘disembedded’ from society, the needs of the market are no longer the needs of society. The deregulation of the U.S. financial industry is a good example of this principle. That deregulation was a direct contributor to the Global Financial Crisis, which crippled the U.S. economy and damaged societal trust in political and economic institutions. What led to this was investors looking for ways to make money while passing on the risks of those investments to others. This took the form of bundling together subprime mortgages, or housing loans to those who should not have qualified, leading to an untenable situation where homeowners were unable to pay their mortgages and eventually banks foreclosed on millions of homes. The needs of the investors (the market) was to make money, the needs of society was to house its population. These two needs did not match up. What made this situation global was that these bundled loans were sold on to banks and financial institutions in other states. Not only did individuals lose trust in those political and economic institutions, but other states lost trust in the United States, thereby weakening global economic links.

Witt (2019) posits the opposite of Bello. For Witt, it is not economics, but politics, specifically geopolitics, that drives de-globalization. Geopolitics is defined as the “study of how geography affects politics and the relations among states” (by Caldara and Iacoviello, 2022, p. 1197). As discussed in Chapter Ten on Global Energy, geopolitics refers to the ways in which geography shapes the power of states and other influential actors in global affairs. It's considered a broad category of research and includes a wide range of issues, such as international boundary disputes, the structure of global finance, and geographical patterns of election results. Geopolitics is shaped by a number of factors, including geographic location, resources (both natural and man-made), demographics and human factors, and relationships with other countries. In recent decades, it has included power struggles and other events involving a diverse set of agents: corporations, nongovernmental organizations, rebel groups, and, of course, political parties. Current usage of the word “geopolitics" covers a diverse set of events with a wide range of causes and consequences, from terrorist attacks to climate change to the COVID-19 pandemic and finally to traditional land wars, such as the Russian invasion of Ukraine.

In the case of that last example, there have been significant geopolitical implications since Russian forces invaded Ukraine in 2022. Indeed, Russian President Vladimir Putin has declared an end to the prevailing Liberal International Order (LIO), a rules-based system supported by American hegemony. Instead, President Putin asserts that the world has transitioned into a multipolar era where U.S. unilateralism will no longer be accepted (Putin, 2022). This viewpoint is mirrored by Chinese President and General Secretary Xi Jinping, who has unequivocally stated that the People's Republic of China opposes hegemonism (Xi, 2022). In response, the U.S. has designated China as its primary "geopolitical competitor" and views Russia's actions in Ukraine as a direct challenge to the international system (Biden, 2022; US Department of Defense, 2022).

Decoupling

Witt, et. al., (2023) argue that China and the U.S. are locked in a systematic global competition, also referred to as a great power rivalry in International Relations. They posit that that there are growing tensions over Taiwan coupled with increasing export restrictions and the imposition of tariffs by successive U.S. presidential administrations and their Chinese counterparts. This has led the authors to suggest that the two countries are decoupling, which is a feature of de-globalization. Decoupling is defined as the process of weakening interdependence between two nations or bloc of nations. Witt, et. al. focus their analysis on the declining economic interdependence between China and the U.S. and provide evidence that China has been decoupling since at least the mid-2000s. The authors point to President Xi’s "Made in China 2025" Plan, where the Chinese government has set a goal of becoming at least 70 percent independent of foreign technological supplies in all strategic industries. It also includes the Chinese push for financial decoupling, exemplified by major Chinese State Owned Enterprises (SOE’s) having left the New York Stock Exchange (NYSE).

Another example of geopolitical dynamics is the Belt and Road Initiative (BRI), also known as the New Silk Road. The BRI stands as one of the most ambitious infrastructure endeavors ever envisioned. Inaugurated in 2013 under the leadership of Chinese President Xi Jinping, this extensive array of development and investment ventures was initially crafted to connect East Asia and Europe through tangible infrastructure, such as roads and train networks. Over the past decade, however, the initiative has extended its reach to encompass Africa, Oceania, and Latin America, markedly enhancing China's economic and political sway on a global scale. The BRI could contribute to China’s building of an alternative institutional world order based on Chinese interests and preferences. China could then use its financial dominance to set the rules of the game for countries that benefit from BRI investments. For example, Chinese foreign direct investments (FDI) in African countries might replicate what Western FDI did in China. Indeed, Chinese FDI might permit China to carve out its own distinct sphere of influence, largely decoupled from the U.S.

 

Figure \(\PageIndex{1}\): China's Belt and Road Initiative. (Wikipedia Commons by Appenzeller/Hecher/Sack is licensed under CC BY 4.0 Deed)

 

What Comes Next?

Given this discussion, what is the future of globalization? What comes next? After all, not all scholars think that world is de-globalizing. For example, Irwin (2022) advocates that the term slowbalization be used instead, which is exemplified by the prolonged slowdown in the pace of trade reform, as well as weakening political support for open trade amid rising geopolitical tensions. However, Irwin also posits that the global economy is at a turning point, suggesting that there remains an opportunity for future globalization. Lagarde (2023), the President of the European Union Central Bank, asserts that the global economy is undergoing more fragmentation than de-globalization. Fragmentation, or more specifically global trade fragmentation, occurs when new trade patterns emerge, eventually leading to the reconfiguration and breakup of the global supply chain. This fragmentation, Lagarde predicts, will result in “system competition”, with a multipolarity global system fostering competing blocs in the short term. However, she expresses concern that this fragmentation will eventually pave the way for bloc coalescence around the two major economies, the U.S. and China. Arezki (2023) proposes that rather than de-globalization, the world is moving towards re-globalization. The author suggests that countries will cultivate multilayered relationships instead of the tightly interconnected global-level relationships that currently characterize globalization.

Others, such as James (2021) reason that globalization’s “golden age” is to come in the years following the pandemic and that any view that predicts the end of globalization is premature. The author describes that globalization operates in cycles with phases of heightened integration, succeeded by shocks, crises, and then detrimental backlashes. This occurred after the last “age of globalization”, which existed before the First World War, when during the Great Depression, the world descended into autarky, nationalism, authoritarianism, a zero-sum mentality, and, ultimately, conflict. James writes that history demonstrates that numerous crises often result in increased globalization rather than its reduction. For example, modern globalization emerged as a reaction to the social and financial crises in the 1840s. Similarly, the most recent surge in globalization followed significant economic disruptions in the 1970s. The author contends that a similar pattern should emerge after this crisis as well.

Yet the world is not the same after the COVID-19 pandemic. As mentioned above, the global geopolitical climate has shifted. If drawing historical analogies, then the world might look more like it did during the Cold War, where there were two major superpowers. Often referred to as Cold War 2.0 or Cold War Two, Witt, et. al. believe that this is the most probable scenario that will come out of de-globalization and decoupling. The authors believe that two major blocs will develop alongside this rivalry. However, this potential new geopolitical conflict between the U.S. and China will look decidedly different from the one between the U.S. and the Soviet Union. A major difference is that the level of economic interdependence between the U.S. and China exceeds anything seen during the Cold War. Indeed, the two countries have the two largest economies in the world and up until 2023 were each other’s biggest trading partners. Serious geopolitical conflict could significantly damage both countries economically.

Regionalization

Alternatively, the world could break up into more than two blocs, where multiple states emerge as great powers and several blocs form along geopolitical lines. For example, India might develop as a major geopolitical competitor. India now has the largest population at 1.4 billion, surpassing China in 2023, and is on track to become a $25-$30 trillion economy by 2050. By any measure, India would be unlikely or unwilling to side with a U.S. or Chinese-led bloc. Nor would Indian policymakers find it necessary to do so. If the world does move to a multiple bloc configuration, then regionalization might be the result. Regionalization can be broadly defined as a restricted group of states connected by a geographical relationship and a level of mutual interdependence. The process of regionalization has already begun in global business to some extent as larger corporations have repositioned their supply chains to mitigate future disruptions. Examples include U.S. multinational corporations migrating some, if not all, of their production from East Asia to Mexico. Indeed, multilateral agreements, such as the United States-Mexico-Canada Agreement (USMCA) will facilitate further regionalization.

Figure 12.3.2: President Donald J. Trump is joined by Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau at the USMCA signing ceremony Friday, 30 Nov 2018, in Buenos Aires, Argentina. (Flickr by Trump White House Archived is licensed under PDM 1.0 Deed)

 

In sum, it is hard to predict the future of globalization and what comes next. It could be de-globalization, slowbalization, re-globalization, regionalization, or some other form that has not yet been described. What can be certain is that change is occurring, and it is not necessarily moving in the direction(s) that anyone has predicted. There is a tendency to default to one’s own preferences when attempting to determine the future. This “wishful thinking” can lead to incorrect assumptions about international actors, which at the least will make global affairs cumbersome, and at the most, can lead to serious missteps. Given this, students interested in Global Studies should do all they can to educate themselves on global affairs. It could very well be the action that moves the world in a positive direction.