What is the Deglobalization Trend? (vs Globalization)

For nearly 50 years, the experts tell us that the world has experienced a general sense of global trade openness, called globalization. This idea of globalization has been taught in schools and textbooks for about 40 years. 

In fact, I personally was educated with the idea of this globalized-utopia all the way from early in my bachelors degree through my masters degree in business.

Is globalization best, or is the recent trend of de-globalization a better idea?

In this article, we review this exact question and pose some interesting questions in response to: What is the deglobalization trend?

The deglobalization trend refers to the reversal of globalization, where individual nations focus on their unique nation State. This trend could empower locals to benefit from their own natural resources and embrace their unique culture, while their local economy enjoys trade agreements with partner nation States.

Some recent global events may have accelerated the transition of the idea of globalization to the new trend of deglobalization.

Let’s now dig into this new way of doing business.

What is the deglobalization trend?

While some “experts” often refer to deglobalization as the weakening of treaties, decreasing freedom of movement, limiting free trade, and installing stiffer border controls, is this the reality?

In fact, the reality of deglobalization could be the exact opposite. 

What if deglobalization actually strengthens treaties among some nations, increases freedom of movement for many, enhances free trade among nation-States and leads to more efficient border controls?

Is this a possibility?

While globalization experts offer compelling arguments, possibly because they are incentivized to have one (see Eurodollar market), I'm not sure anyone can positively and definitively correlate events such as better economic activity, more freedom of trade and increased freedom of movement, let alone any events, solely to the idea of globalization.

After all, the idea of globalization or deglobalization are not new ideas. For example:

  • One of the first companies to practice “globalization” inspiring trade was The East India Company.
  • The East India Company was an English company formed for the exploitation of trade with East and Southeast Asia and India. 
  • The company was founded on December 31, 1600, lasting until 1873. That is 273 years of “globalization”. 

The East India Company started as a monopoly. Which inherently meant that they didn't want competitors. They did this so that England could participate, or literally own, the East Indian spice trade. They also traded cotton, silk, indigo, saltpeter, and tea and … unfortunately, they “transported” slaves.

Hmn… isn’t that interesting?

This almost sounds like the same people saying globalism is the key to the future of society, are the same small group of people (very, very small group) who’s not too distant ancestors enslaved people, managed borders for their benefit and created monopolies on trade. 

Keep in mind, today, these people today touting globalism and all the benefits, are probably the grandkids and great grandchildren of some old British and European colonist-types who feel as though they are the ones who are entitled to the majority of the benefits. After all, their ancestors had those benefits, too. (These same people are probably the ones largely benefitting from LIBOR and the enormous Eurodollar market.)

In fact, is this what inspired the motivation for local actors such as Mohandas Karamchand Gandhi to become such an inspiring figure? 

Ghandi was a lawyer, an anti-colonial nationalist (which basically means he was against the British rule over the people of India) and who led the successful campaign for India's independence from British rule. Ghandi also later inspired movements for civil rights and freedom across the world. Did he inspire any of the other 90 former British Colonies to strive for independence from the British and European “globalization” effort?

Would Gandhi today be called an anti-globalist for his clear actions against this idea of “globalism”?

One could never know. 

Is it possible that deglobalization accompanies a push towards finding better internal solutions aimed at empowering individual countries to be more efficient and create better trade agreements. And if this is the case, is there anything wrong with this?

Do recent events such as Brexit (it's very ironic that the British people chose to leave the European Union), a populist America first mantra among the citizens, and Brazil’s quest to make Brazil ‘great again’ signal a deglobalization trend? 

Let’s explore a little more.

The Deglobalization trend refers to the reversal of globalization, where globalization theorists say the world is less connected. But, in a time where nations are more connected than ever before with the Internet, social media and almost instant communications, this is clearly not true.

On the other hand, globalization’s main idea is a sense of interdependence around nation states and no border controls.

This idea sounds more like the European Union than true globalization. 

Is it possible the European Union is more of a sociology experiment than an economic globalization model for the world to follow? 

At the time of this writing, many experts might suggest that the European Union’s experiment is not working well, indicative of many points of turmoil, such as:

  • Many of their own farmers are protesting against policy which is creating food insecurity,
  • Social unrest flaring up throughout the Union,
  • Unelected leaders dictating policy that many think is crippling their citizens,
  • Unelected leaders forcing a costly and unknown green-utopia future at the expense of today’s food and energy,
  • Double-digit inflation,
  • Multiple regime changes, in fact, the Italian leader (the 2nd largest economy in the EU) Mario Draghi resigned as Prime Minister,
  • Sanctions on trading partners,
  • Deindustrialization of Germany who has been the EU’s most productive member,
  • A declining currency value,
  • Long-time negative interest rates,
  • Skyrocketing energy costs.

The chief proponent of the idea of globalization seems to be at least some members of the European Union. This idea of globalization may be stemming from a very small group of people within the European Union. And if we look at how they are paying for all this, you can probably just look at the Eurodollar market, which appears as though it is coasting on the back of the US Dollar and possibly the tax payers of the United States (since a little more than about 50 years ago, about the same time the idea of globalization started) and may be estimated at about $350 Trillion.

Yes, a potentially mind-boggling $350 trillion. 

If you aren’t familiar with the Eurodollar market, it is by far the largest financial market in the world, controlled by just 18 banks, mostly part of the European Central Bank (ECB), who Mario Draghi just happened to be the President of. 

The globalization agenda being pushed out by some people within the EU is causing other world leaders who are paying attention to create their own powerful nation-States by searching for their unique natural resources that only their country possesses.

Is the European Union "model" for the way the world should implement globalization, in reality, the true cause of deglobalization?  And is deglobalization the new label for nationalism? 

Maybe.

According to Our World in Data, the rate of globalization peaked at 61% in 2010 and tailed off ever since, signaling the start of the deglobalization trend.

Has the deglobalization trend been caused by recent events, such as:

  • A change in global capital flow (possibly being the breaking of the Eurodollar market)
  • Rising interest rates 
  • Rising inflation 
  • Cost-push inflation breaking the supply chain, and
  • The recent pandemic.

When you study closely, there may be some benefits from the deglobalization trend. 

For instance, the deglobalization trend may empower nations to:

  • Stop depending on global supply chains and find local solutions 
  • Innovate local medical equipment to care for their citizens
  • Focus on long and short term food security solutions, 
  • Become energy independent and create better trade agreements with energy suppliers, and 
  • It forces nation states to innovate their own solutions for products and services that can be produced domestically. 

How does deglobalization affect the economy?

Let’s start answering this question of how deglobalization affects the economy by asking some basic questions about globalization. 

Has the idea of globalization been good for the economies of individual nation States, and for the staff and marketers who largely work for business

While no one knows the actual answers for sure, we can ask some better human-focused questions.

After all, regardless of what country we are from, we are far more alike than we are different. We really just want to work, provide for our families, be left alone, and have some wiggle room at the end of the day, week, month and year. It really is that simple.

So, for example:

  • What is the psychological impact globalization has had on workers? 
  • Has there been an increase in productivity per worker because of globalization? 
  • Has the workforce enjoyed an actual increase in lifestyle as a result of globalization? 
  • Has the customer experienced a cheaper, better product experience directly because of globalization?

The leaders can talk until they are blue in the face, which they usually do, but at the end of the day, the trends of globalization and deglobalization have to be good for the actual people doing the work while the customer enjoys a better, more efficient (oftentimes cheaper) experience.

This is the great marketer's mantra, isn't it? Yes.

And the shift from globalization to deglobalization has impacted many of the world’s activities, from small to big businesses. 

Deglobalization can affect the economy in many ways, here’s 6 ways:

1. Decentralization of central planners caused by the deglobalization trend

One of the potential risks of the idea of globalization is that a small group of people do the planning. These are the central planners. Remember The East India Company that possibly contributed to Ghandi’s (re)actions? Back then, a small group of people made the decisions over a huge group of people, the entire nation-State of India to be more precise.

This might be an unpopular question to even pose, but I'm not sure much of the thinking of how things should be has changed for the people leading the EU, except the technology used. 

This is a very dangerous, slippery slope which historically has always led to a host of very bad outcomes, including socialism, communism, and far, far worse as evidenced from the enormous global changes that sparked WWI, and consequently changed the world forever. 

This is the exact scenario of the European Union, where only a handful of unelected officials make the majority of planning decisions for the entire group of 27 nation states, affecting almost 500 million people. Smart experts might make an argument that this is dangerously closer to an environment without Free Enterprise, and puts too much power and control in the hands of a very small group of people.

With deglobalization, the planning and decisions are made by more people.  This creates increased freedom of decisions made by more people representing each respective nation State. This leads to State sovereignty and far more diversity of ideas and better overall decisions for the people of the nation State. 

Plus, since the planning is evermore focused on the individual nation State and what is best for their needs, the economics and planning tends to be more helpful to the citizens of each nation. Experts also might suggest this may be closer to an environment of Free Enterprise.

2. Potential global trade slowdown caused by the deglobalization trend

Some experts suggest that it’s possible deglobalization might cause slower growth in international trade and cooperation among some countries.  This sounds like a blanket statement that could be applied to any trade agreement, whether unilateral, bilateral or multilateral, doesn’t it?

This also suggests that politicians and decision makers within each country need to make better trading relationships in order to spur their economies and get people back to work.

The possible deceleration may occur secondary to several factors that might arise due to deglobalization, such as: 

  • A possible reduction in the momentum of trade liberalization -- all the more reason nation State representatives need to make many good deals with trading partners. Just ask any great marketer how to make a win-win deal.
  • A potential slowdown in supply chains in some cases -- slowdowns will happen with an increase in sanctions, taxes, rules, regulations, and decisions made by central planners who may have minimal economic experience or don’t want to address the tough issues.
  • Potential changes in the economy of some countries -- yes, and this could be economic changes for the better when country leaders make better decisions to sell and market their valuable natural resources with great trading partners.

Here’s a classic example of a politician meddling with trading partners and mucking up the system through regulation and taxes. There’s only a few reasons this person would say these things as distributed by Reuters in the press release titled: U.N. chief urges tax on 'grotesque greed' of oil, gas companies

  1. He doesn’t know that his sanctions on major oil suppliers created the increase in prices in the first place, 
  2. He doesn’t know that the only solution to high oil prices is high oil prices (the market will bring prices down), or 
  3. He knows all this and is trying to produce more rules and restrictions to restrict freedoms and promote the idea of a globalization utopia, working on behalf of the people who are most aggressively promoting this idea, all of course in order to “help the most vulnerable people”.

Hmn, I wonder how that tax will help the most vulnerable people?

Anyway, you decide on why he would say this.

3. Possible political instability caused by the deglobalization trend

Experts say that the chances of State failure and political instability could be higher in deglobalization scenarios than in globalized systems. 

Is it possible the best idea within a “globalized system” is really a formal set of multilateral trade agreements to increase economic activity?

It would be a great idea if that was the only agenda. 

If the State is going to fail without some 3rd party to set up and do all the work for them, well, this then becomes a far more interesting topic of discussion. Experts often make their case for a globalized world by helping to prop up other States, in order to become the savior for their people. If this is the scenario, would you want to do business with an organization like this? 

Probably not. 

You’d probably wait until they have had time to get their internal systems working again? 

Anyway, I suppose its possible deglobalization could potentially and indirectly cause decreased economic performance, at least in the short run, and limited trade in those countries that need to take time to fix themselves anyway. Not sure a small team of foreign central planners have ever "fixed" a scenario like this.

Regardless, oil and energy does flow around the globe. For a very interesting view of the global transportation of oil, energy and related tankers, MarineTraffic.com does a nice job tracking the world’s commercial ships.

This MarineTraffic.com graph shows you globalization vs the deglobalization trend in real time:

4. Possible Export Restrictions Caused by the Deglobalization Trend

Countries practicing deglobalization may have some trade barriers, such as bureaucratic procedures that regulate the range of goods a company ships to other countries. Implementation of these regulations may restrict exports to some trading partners.

This positively and negatively affects a country’s economy because it potentially reduces total revenue, while on the other hand helps retain scarce resources within a country. 

Again, these are blanket statements that could be applied to any agreement at any time, whether globalization is the idea or not.

5. Possible Use of Increased Tariffs Caused by the Deglobalization Trend

Deglobalization results in the implementation of tariffs on imported and exported goods, restricting the amount and types of goods entering and leaving the country.

While this may sound like every country at any time regardless of globalization or deglobalization ideology, such implementations encourage repatriation of the supply chain, which means that a country is solely responsible for turning goods from raw materials to final products.

Tariffs may encourage a country to update their routes, improve their systems, and find new, better trading partners that put more value on the trading relationship.

And possibly, by doing so, they might generate more revenue from their products, boosting their own economy. 

6. An Increase in Production Caused by the Deglobalization Trend

With deglobalization, that country’s government usually subsidies businesses to help them produce more goods within that country.

However, this is a slippery slope as it might also mean the government will control amenities such as energy, technology, and food production. Further moving away from Free Enterprise and closer to something no one wants, ever.

What is causing deglobalization?

Multiple reasons can cause a shift from a globalized world to a deglobalized one. 

In recent times, the world witnessed deglobalization during the financial crisis in 2008. The factors driving deglobalization then are more or less the same as the ones causing it now. 

However, the trend is moving at a higher rate, probably due to factors such as recent pandemic events, political decisions that do not appear as though they are not made on behalf of the citizenry, sanctions on historical trading partners, rising inflation, poor policy, and rising inflation rates. On that note, deglobalization can result due to the following factors:

1) Push back on central planners

Let’s talk about the elephant in the room.

The leaders of some Nations may be tired of being led by a small group of people who do not represent them.

Just ask Ghandi, if you could. Yes, that was 150 years ago, but psychologists would agree that human nature has not changed much. 

In fact, its very possible, and probable, that many or all of the 138 countries of the Global South, countries such as Philippines, El Salvador, Saudi Arabia, and Indonesia, may have grown tired of the decades-long (maybe even millennia) agendas possibly being pushed out by the collective West, spearheaded by the North Atlantic Treaty Organization (NATO), the European Union and the World Economic Forum.

As another example, largely for discussion, it may be the idea behind Bitcoin that pro-globalization central planners are afraid of. After all, the power behind Bitcoin is that there is no central planner behind it. The value of Bitcoin is 100% market-driven. There is no Bitcoin CEO who can manipulate the value of this potential global currency that is now used worldwide as a store of value.  This may be a reason that some countries are choosing to use Bitcoin as legal tender, such as El Salvador, and many large hedge funds are trading Bitcoin as well.

It’s also very interesting to see that Turkey, for example, is looking at additional ways to align with trading partners and possibly joining BRICS. BRICS is an acronym for a group of emerging market economies, including Brazil, India, and South Africa.

Anyway, it looks like Turkey may be trying to create more trust in their currency by possibly backing it with more gold, as reported by @GoldTelegraph_

Interestingly, the devaluation of the Roman Denarii is exactly what contributed to the Roman Empire collapse. The Denarii, the Roman coin, gradually contained less and less silver and contributed to inflation as well as the mechanism to pay for their wars and growing government expenses.

2) Supply chain crisis

Supply chain crisis is the most common cause of deglobalization in recent years, coming to the limelight during recent events. An adequate supply chain is usually the main reason behind the success and efficiency of globalization.

But, supply chain breakdowns don’t just happen magically. Something usually triggers an event. Go here for a review on why this often happens:

Cost-Push Inflation vs Demand-Pull Inflation.

Various fundamental issues affect the supply chain and may make some countries retreat from globalization. Some of these include:

  • Fertilizer shortage caused by sanctions creating a food shortage
  • Financial tension like increased shipping rates
  • Production tension, as seen when there are shortages in wood pallets
  • Labor shortages as experienced when workers quit their jobs
  • Energy shortages that limit the production of goods

3) Job Security

One of the key disadvantages caused by globalization is an increase in job loss when people freely migrate to a country. The citizens of that country lose their jobs because the migrants are willing to do the same job at a lower price.

While this typically only affects a small percentage of the population, usually those who are still in the process of honing their skills, and does often create more opportunities for those affected, developed countries may restrict the number of people entering their country, fueling deglobalization as a means of securing jobs for their citizens. Two countries who are very vocal on their position here are Mexico and Hungary.

4) Bilateral trade agreements

This is possibly the best case scenario, where countries can simply work together and be excellent trading partners.

A bilateral trade is an agreement whereby two or more countries decide to exchange goods by reducing import quotas and tariffs or eliminating them and, in so doing, helping promote commerce and trade. 

Here is an example of a growing bilateral trade partnership between Hungary and Turkey, whose trading volume has reached $3 billion, up 11% from the year previous.

This is often the best case scenario and what virtually all politicians should strive for in order to fill up their day of activities.

Alternatively, on some occasions, bilateral trade wars can result where one country decides to place import restrictions or raise import tariffs on the other country’s goods as a form of retaliation.

However, by imposing these measures, the country responsible will have less incoming trade. 

The ideas of a globalization vs deglobalization trend is not as clear as it may appear.

There are a lot of gray areas. 

And many questions.

But one thing is for sure, whether globalization or the deglobalization trend is the answer, whatever option gets the world closer to free enterprise, producing more goods and services and creating more successful trade agreements among nation-States is the right direction. 

And if nation-States become better trading partners because of the deglobalization trend, this is a good direction not only for the world, but for the consumer and the individual worker whose lifestyle will ultimately increase. 

References

Globalization over 5 centuries. (June 2020). Our World in Data.

What is deglobalization? (October 2021). Chatham House.

De-Globalisation? Global Value Chains in the Post-COVID-19 Age. (March 2021). Harvard University. 

Causes of the Global Trade Slowdown. (November 2016). Board of Governors of the Federal Reserve System. 

Deglobalization Scenarios: Who Wins? Who Loses? (August 2010). Global Economy Journal and Berkeley Electronic Press.

Supply Chain Crisis Leading to Deglobalization. (November 2021). GlobalEDGE. 

Trade war effects: evidence from sectors of energy and resources in Africa. (2020 Dec 16). PubMed 

https://www.britannica.com/biography/Mahatma-Gandhi

https://www.visualcapitalist.com/visualizing-every-ship-real-time/

https://www.marinetraffic.com/en/ais/home/centerx:-12.1/centery:25.0/zoom:2

https://guides.loc.gov/ship-registers/history

https://www.britannica.com/topic/East-India-Company

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