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Globalization is defined as the free flow of trade, technology, capital, information, and people across national borders.
Based on this definition, globalization sounds great!
But does this mean deglobalization is the exact opposite?
If you have ever wondered why deglobalization is good, this article is for you!
Why is deglobalization good?
Deglobalization is good because it allows for national self-sufficiency. Deglobalization is a system of localization and aims to create opportunities in regional and local markets, which will create profound opportunities for regional and local economies.
Countries have been building economic and social partnerships to facilitate financial movements for centuries. And people have been trading based on comparative advantage for as long as humans have existed.
As such, globalization involves the elimination of barriers to trade, communication, and cultural exchange.
So, what is the deglobalization trend? Is it the death of globalization?
Let’s review this and more now.
There are a few things deglobalization is not.
For one, it does not mean a retreat from the world economy.
The integrated and complex nature of the world economy would make such a reversal tantamount to economic Armageddon.
Deglobalization is merely the process of reducing interdependence between nations around the world. Rather, it represents a shift from how the global economy is organized, from one centered around the needs of transnational corporations to one centered around the needs of peoples, nations, and communities. And there are definitely some benefits to this strategy.
The wide-ranging effects of deglobalization are complex and politically charged.
Despite seemingly seismic disruptions, including a global health crisis and geopolitical hostilities, the world is more connected than ever. Information flows between and across borders with ease. But capital flows (see Eurodollar and LIBOR) have fallen sharply in recent years, as has trade between borders.
In an environment where alliances are uncertain, reducing economic interdependence is not necessarily a bad thing. It allows for national self-sufficiency even in times of global disruption. Globalization was all about price and manufacturing efficiency – no matter the location. The shift from such a system to regionalization/localization aims to create opportunities in regional and local markets, which will have profound implications on regional and local economies.
That said, becoming too nationalistic could actually be counterproductive. In an interconnected world where countries depend on each other for economic growth as well as political and national security wellbeing, cooperation between countries comes with mutual benefit.
The nature of globalization has changed – countries and corporations should embrace this change for the benefits it has to offer.
Deglobalization, when understood as a means to create, promote, and protect national economies in the context of world markets, has several benefits.
It's important to emphasize that deglobalization does not mean isolation.
It's a different form of globalism that requires businesses to restructure their operations and place greater weight on political risk, regulatory regimes, and external shocks.
It's often said that the recent health crisis exposed the frailties within global supply chains. Even before the health crisis hit, globalization was facing significant headwinds.
The risk associated with deglobalization is that transnational corporations are not structured to compete in a deglobalizing world. There’s a need to restructure corporate processes and structures accordingly.
Deglobalization increases the likelihood of protectionist measures meant to encourage the repatriation of supply chains. One option is to establish several headquarters and manufacturing facilities in key economic regions. This way, they can adapt product and service offerings as well as operations to the different regions.
A key advantage of such restructuring is that it gives companies more autonomy from geopolitical upheavals, thereby possibly reducing risk and keeping manufacturing sales strong and people employed. It also allows for faster decision-making within respective regions and the establishment of regional supplier networks. Moreover, it curbs the reliance on cross-continental money transfers, which are increasingly vulnerable to government regulations in a more fragmented world.
But this is only one piece of the puzzle.
Greater immigration controls could mark the move toward a more siloed world. Currently, businesses have access to top talent from across the world. A diverse pool of talent is a competitive advantage many businesses will not willingly let go of. As such, the war for talent will only intensify. Some will argue that diversity will matter less in a more siloed world, but this could translate to fewer opportunities to transfer best practices and transformational ideas.
The global economy is at a critical inflection point as fears about the dependence on others grow. This does not mean retrenching within borders. An inward focus would not spell the end of globalization but rather a possible movement from the cult of efficiency to a more effective form of national economic growth.
T V Paul, Globalization, deglobalization, and re-globalization: adapting liberal international order, International Affairs, Volume 97, Issue 5, September 2021, Pages 1599–1620, https://doi.org/10.1093/ia/iiab072
Hillebrand EE. Deglobalization scenarios: who wins? Who loses? Global Economy Journal. 2010 May 21;10(2):1850197.
Balsa-Barreiro J, Vié A, Morales AJ, Cebrián M. Deglobalization in a hyper-connected world. Palgrave Communications. 2020 Feb 25;6(1):1-4.
James H. Deglobalization: The rise of disembedded unilateralism. Annual Review of Financial Economics. 2018 Nov 1;10:219-37.