De-Globalization and fragmentation

De-globalization is defined in opposition to globalization. Globalization is the growing cross-country integration of the markets for goods, services, capital, and labor. Conversely, de-globalization is a process of diminishing integration, characterized by rising barriers to international trade, investment, and migration, as well as declining cross-border flows. Fragmentation entails the turning away from the cooperative approach embedded in the World Trade Organization–centered multilateral trading system, toward more local and bloc-based trade and unilateral policies. It is characterized by increased trade restrictions and deviations from commitments to international agreements. De-globalization and fragmentation are closely related yet distinct concepts. In fact, while fragmentation can contribute in principle to de-globalization by partitioning the global economy into specific regional or geopolitical blocs, it may also lead to rising economic integration within blocs. The net effect of fragmentation on cross-border integration at the global level is therefore not obvious ex ante. Fragmentation may not necessarily lead to de-globalization, but it may still change the shape of the global economy. Global data on trade, investment, and migration flows since the 1970s show a slowdown—but not a reversal—of globalization beginning with the Great Financial Crisis of 2007–2008. In particular, (a) the global trade-to-GDP ratio leveled off after three decades of strong expansion; (b) the ratio of net foreign direct investment (FDI) to GDP fell to nearly zero; and (c) the growth in the share of migrants over the global population declined by roughly half. Taken together, these dynamics point more toward a process of “slowbalization” than outright de-globalization. Evidence of fragmentation in the global economy has become particularly visible since the outbreak of the war in Ukraine in February 2022. From that point onward, trade growth within the so-called West bloc—including the European Union, the United States, and other aligned countries—and within the rival East bloc—including China, Russia, and other aligned countries—has significantly outpaced trade growth between the two blocs. Fragmentation has taken the form of a reconfiguration of trade patterns along geopolitical lines, while there is no evidence of a regionalization of trade along a purely geographical dimension. Similar fragmentation dynamics are also evident in FDI flows. Several factors are driving slowbalization and fragmentation. Some are structural, such as the natural slowdown in global value chain expansion after decades of rapid growth. Others are related to a sequence of shocks that hit the global economy in the early 21st century: the Great Financial Crisis, the Brexit referendum, the 2016 election of Donald Trump (triggering a U.S.–China trade war and other protectionist measures), the Covid-19 pandemic, the war in Ukraine, and mounting geopolitical tensions in the Middle East and Asia. The protectionist and isolationist shift underlying slowbalization and fragmentation reinforces a political backlash against globalization that began in advanced democracies in the early 1990s. This backlash is rooted in the distributional consequences of structural economic changes, chiefly globalization and technological progress. In particular, it is linked to rising inequalities that fuel political discontent and support for antiglobalization parties and candidates. The political sustainability of globalization is tightly related to successful attempts at reducing economic inequalities and making structural changes more inclusive.