Trends of (De)Globalization

Globalization is and always has been a two-sided coin, delivering prosperity on one side while leaving economies more vulnerable to shocks and conflict on the other. That doesn’t mean, however, that we should be afraid of it and build walls around us, because one thing is clear, the interconnectedness provided by globalization is positive for society, allowing for an easier exchange of goods, ideas and people. Considering these benefits humanity has been tracing a path for a more global world for centuries. That path, however, is far from linear and is actually closer to a fragile construction that falls apart from time to time. As we head towards an era of uncertainty it is useful to look back at these periods so we can better understand what might be lying ahead.

Periods of globalization are often interrupted by short phases of deglobalization, typically caused by conflict, disease and in more recent times economic crises. The 19th century marked a milestone for globalization with the repeal of the British Corn Laws in 1846 (heavily influenced by the arguments made by David Ricardo before his passing) and the establishment of the Cobden-Chevalier Treaty of 1860. Technological advancements, such as the opening of the Suez Canal in 1869, improved transportation and production efficiencies, increasing the global trade-to-GDP ratio from 1% in 1820 to 14% by 1913.

The outbreak of the First World War marked the first big disruption of trade networks, ending a long period of globalization. As countries directed investment towards the war effort, they found it necessary to abandon the gold standard to better fund the war without the need for backing of gold reserves. This increase of money supply led to inflation across countries and destabilized the economy, creating fluctuations in currency values that made international transactions much more uncertain. In the so-called Interwar Period (1919-1939) European countries focused on rebuilding domestic economies, decreasing foreign investment. Across the pond, the United States went through the Great Depression (1929-1939) which exacerbated protectionist policies. All these factors led to a fall in global trade volume of about 60% between 1929 and 1934, fueling the rise of extremist nationalist ideologies that would later trigger another global conflict and crisis.

In the aftermath of the Second World War there was a need to heal relations and reestablish international trade, these efforts included the Bretton Woods System (1944) which sought to stabilize exchange rates and facilitate international trade, and the emergence of the EEC (European Economic Community). All these led to a long period of globalization that, despite some setbacks along the way (like the oil crises of the 1970s), would peak in 2008 with a global trade-to-GDP of 61% but would then face a major setback in the financial crisis when vulnerabilities in international financial systems were highlighted. The crisis prompted countries to protect domestic economies from the exposure to global markets, reducing the global trade-to-GDP to 56% by 2019.

Since then, we have lived through a pandemic, the Russian invasion of Ukraine, the reignition of a war in the Middle East, the rise of tensions in Taiwan and the first election of a convicted felon as president of the US, who also promises to impose elevated tariffs on imports and reassess international relations. These events have contributed to growing instability, undermining the trust and stability essential for globalization. This stability includes predictable exchange rates, regulatory standards, and consistent trade policies as well as stable governance. Investors need these to take risks, governments need it to establish long lasting trade deals and businesses need it to expand across borders and offshore their production. In the current landscape countries are expected to move supply chains closer to home or to stable allied nations, movements known as nearshoring and friendshoring respectively. The reappearance of industrial policy, as a response to supply chain vulnerabilities, is another symptom of a less globalized world that we are already watching unfold before us, with big government investments in industry and infrastructure, such as the EU Chips act in Europe as an effort to be less dependent on the global supply chain. If the EU manages to keep the Russian bear at bay and avoid the rise of populisms within the Union, and by leveraging its strong regulatory frameworks, the European Union can position itself as an attractive hub for global investment and innovation, driving resilience and stability in turbulent times.

While the future may appear uncertain, it is far from a death sentence. New opportunities will emerge, supply chains will adapt, trade policies will be redefined, and the European Union must remain united. As a proactive force, it should act as a stabilizing and rational presence in an increasingly volatile and unpredictable global landscape.

Manuel Alexandre