Deglobalisation

For roughly seventy years, the dominant story of human civilisation was integration. Goods, capital, people, and ideas moved across borders with increasing freedom. That movement lifted hundreds of millions out of poverty, generated unprecedented material wealth, and created the most elaborate web of mutual economic dependency in history. The system had costs and contradictions — inequality within nations rose even as inequality between nations fell, and the environmental toll was severe — but the direction of travel seemed fixed. Globalisation was treated less like a policy choice and more like a law of nature.

That assumption is now openly contested. The period we are entering — which economists at the International Monetary Fund and elsewhere have begun calling geoeconomic fragmentation — is one in which deliberate policy choices are reversing the flows that integration built. Trade barriers are rising. Investment screening is tightening. Technology is being deliberately decoupled. Supply chains are being pulled closer to home, or at least closer to friendly countries. The forces doing this are not marginal: they include the two largest economies on earth.

What makes this moment historically significant is not just the economic magnitude of the reversal but its civilisational texture. The last great period of deglobalisation — the interwar years of the 1920s and 1930s — ended in depression and catastrophe. That precedent haunts current debates. But the present moment is not simply a replay: the technologies are different, the geopolitical configurations are different, and the specific grievances driving the pullback are different. We need to understand this moment on its own terms before we can judge where it leads.

The implications extend far beyond economics. When trade networks fragment, so do the information flows, cultural exchanges, and political relationships built along their channels. When countries stop buying each other's goods, they tend to stop trusting each other's narratives too. Civilisations have always organised themselves partly through the management of distances — geographical, cultural, economic — and what we are watching now is a large-scale renegotiation of which distances matter and which connections should be severed. The outcome will shape the geopolitical map not for the next election cycle but for the next generation.

And there is a deeper question lurking beneath the economic one: what kind of world order, if any, will replace the liberal international system that globalisation helped sustain? The answers being proposed range from a stable multipolar equilibrium to a fractured landscape of competing blocs, to something darker — a scramble reminiscent of earlier imperial eras, dressed in the language of sovereignty and national security. We do not yet know which of these futures we are building. But the choices being made right now, in boardrooms and cabinet offices and military planning sessions, are doing the building.

To understand what is fragmenting, it helps to be precise about what was built. The post-World War II international order rested on a set of interlocking institutions: the Bretton Woods financial system (later the IMF and World Bank), the General Agreement on Tariffs and Trade (GATT, later the WTO), regional security alliances like NATO, and eventually the United Nations framework. These institutions were imperfect, often reflecting the interests of their most powerful members, and they excluded or disadvantaged much of the world for much of their history. But they created a framework of rules, and within that framework, trade openness expanded dramatically.

The numbers are striking. Global merchandise trade as a share of world GDP roughly tripled between 1950 and the early 2000s. Foreign direct investment flows grew even faster. The creation of global value chains — the elaborate networks through which a single product might be designed in California, have its components fabricated in Taiwan and South Korea, assembled in China, and sold in Europe — represented a qualitative transformation, not just a quantitative expansion. These chains were not simply economic conveniences; they were geopolitical commitments. Countries tied into the same production networks had powerful incentives not to fight each other.

Capital mobility reached levels without historical precedent. By the 2000s, trillions of dollars moved daily across borders in financial markets. The US dollar sat at the centre of this system as the dominant reserve currency, giving the United States structural advantages that economists call exorbitant privilege — the ability to borrow cheaply and run persistent deficits that other countries could not sustain. This dollar-centred system also gave Washington a weapon: the ability to exclude actors from dollar-denominated finance through sanctions, a power that has been used with increasing frequency and reach since 2001.

Technology diffusion was another pillar. The internet, born in American research labs and initially governed by relatively open standards, became a genuinely global infrastructure. Knowledge and information moved at near-zero marginal cost. This created both the tools of globalisation (logistics software, financial platforms, communication networks) and some of its most contested terrain — because the companies that built and owned that infrastructure were overwhelmingly American, and the data they collected on billions of users had obvious strategic as well as commercial value.

This was the world. It was never as flat as Thomas Friedman's famous metaphor suggested — geography, culture, and power always shaped who benefited and how — but it had a real and consequential logic. That logic is now being overridden.

Deglobalisation is not a single process but a cluster of related and mutually reinforcing ones. Identifying the different fracture lines helps to see which are shallow and which go deep.

The most visible fracture is trade fragmentation. US-China trade tensions, which escalated dramatically from 2018 onward with successive rounds of tariffs, have created what analysts describe as a bifurcating trade system. Other countries are being pressured, implicitly or explicitly, to choose sides. The phrase "friend-shoring" — coined by US Treasury Secretary Janet Yellen in 2022 — captures the explicit policy preference: redirect supply chains away from geopolitical rivals toward trusted partners. The EU has developed its own vocabulary: "strategic autonomy" and "de-risking" rather than full decoupling, but moving in the same direction. The practical effect is to sort the global economy into overlapping blocs, each seeking to reduce dependency on potential adversaries in critical sectors.

The second fracture is technology decoupling. This is arguably more significant than trade, because technology shapes long-run productivity and military capability in ways that goods trade does not. The US-led effort to restrict China's access to advanced semiconductors — particularly through export controls on chip-manufacturing equipment imposed in 2022 and expanded since — represents the most aggressive use of technology as a geopolitical tool in the modern era. China is responding with massive state investment in domestic semiconductor capacity. The race to control the semiconductor supply chain has become a civilisational contest, given that advanced chips underpin everything from consumer electronics to artificial intelligence to precision-guided weapons.

The third fracture is financial fragmentation. The weaponisation of the dollar-centred financial system — most dramatically through the freezing of Russian central bank reserves following the 2022 invasion of Ukraine — has accelerated a search among non-Western countries for alternatives. China has been developing its Cross-Border Interbank Payment System (CIPS) as a partial alternative to SWIFT. There is increasing discussion within the BRICS grouping of alternatives to dollar-denominated trade settlement. These efforts remain limited so far: the dollar's dominance is deeply structural, not easily displaced. But the direction of travel is clear, and the motivation is now explicit — countries that might one day find themselves in Washington's crosshairs are rationally hedging.

The fourth fracture is in data and digital infrastructure. The "splinternet" — the fragmentation of the internet into partially incompatible national or bloc-level systems — is already visible in China's Great Firewall and Russia's efforts to develop a sovereign internet. But it extends further: different regulatory regimes for data privacy, AI governance, and platform liability are creating a world in which the same digital service operates differently, or not at all, across jurisdictions. This is not just inconvenient for technology companies; it represents a fundamental divergence in the rules governing the information environment that modern economies and societies run on.

One of the most striking features of the current moment is that deglobalisation is not producing a world of self-sufficient nation-states. Instead, it appears to be producing a world of competing blocs — each with its own internal integration logic, its own technological standards, and its own sphere of economic dependency. In a real sense, this looks less like a return to 1914-style nationalism and more like a return to the logic of imperial systems: large economic and political entities that integrate their peripheries while competing with rival empires for influence and resources.

The contours of these emerging blocs are becoming visible, if not yet fixed. The US-led bloc centres on NATO members, Japan, South Korea, and Australia, with the EU as a sometimes-reluctant but structurally aligned partner. This grouping commands the most advanced technology, the deepest financial markets, and the most powerful military alliances. The China-centred bloc is less formalised but includes Russia (now in deep economic dependency on China following Western sanctions), much of Central Asia, and increasing portions of the Global South through the infrastructure and investment channels of the Belt and Road Initiative (BRI). Between these poles, a large swath of countries — India, most of Southeast Asia, the Gulf states, much of Africa and Latin America — is actively trying to avoid being forced into either camp.

This last group is significant and understudied. "Strategic non-alignment" — the deliberate cultivation of relationships with multiple blocs without committing exclusively to any — is becoming a sophisticated national strategy for countries like India, Turkey, Saudi Arabia, and Indonesia. These are not passive actors being buffeted by great-power competition; they are actively seeking to extract advantage from it, playing blocs against each other in ways that echo the Non-Aligned Movement of the Cold War era, but with greater economic leverage. India's continued purchase of Russian oil at discounted prices while maintaining its security partnership with the United States is a paradigmatic example.

The BRI deserves particular attention as an exercise in bloc-building. Launched in 2013, it has directed Chinese capital into infrastructure across Asia, Africa, the Middle East, and even parts of Europe. Critics, particularly in Washington, have characterised it as "debt-trap diplomacy" — a deliberate strategy to create dependency through unsustainable loans. The evidence for this specific claim is contested; many BRI projects reflect commercial logic and recipient countries have successfully renegotiated terms. But the broader point stands: BRI creates infrastructure dependency, establishes technical standards (often Chinese), and builds relationships that translate into political alignment. It is, whatever its intentions, the economic architecture of a bloc.

The civilisational consequences of deglobalisation are not evenly distributed, and honesty requires acknowledging both the genuine costs and the genuine motivations behind the reversal.

The IMF's analysis of geoeconomic fragmentation — drawing on modelling of different fragmentation scenarios — suggests potential long-run output losses ranging from modest (around 0.2% of global GDP in mild scenarios) to severe (up to 7% in full fragmentation scenarios), with additional costs from technology decoupling that could reach 5% of GDP for some countries. These are not small numbers; they represent trillions of dollars in foregone prosperity and, more humanly, in foregone reductions in poverty and improvements in health and education. The countries likely to suffer most are not the great powers conducting this competition but the smaller and poorer nations caught in its wake, who depend on open markets, cheap capital, and technology access to develop.

Global public goods — climate action, pandemic preparedness, nuclear non-proliferation — are also casualties. These problems are definitionally transnational: no bloc can solve them unilaterally, and fragmentation makes the cooperation required to address them structurally harder. The gap between climate commitments and climate action is already troubling; a world in which the major emitters are in active geopolitical competition with each other is a world in which the coordination failures compound. This may be the deepest civilisational cost of fragmentation: the problems that require the most global coordination are arriving precisely as the infrastructure for global coordination corrodes.

Migration flows are another channel of loss. One of the quietly underappreciated benefits of the globalisation era was the movement of people — of workers, students, researchers, and entrepreneurs across borders — which drove innovation, diffused skills, and created human connections that outlasted any single trade deal. Increasing restrictions on migration and growing nationalism make this channel less open. Brain drains become more severe in countries that cannot compete for talent. The cross-cultural networks that generate new combinations of ideas thin out.

Yet intellectual honesty requires acknowledging the legitimate grievances that drove the backlash against globalisation. The IMF and other institutions that championed integration were often too slow to acknowledge that its gains were distributed unequally within countries. Deindustrialisation in American and European manufacturing heartlands — the direct result of trade competition — created communities of genuine distress. The political consequences of that distress, the populist insurgencies of the 2010s, were not irrational reactions by poorly-informed voters; they were reasonable responses to real dislocations that the globalisation consensus failed to take seriously. Deglobalisation is partly the bill coming due for that failure.

History does not repeat, but it sometimes offers useful tuning forks. There are at least three historical episodes that students of the present moment are reaching for, each illuminating different aspects of the current situation.

The most commonly cited is the interwar period (1919–1939). After a first wave of genuine globalisation in the late nineteenth and early twentieth centuries — characterised by free capital mobility, mass migration, and expanding trade under British hegemonic order — the world shattered. The sequence is instructive: financial crisis (1929), protectionist retaliation (Smoot-Hawley tariffs, 1930), competitive currency devaluations, collapsing trade volumes, rising nationalism, and ultimately war. The lesson most economists draw from this sequence is the danger of beggar-thy-neighbour policies — actions that might seem rational from a single country's perspective but that, when generalised, destroy the system that makes everyone worse off.

The second echo is the Cold War (1947–1991). This was, in its own way, a managed version of fragmentation: two blocs, each with its own economic system, technological standards, and military posture, competing globally while avoiding direct conflict. The Cold War parallel is perhaps the most instructive for understanding the bloc dynamic described earlier. It is worth noting, though, that the current situation differs in an important respect: during the Cold War, the two blocs were economically largely separate. Today, the US and China are deeply intertwined — China holds substantial US debt, American companies are deeply embedded in Chinese manufacturing, and millions of students, tourists, and entrepreneurs cross between the two systems annually. Economic interdependence as a buffer against conflict is a real phenomenon, even if it is not always sufficient.

The third echo is more distant but perhaps more structurally apt: the fragmentation of the Mongol trading networks in the fourteenth century, or the collapse of the Roman trade system in late antiquity. These were not simply economic events but civilisational reorganisations, in which the infrastructure of exchange that had sustained populations and cultural transmission collapsed, often gradually and then suddenly, with consequences that took generations to fully manifest. These analogies should not be pressed too hard — we have institutions, communications, and accumulated knowledge that those earlier civilisations lacked — but they serve as a reminder that the integration we take for granted is not the default state of human affairs. It was built, and it can be unbuilt.

No single element of the current fragmentation debate is more watched — or more misunderstood — than the fate of dollar hegemony. The US dollar's role as the world's primary reserve currency, the denomination currency of most commodity trade, and the settlement currency of most international financial transactions is a structural fact of enormous consequence. It is also under more pressure than at any point since the Bretton Woods system collapsed in 1971.

The mechanisms of that pressure are multiple. The weaponisation of dollar-clearing access has motivated adversaries and nervous neutral parties to seek alternatives. The sheer size of the US trade deficit, combined with the fiscal trajectory of the US government, raises long-term questions about the dollar's stability. The growth of China's economy means that the renminbi will inevitably become a more significant player in global finance, even if it never displaces the dollar.

But dollar displacement is much harder than the commentary often suggests. Reserve currency status requires not just economic size but deep, liquid financial markets; the rule of law and contract enforcement; and the absence of capital controls — conditions that the US meets and China currently does not. The dollar's share of global foreign exchange reserves has declined modestly in recent decades, but alternatives have fragmented into a range of currencies (euros, yen, Australian dollars) rather than concentrating in the renminbi. The more plausible near-term scenario is not dollar replacement but dollar dilution: a more multipolar currency landscape in which the dollar remains central but its dominance is somewhat reduced, increasing the cost of US financial sanctions and limiting Washington's monetary policy autonomy.

Central bank digital currencies (CBDCs) add a new layer of complexity. China's digital yuan (e-CNY) is explicitly designed, at least in part, as an instrument for internationalising the renminbi and enabling transactions that bypass dollar-cleared systems. If widely adopted in the BRI sphere, it could meaningfully shift settlement patterns in a way that conventional currency competition has not managed. This remains speculative, but it is a live possibility that financial analysts and geopolitical strategists are watching closely.

It would be a mistake to treat deglobalisation as purely an economic or even geopolitical phenomenon. It has a civilisational dimension — a contestation over values, worldviews, and the basic terms of social organisation — that economics cannot fully capture.

The liberal international order that globalisation sustained was also a liberal cultural order: one that elevated individual rights, democratic governance, market economics, and a particular (largely Western) account of universal human dignity. That order was always contested from within — by its own failures on race, colonialism, and inequality — and from without, by civilisations with different accounts of the good society. The current fragmentation is partly a reassertion of those alternative accounts: the Chinese Communist Party's model of developmental authoritarianism, Russia's civilisational conservatism, the various forms of religious nationalism emerging across the Islamic world, India, and elsewhere.

These are not simply propaganda exercises. They reflect genuine philosophical traditions and genuine critiques of the liberal model. Civilisational multipolarity — the idea that there is no single correct form of social organisation and that different civilisations should be free to develop their own — has genuine intellectual force, even if it is sometimes mobilised cynically by authoritarian regimes to deflect criticism of their human rights records. The debate between universalism (the view that certain values apply to all humans) and civilisational pluralism (the view that different traditions have equal standing) is one of the deepest unresolved questions of the present moment.

What makes it urgent is that the infrastructure of globalisation — the supply chains, the financial networks, the digital platforms — was always also a vector for cultural transmission, normative influence, and what Joseph Nye called soft power. When those networks fragment, the civilisational conversation they enabled fragments with them. The risk is not just economic inefficiency but a world in which different civilisations increasingly talk past each other, share fewer reference points, and find it harder to imagine each other's perspectives — precisely when the problems requiring shared imagination (climate, pandemics, nuclear risk) are most severe.

Is the current fragmentation a temporary adjustment — a necessary correction of the naive globalisation consensus — or is it the beginning of a genuinely new epoch of civilisational competition? The answer matters enormously, because the policy responses appropriate to a correction are very different from those appropriate to a systemic break. We do not yet know which we are living through.

Can the multilateral institutions built for a globalising world — the WTO, the IMF, the UN framework — adapt to a fragmenting one, or will they be bypassed and hollowed out until they collapse? And if they collapse, what, if anything, takes their place? The history of international order suggests that power vacuums are filled by conflict before they are filled by new institutions.

Will the countries of the Global South — the majority of humanity — successfully navigate strategic non-alignment, or will great-power competition eventually force them to choose sides in ways that foreclose their development options? Is multipolarity genuinely possible as a stable equilibrium, or does the logic of bloc competition tend toward bipolar confrontation?

How should we think about the relationship between digital fragmentation — the splinternet, CBDC competition, AI governance divergence — and physical fragmentation? The two processes are advancing in parallel, but their interaction is poorly understood. Is it possible for the digital world to fragment while the physical world of goods trade remains relatively integrated, or do these inevitably move together?

And finally, the deepest question: is there a version of re-globalisation that corrects the failures of the previous era — the inequality, the environmental damage, the democratic deficits — while preserving its genuine achievements? Or is the momentum of fragmentation now sufficient that we have crossed a threshold from which there is no easy return? The optimist sees the current disruption as a messy but ultimately corrective process, clearing the ground for a more equitable and durable form of integration. The pessimist sees the beginning of a long descent into the kind of inter-imperial rivalry that history suggests tends to end badly. Both possibilities remain open, and which one we inhabit may depend less on the forces of history than on the choices still to be made.