Deglobalisation

Topic: Globalisation and MNCs · NCERT: Beyond NCERT

Meaning

Deglobalisation means that global economic integration actually goes into reverse. Trade, investment and other cross-border flows fall compared with world output. They do not just grow more slowly.

It matters because India's growth model after 1991 depends on open markets. That model includes IT and services exports, MNC investment and a place in global value chains. If the world truly deglobalises, these links weaken. It is also a favourite exam trap, because examiners often swap it with slowbalisation.

Formula used to track it:

• Trade-to-GDP ratio = (Exports + Imports) ÷ GDP × 100
• Trade–income elasticity = % growth in world trade ÷ % growth in world GDP
• Deglobalisation: the trade-to-GDP ratio falls, so the elasticity is below 1.

Explanation

How it is measured

• Trade-to-GDP ratio (trade openness): how large trade is compared with total output.
• Worked example (illustrative figures): exports = ₹40 lakh crore, imports = ₹50 lakh crore, GDP = ₹300 lakh crore → (40 + 50) ÷ 300 × 100 = 30%.

• Next year, GDP grows to ₹330 lakh crore, but trade stays at ₹90 lakh crore → 90 ÷ 330 × 100 = about 27%. The ratio has fallen. This is the deglobalisation pattern.

• Trade–income elasticity (how fast trade grows compared with GDP):

• Trade grows 6%, GDP grows 3% → 6 ÷ 3 = 2. This is hyperglobalisation: trade grows twice as fast as output.
• Trade grows 3%, GDP grows 3% → 3 ÷ 3 = 1. This is slowbalisation: the ratio stays flat.
• Trade grows more slowly than GDP (illustrative: 1.5% vs 3% → 0.5). This is deglobalisation: the ratio falls.

The three phases: where deglobalisation fits

• Hyperglobalisation (about 1990–2008): world trade grew much faster than world GDP.

• Drivers: ICT (information and communication technology), which made outsourcing to India possible; containerisation (standard steel boxes that cut shipping costs); the end of the Cold War (1991); China's WTO entry (December 2001); and the boom in global value chains (GVCs). A GVC is when the steps of making one product are spread across many countries.

• Slowbalisation (after the 2008 global financial crisis): trade grew only as fast as GDP. The ratio plateaued, meaning integration stopped deepening but did not reverse.

• Global FDI (foreign direct investment, meaning long-term foreign ownership of factories or firms) fell from 3.3% of world GDP (2000s) to 1.3% (the five years before 2023) [1].

• The shock era (2018 onwards): this raised fears of real deglobalisation.

• US–China trade war (2018) → tariffs on each other's goods.
• COVID-19 (2020–21) → supply chains broke, and masks, medicines and chips ran short.
• Russia–Ukraine war (2022) → food, fuel and fertiliser prices jumped, and sanctions split markets.
• Red Sea shipping attacks (2023–24) → ships went around Africa, so freight costs and delivery times rose.

What pushes towards deglobalisation

• Rising protectionism: protectionism means shielding home producers through tariffs, quotas and rules.

• Technical Barriers to Trade (TBT) are product standards and testing rules that can block imports. They affected 31.6% of product lines, covering 67.1% of global trade (December 2024) [5].

• Security worries: each shock made countries fear depending on others.

• Governments bring production back home (reshoring) or trade only with friendly countries (friend-shoring).

• Political anger over unequal gains:

• NCERT notes that globalisation widened gaps between nations and people, and was not fair to small producers and workers.
• People who felt left out now back politicians who oppose open trade.

• This pushes governments towards more tariffs.

• Deliberate policy splits: these include decoupling (for example, US chip export controls) and geoeconomic fragmentation into rival blocs.

What pulls against it: is globalisation really reversing?

• Signs of retreat:
• Goods trade-to-GDP has plateaued.
• Trade restrictions (tariffs, non-tariff measures and TBTs) are rising [5].

• FDI is splitting along geopolitical lines [1].

• Signs of life:

• Digitally delivered services (IT, finance and consulting supplied over computer networks) reached US$4.25 trillion (2023). That is up 9% from 2022 and equal to 13.8% of world exports [7].
• They are over 50% above pre-pandemic levels (2023) and make up over 54% of services exports [7].

• Global computer services exports grew 13% (January–September 2024) [8].

• Best reading: globalisation is being rewired, not reversed.

• Goods trade is shifting towards friendly and nearby countries.
• Services and data trade keep growing.
• So the evidence shows slowbalisation and fragmentation more clearly than true deglobalisation.

In India

• History: India knew a closed economy first.
• From the 1950s to the 1980s, India used barriers to protect young domestic industry.
• The 1991 balance of payments crisis (not enough foreign currency to pay for imports) led to the LPG reforms (Liberalisation, Privatisation, Globalisation).

• India opened up just as hyperglobalisation began.

• Official view (Economic Survey 2024-25, Ministry of Finance):

• The Survey lists the Red Sea crisis, the Ukraine war and drought in the Panama Canal as disruptions to global trade. Together with rising protectionism, they created uncertainty [5].

• It says geo-economic fragmentation (GEF) is replacing globalisation [5].

• India's trade performance despite the headwinds (RBI data):

• Total exports: a record US$824.9 billion (2024-25), up 6.01% from US$778.1 billion in 2023-24 [6].
• Services exports: a record US$387.5 billion (2024-25), up 13.6% from US$341.1 billion in 2023-24 [6].

• India is the 2nd largest exporter of "Telecommunications, Computer and Information Services", with a 10.2% global share. It ranks 7th in total services exports, with a 4.3% share [4].

• What this means: India gains from the part of globalisation that is still growing, which is services and digital trade.

• At the same time, it tries to win goods production as a "China+1" destination.
• Its tools are PLI schemes (production-linked incentives, meaning subsidies linked to extra output) and FTAs (free trade agreements).

Don't confuse with

• Slowbalisation: trade grows only as fast as GDP, so the trade-to-GDP ratio is flat. It is a slowdown. Deglobalisation is a fall in the ratio, which is a real reversal.
• Geoeconomic fragmentation: a policy-driven split of the world economy into rival blocs along security lines. Total trade may not fall. It is redirected within blocs. Deglobalisation describes an overall decline in integration.
• Decoupling: a deliberate separation of trade, investment and technology links between two particular economies, mainly the US and China. Its tools include tariffs, chip export controls and the US CHIPS and Science Act (2022). It is narrower than deglobalisation.
• Re-globalisation: the opposite idea, proposed in the WTO World Trade Report 2023. It is a renewed drive to bring more people, economies and issues into world trade [3].

Prelims Hooks

• Deglobalisation = the trade-to-GDP ratio falls. Slowbalisation = the ratio stays flat, because trade grows no faster than GDP. Examiners like to swap these two.
• Trade–income elasticity below 1 points to deglobalisation. It equals 1 under slowbalisation and is above 1 (for example, 2) under hyperglobalisation.
• The IMF dates slowbalisation, for most countries, to the period after the 2008 global financial crisis. Global FDI fell from 3.3% of world GDP (2000s) to 1.3% (the five years before 2023) [1].
• IMF SDN/2023/001: trade fragmentation could cost 0.2% to almost 7% of global GDP in the long run. The 7% loss is about US$7.4 trillion, roughly the combined output of Germany and Japan [1][2]. Adding tech decoupling could cost some countries up to 12% of GDP [1].
• "Re-globalisation" comes from the WTO World Trade Report 2023, not from the IMF or the World Bank [3].
• The Economic Survey 2024-25 says geo-economic fragmentation is replacing globalisation. TBTs covered 67.1% of global trade (December 2024) [5].

Mains Points

• Rewired, not reversed:
• Goods trade and FDI are splitting into blocs. But digitally delivered services reached US$4.25 trillion (2023) [7], and India's services exports hit a record US$387.5 billion (2024-25) [6].

• India should lean into IT, GCC exports and digital trade rules, while building links to goods GVCs through PLI schemes and FTAs.

• Security vs efficiency trade-off:

• Fragmentation may cost up to about 7% of world GDP [1].
• Countries still accept part of this cost to secure supplies of chips, medicines and energy.

• More resilience means higher costs and lower efficiency. India can use the China+1 shift, and as a Global South voice it can push at the WTO (GS-II link) for inclusive re-globalisation backed by a working dispute settlement system.

• The equity root of the backlash (NCERT link):

• Unequal gains from globalisation fuel protectionist politics.
• The answer is fair globalisation: skilling, social safety nets and bringing MSMEs into global trade. Closing borders is not the answer.

Related concepts

• Hyperglobalisation
• Slowbalisation
• Geoeconomic fragmentation
• Decoupling

Read more

• From hyperglobalisation to slowbalisation and fragmentation