Has the world entered the era of ‘slowbalisation'?

Mint

17 hours ago

Under Trump 2.0, it appears that even the fig leaf of environment sensitivity has been dispensed with, and a robust and aggressive protectionist stance is the strong flavour of his Second Coming.
In the EU, German and French industrial policies include huge subsidies and protectionist 'Buy European' clauses. India's 'Atmanirbhar Bharat Abhiyan' (self-reliance campaign) and 'Vocal for Local' programmes are illustrative of the rapidly changing global economic landscape. Inherent in this new phase is the risk of deglobalization. A December 2022 Goldman Sachs report, The Path to 2075: Slower Global Growth, But Convergence Remains Intact, covering 104 countries, underlines that two decades of emerging markets convergence has resulted in a more equal distribution of global incomes. But while income inequality between countries fell, income inequality within countries has risen. This poses a major challenge to the future of globalization.
The Economist, on the other hand, argues that we have entered the 'slowbalisation' era: World trade rose from 39 per cent of the world GDP in 1990 to 61 per cent in 2008, and fell to 58 per cent by 2019, mostly because of a slowdown in trade from emerging markets. Cross-border investments and bank credit flows are down too….
Services are playing a growing role in global value chains. Trade flows based on labour-cost arbitrage are declining in some value chains. And global value chains are becoming more knowledge-intensive.
The question posed by Marcos Troyjo, former president of the New Development Bank (NDB), in 2021 is still as relevant as it was four years ago—'With so much disconnect around the world, the question today is: will deglobalisation linger or are we walking into something else?' To this, we may add our own queries: What will be the defining characteristic of this different phase we are entering? Is globalization metamorphosing yet again?
First, the purchasing power and relative economic clout of various nations are changing. As of end-2021, the combined GDP, measured in PPP terms, of the G7 was over 21 per cent less than that of the seven leading emerging economies, including China.
This marks a historic and historical geo-economic shift with profound consequences for the wealth of nations and the well-being of their citizens. These consequences also relate to, as Adam Smith originally noted in his formulation of a comprehensive system of political economy, the fourth or final stage of commercial interdependence. One view is that emerging markets are increasing their commercial exchange with each other, and may offer a larger market for trade in the wake of creeping protectionism in OECD states.
The second characteristic concerns how GVCs are being rerouted by the burgeoning presence of emerging economies. This phenomenon is much broader than global supply chains as consumption will also be impacted. Geopolitics is an important driving force in reconfiguring these new value chains.
Equally, if not more, significant is the evolution of some of the world's most major economies. China, experts say, is no longer a low-cost country or a simple manufacturer of low-value-added goods; it has become one of the most important sources of FDI. It is leading the world in many state-of-the-art technologies, and accounts for an increasing share of high-technology embodied manufacturing products.
As a result, some lower-value-added economic activity has migrated from China to neighbours such as Vietnam, Indonesia, Myanmar and Bangladesh, and a trickle to India. It is a phenomenon that is not new in history—in the 1970s and 1980s, the Asian Tigers displaced Japan as low-cost, low-wage manufacturers in the region. Simultaneously, international trade and investment agreements are influencing the rerouting of GVCs. A prominent example is the Regional Comprehensive Economic Partnership (RCEP) which was signed by 15 Asia-Pacific nations in November 2020.
There is consensus among experts that in a trade system 'where the term 'international" applies to the exchange of goods even at an intra-firm level', it should come as no surprise that these trade agreements influence the flows of investment. The regional consolidation of trade in the post spaghetti-bowl era holds the danger of India being left out. Ambitious countries are also promoting domestic economic reforms that allow their economies to become more business-friendly, and open to FDI while being nimble about addressing core security concerns.
A case in point is China, which announced in March 2024 that it would 'further shorten the negative list for foreign investment and implement pilot programs to ease access for global companies in the fields of scientific and technological innovation […] and broaden market access for foreign investment.' The PRC has also promised to remove restrictions on foreign participation in the manufacturing sector, and continues to increase its openness in hi-tech sectors such as telecommunications and healthcare.
Its stated policy is that foreign financial entities will be granted greater access to the country's banking and insurance sectors, and the operational scope for foreign financial institutions will be expanded in China's domestic bond market as well.
In parallel, the disarray in the WTO has been exemplified by the tariffs imposed on ally and adversary alike by Trump in 2025, which follow the unilateral imposition of higher tariffs on select commodity exports to China by the US in 2018, and the passing of the Carbon Border Adjustment Mechanism (CBAM) by the EU in 2022. These measures are considered to be violative of the most favoured nation (MFN) principle of the organization. The US' virtual boycott of the WTO's Dispute Settlement Body (DSB) has seriously dented the WTO's ability to oversee a rules-based multilateral trading order.
The final issue impacting globalization is talent. In this context, talent means going beyond the economic theory of comparative advantage. 'Countries need to ask themselves: What can I do besides what I am already very good at?'
This is also the basis of Michael Porter's compelling argument that it is 'competitive advantage' and not the traditional comparative advantage that drives world trade flows.
Countries which build their competitive advantage through the accumulation of human talent, technology, and an ecosystem supportive of enterprise have outscored others which had a comparative advantage but could not convert it to their benefit. The striking contrast between Asian economies including China and their Latin American counterparts is ample proof of this phenomenon of the supremacy of competitive advantage. India will have to learn from this contrasting experience.
Excerpted with permission from Rupa Books from Everything All At Once: India and the Six Simultaneous Global Transitions by Rajiv Kumar and Ishan Joshi.