The End of Hyper-Globalisation: A New Chapter in Global Trade

Recent global developments have sparked renewed interest in understanding the dramatic shift in global trade dynamics. With the United States reintroducing tariffs and actively pursuing domestic semiconductor production, the long-standing ideas of free trade and economic integration are facing unprecedented challenges. This turn of events signals the gradual but definitive end of hyper-globalisation, a phase that once defined global commerce. As strategic interests outweigh economic logic, the world appears to be moving toward a more fragmented trade landscape.

Classical Theories of Trade: From Adam Smith to David Ricardo

• In the late 18th century, Adam Smith introduced the idea of absolute advantage, which stated that nations should focus on producing goods they can make more efficiently than others and trade for everything else. This allowed countries to specialise and increase overall wealth through free trade.
• Smith famously compared nations to individuals in a community, like a tailor and shoemaker, each focusing on their strength and trading for their needs.
• David Ricardo, writing in the early 19th century, expanded this theory by introducing comparative advantage. Ricardo argued that even if one country is better at producing everything, trade can still be mutually beneficial if each country specialises in what it is relatively better at producing.
• Using the example of England and Portugal and their respective efficiencies in producing wine and cloth, Ricardo proved that both nations benefit by focusing on the good they produce with the least relative cost, not necessarily the absolute least.

Rise and Fall of Hyper-Globalisation

• The principles laid down by Smith and Ricardo laid the groundwork for modern global trade, giving rise to hyper-globalisation in the late 20th century.
• This phase, marked by soaring cross-border trade and integration, reached its peak from the early 1990s to the late 2000s, supported by the founding of the World Trade Organization and the entry of emerging markets like China into global supply chains.
• Hyper-globalisation was not just economic. It included cultural and political integration, creating a world where goods, ideas, and services moved almost freely.
• But this era began to unravel after the 2008 global financial crisis, which exposed the risks of deep interconnectedness. Slower trade growth, supply chain vulnerabilities, and rising inequality led to increasing skepticism about open markets.

Semiconductors: The Strategic Shift from Economics to Security

• The clearest example of this changing attitude is the semiconductor industry. For decades, the world trusted Taiwan, especially TSMC, to manufacture a majority of the world’s chips, including 90% of the most advanced ones.
• The idea that countries could rely on others for critical components was aligned with comparative advantage. But rising geopolitical tensions, especially the threat of China’s aggression toward Taiwan, revealed the risks of over-dependence.
• The CHIPS and Science Act, passed in the U.S. in 2022, committed over $65 billion to build chip manufacturing plants in Arizona, reversing decades of offshoring in this high-tech sector.
• The act also signaled a shift from free-market policy to industrial policy, using government funding and tariffs to encourage domestic production and reduce reliance on foreign sources.

Geopolitics and the Death of Economic Optimism

• The old assumption that economic interdependence prevents conflict — the idea of doux commerce — has been challenged by recent events like the Ukraine war, the U.S.-China trade war, and pandemic-induced disruptions.
• Once viewed purely through the lens of efficiency, industries like semiconductors are now treated as strategic assets that need to be protected and controlled domestically.
• This shift is not limited to the U.S. Even the European Union and other major economies are pushing for strategic autonomy, seeking to ensure they can produce essential goods at home rather than rely on global supply chains.

Fragmentation of Trade and the Rise of Friend-Shoring

• As the world steps back from hyper-globalisation, a new model is taking shape — one focused on fragmented, strategic trade partnerships.
• Rather than depending on the most efficient global producers, countries are turning to trusted allies, a process now referred to as friend-shoring.
• This shift aims to reduce geopolitical risk by relocating supply chains to politically aligned and stable countries.
• India and the European Union, for example, are working towards a Free Trade Agreement (FTA) that emphasizes mutual trust, common interests, and reduced dependency on single partners like China.
• These emerging collaborations are not just about trade, but also involve shared interests in defense, education, cybersecurity, and technology, making them more resilient and long-term in nature.
• Reshoring, or bringing production back home, is also gaining traction. It has been fueled by supply chain disruptions during the pandemic and recent wars. Industries like automobiles and electronics are increasingly seen as strategic sectors that must be preserved domestically or within trusted networks.

Dani Rodrik’s Critique: Globalisation vs National Sovereignty

• Harvard economist Dani Rodrik has been a consistent critic of hyper-globalisation, arguing that it conflicts with the sovereignty of nation-states.
• According to Rodrik, hyper-globalisation tried to eliminate all trade barriers, including domestic laws and standards, thus weakening the ability of countries to govern themselves effectively.
• Rodrik’s concept of the “globalisation paradox” shows that deep economic integration often comes at the cost of democratic decision-making and local interests.
• He supports reformed globalisation, where trade and capital flows are balanced with national priorities such as creating jobs, ensuring fair taxation, and promoting environmental goals.
• One example of this new balance is the Inflation Reduction Act in the U.S., which promotes green energy using subsidies rather than relying solely on market forces.
• Rodrik calls for smart economic nationalism, which focuses on inclusive growth, industrial diversification, and democratic resilience, without turning inward or embracing protectionism.

US-China Trade War and Strategic Decoupling

• The ongoing US-China trade war has evolved beyond a political dispute into a long-term process of strategic decoupling.
• Initially triggered by former President Donald Trump’s tariffs, the conflict has continued under subsequent administrations, reflecting a bipartisan consensus on reducing dependence on China.
• The aim is not just economic protectionism but also technology control, especially in sectors like semiconductors, electric vehicles (EVs), and solar panels.
• The U.S. argues that China’s dominance in these sectors is built on unfair subsidies and state support. However, some experts point out that China’s lead is due to long-term planning and market development, not merely government aid.
• While Trump’s approach is zero-sum and tariff-heavy, others like Joseph Stiglitz support de-risking — maintaining access to cheap imports while building local capacity for resilience.
• The fear of supply chain disruptions, especially for critical technologies, has led the U.S. to restrict high-tech exports to China and boost domestic production through laws like the CHIPS Act and green transition subsidies.

India’s Role in a Post-Globalisation World

• India is increasingly seen as a key partner in the new world order of fragmented global trade.
• With trusted supply chains becoming the norm, India’s large workforce, improving infrastructure, and growing digital economy make it an ideal friend-shoring destination.
• India is actively pursuing FTAs, particularly with the European Union, to expand trade in a way that supports strategic autonomy while staying globally competitive.
• India’s dominance in IT services continues to be its comparative advantage, but the country is also focusing on building strength in semiconductors, defense manufacturing, and space technology.
• According to the Minister for Information Technology, hyper-globalisation has also increased wealth disparities within countries like India. Tackling this inequality has become central to India’s domestic economic strategy.
• The push for self-reliance (Atmanirbhar Bharat) aligns with the global trend of reducing overdependence on global markets while promoting inclusive development, green energy, and tech innovation.

The Reshoring Wave and Industrial Policy Revival

• One of the most visible shifts in global trade is the reshoring of industries — bringing production back to home countries.
• This trend accelerated after the Covid-19 pandemic, which exposed the fragility of extended global supply chains.
• Countries like the United States, Germany, and Japan are increasingly investing in automation and robotics to make reshoring cost-effective, especially in high-tech sectors.
• The semiconductor industry exemplifies this: both the U.S. and EU have launched Chips Acts worth billions to reduce dependence on Asia.
• Industrial policy, long dismissed by economists, has made a strong comeback. Governments now support domestic industries with subsidies, tax breaks, and direct funding to strengthen national capacity.
• Such policies aim to secure critical manufacturing, build resilience against geopolitical shocks, and protect national security interests.

Deglobalisation: A World Turning Inward?

• The world is not heading toward complete isolation, but the era of hyper-globalisation is undeniably over.
• The concept of deglobalisation reflects a world where economic decisions are driven more by politics, identity, and security than just cost and efficiency.
• According to analysts, three forces drive this trend:
  • China’s rise as a strategic competitor, prompting nations to rethink dependencies.
  • Vulnerable global supply chains, especially in crises like wars and pandemics.
  • Public disillusionment in many Western countries over the unequal benefits of globalisation.
• Resilience has become a key buzzword, replacing efficiency as the core value of global supply chain planning.
• While trade in services and migration remain strong, traditional trade in goods has plateaued or shifted regionally.
• New trade blocs are emerging, often aligned along political or strategic lines, such as India-Europe, US-Mexico, and ASEAN alliances.

Wealth Inequality and Political Polarisation

• One of the most pressing consequences of hyper-globalisation has been the widening wealth gap within and between nations.
• While globalisation helped lift millions out of poverty in developing countries like China, it also concentrated wealth in the hands of a few, especially in developed economies.
• In India, as highlighted by the IT Minister of Tamil Nadu, extreme disparities have emerged, where economic gains are unequally distributed, affecting social cohesion and political stability.
• The erosion of the middle class, particularly in Western democracies, has led to political polarisation, the rise of populist movements, and declining trust in institutions.
• Economists like Dani Rodrik and Joseph Stiglitz argue that hyper-globalisation undermined domestic policy-making, leading to the loss of quality jobs and stagnating wages.
• To restore democratic health, experts now recommend inclusive industrial policies, green job creation, and strengthening public education and healthcare as part of a more equitable global economy.

A Future of Strategic Alliances and Green Trade

• The path ahead for global trade is not isolation but restructured collaboration built on strategic trust and sustainability.
• Regional and cross-continental alliances are becoming the new anchors of global cooperation — seen in efforts like the India-EU FTA or African Continental Free Trade Area.
• There is growing momentum for green trade agreements that prioritise climate action, renewable energy, and technology sharing over sheer profit and efficiency.
• The Biden administration’s Inflation Reduction Act is an example of using industrial policy to tackle climate change, a model that could be replicated globally.
• Experts suggest that the future of trade may be more sector-specific than global — focusing on EVs, solar panels, batteries, and digital services — rather than pursuing sweeping trade deals.
• India, with its strength in digital technology, renewable energy, and strategic autonomy, is well-positioned to be a key player in this next phase of global trade.

Conclusion

The retreat from hyper-globalisation marks a profound transformation in the global economy. While the benefits of free trade and economic integration are well documented, the risks of over-dependence, inequality, and strategic vulnerability have become too large to ignore. As countries pivot toward self-reliance, regional alliances, and industrial policy, a more fragmented but potentially resilient global order is emerging. India’s strategic positioning and growing partnerships make it central to this evolving landscape.

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Practice Questions (250 words):

1. How do changing global trade dynamics impact India’s quest for strategic autonomy and economic resilience?
2. Can industrial policy replace the benefits of hyper-globalisation in ensuring inclusive and sustainable development?