The growth aspirations of developing countries supported by industrial prowess of developed economies, while leading to phases of rapid globalisation across the world, also resulted in skewed power and trade dynamics in favour of developed nations. Later, the world economy got hit hard by deglobalization. Today, nations are realigning their policies and national priorities through engaging in collaborative partnership with other economies to overcome the current phase of deglobalization. This chapter will track the phases of global growth and its reverse internationalization from the lens of various black swan events and will also analyse the changing global economic landscape resulting in the emergence of new pillars of global trade and cooperation in the form of economic trade blocs and regional trade agreements leading to a multipolar world and new reality of global trade. From a business perspective, the chapter will dwell on how corporates are realigning their international business practices, in this era of deglobalisation, to maintain their growth trajectory.
Top1. Introduction
Looking back into the history of wars, one of the most epic ones was the ‘Battle of Thermopylae’ between Persians and Sparta, famously projected in the 2007 movie “300”. The battle was not about the existing dominance of Athens but more about their fear of the rise of Sparta as the future dominant force, which could endanger the current status quo of power dynamics, tilting in favour of Sparta. More than 2000 years ago, historians from Athens and Greece dubbed this the “Thucydides trap.” A trap where decisions are taken in the time horizon leading to decision dynamics of “now or later”, as Do we implement strategic decisions now or wait for the competitor’s move Today, as United States of America is well into the seventh year of a trade war with China which is challenging its global dominance, a few questions need to be explored - Are we witnessing the new ‘Thucydides trap’? Are we well past the golden era of globalisation? Is deglobalisation a real and apparent danger for the world economy? Is the great reset of Covid 19 leading us to a new era of Cold War? Which countries or economic blocs would rise as new poles of global trade dominance in this multipolar world?
In the contemporary literature on international business, the concept of globalisation has been defined through the lens of trade, tariffs, transactions, collaborations, treaties, and, at times, through their integration as Eichengreen (2023) defined globalisation as an “Integrated global economy in which cross-border transactions and GDP rise in tandem”. However, it is well recognised in international business practices that globalisation is more than trade; it is also about openness, interconnectedness of people, exchange of culture, knowledge, and intellect (Grunstein, 2022).
The world economy, which hit its peak Purchasing Power Parity (PPP) of $163.51 trillion in 2022 (IMF, 2023), has witnessed its share of phases of globalisation starting from the first phase of integration of the global economy a century before World War I, during which global trade increased annually by 4% (García-Herrero and Tan, 2020), to the second phase after World War II, resulting in the establishment of General Agreement on Tariff and Trade (GATT) in 1948 and the World Trade Organization (WTO) in 1999. Increased global capital flow, industrialisation driven by technological exchange, and the rise of the middle class in the US and Europe resulted in the peak of globalisation in 2007 before it converged to a gradual decline after the great financial crisis of 2008 (García-Herrero and Tan, 2020). On the other hand, the ascend of the global economy was noted to be maximum during 30 year period from 1970-2000, which is also termed a phase of hyper-globalization (Miśkiewicz and Ausloos, 2010).
In the 2023 World Trade Report, the World Trade Organization defined the end of the 1st stage of globalisation with the onset of World War I, resulting in three decades of deglobalisation, during which world trade shrieked from $ 29.50 billion in 1919 to $ 21.5 billion in 1938 (World Trade Organization, 2023) and subsequently, the next phase of globalisation sets in reaching a peak in global trade between 2007-2009 and a peak of inward Foreign Direct Investment (FDI) between 2007-2011 (Witt, 2019).
On the other hand, Kim et al., (2020) suggested that the pendulum of globalisation and deglobalisation swinging much before that, with the first globalisation phase dated from 1840-1929 followed by ten years of deglobalisation between 1929-1939 and the second phase of globalisation from 1979-2008 before the recent deglobalisation set in after the great financial crisis and US-China trade war (Kim et al., 2020).