The End of Hyperglobalisation?

For roughly three decades following the Cold War, the dominant trajectory of the global economy was towards deeper integration — falling tariff barriers, expanding multilateral trade agreements, and the emergence of extraordinarily complex global supply chains that crossed dozens of borders in producing a single finished good. That era is not over, but it is clearly under significant stress.

A series of overlapping developments — the U.S.-China strategic competition, the COVID-19 pandemic's supply chain disruptions, Russia's invasion of Ukraine, and the resurgence of industrial policy across major economies — has accelerated a trend toward what economists and analysts now call trade fragmentation or "geoeconomic decoupling."

What Trade Fragmentation Actually Means

It is important to be precise about what is actually happening, because the term "deglobalisation" is frequently used loosely in ways that overstate the case. Global trade volumes have not collapsed. What is changing is the architecture of trade relationships:

  • Friend-shoring: Major economies are increasingly preferring to source critical inputs from geopolitically aligned partners rather than the lowest-cost producer. The United States, European Union, and others are explicitly building this into industrial policy.
  • Nearshoring: Companies are shortening supply chains geographically to reduce logistics costs and geopolitical exposure, benefiting Mexico, Eastern Europe, and parts of Southeast Asia.
  • Sector-specific decoupling: Decoupling is most pronounced in strategically sensitive sectors — semiconductors, telecommunications equipment, critical minerals, pharmaceuticals — rather than across the economy uniformly.

The Role of Industrial Policy

After decades of ideological scepticism toward active industrial policy in mainstream economic circles, it has made a dramatic return. The U.S. CHIPS and Science Act, the Inflation Reduction Act's domestic content provisions, and the EU's Green Deal Industrial Plan all represent substantial government interventions designed to reshape where production occurs — not primarily on the basis of comparative advantage, but on strategic and resilience grounds.

This shift has profound implications. It means that market signals alone are no longer sufficient to predict where industries will locate. Policy analysis must now accompany economic analysis in any serious assessment of where supply chains will evolve.

Implications for Emerging Economies

Trade fragmentation creates both risks and opportunities for emerging economies. The risks are real: countries that built their development strategies on deep integration into global value chains — particularly in manufacturing — face potential disruption if those chains reorganise along geopolitical lines.

But there are also opportunities. The search for alternative, politically acceptable production locations creates demand for capable emerging market partners. Vietnam, India, Mexico, and several others have already captured significant supply chain diversification investment. The competition to attract this investment will intensify.

Key Variables to Monitor

For analysts and decision-makers tracking these developments, the following variables are particularly informative:

  • Policy developments in the U.S.-China technology competition, which is the primary driver of semiconductor and advanced manufacturing supply chain reorganisation
  • Critical mineral supply chain developments — lithium, cobalt, rare earths — given their centrality to both the energy transition and defence technology
  • WTO dispute settlement developments, which signal whether multilateral trade governance retains meaningful authority
  • Regional trade agreement evolution, including CPTPP expansion and AfCFTA implementation progress

Conclusion: A More Complex, Not Less Connected World

The global economy is not deglobalising — it is reorganising. Supply chains are becoming shorter in some dimensions and more selective in their geographies, but the world remains deeply economically interdependent. Navigating this more complex, politically shaped trading environment requires analysts and strategists to hold economic and geopolitical reasoning simultaneously, rather than treating them as separate domains.