Fragmented Globalization

The reversal of decades of economic integration will leave the global economy with higher inflation and reduced growth potential. In this new era, governments, companies, and long-term investors will need to incorporate more sophisticated geopolitical and sociopolitical analyses into their strategies.

CAMBRIDGE – For three decades, businesses and governments around the world operated under the assumption that economic and financial globalization will continue apace. As the international order has come under strain in recent years, however, the concept of deglobalization – the delinking of trade and investment – has increasingly gained traction with households, companies, and governments. But the available data suggest that globalization is not ending so much as it is changing.

Not too long ago, it seemed that there were no limits to global economic and financial integration. For decades, globalization’s benefits appeared to be obvious and unassailable. The interconnectedness of production, consumption, and investment flows provided consumers with a wider range of choices at attractive prices, enabled companies to expand their markets, and improved the efficiency of their supply chains. Global capital markets expanded access to credit and lowered its cost for private and public borrowers alike. The world’s governments engaged in what seemed to be a series of win-win partnerships. And technology – including, most recently, the accelerating shift toward remote work – made national borders seem largely irrelevant.

But while globalization made markets work better, policymakers lost sight of its adverse distributional consequences. Many communities and countries were left behind, contributing to a widespread sense of marginalization and alienation.

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