A Fragmenting World: Is Globalisation Entering A New Era?

Global trade is changing as countries prioritise resilience, security, domestic production and strategic interests alongside economic efficiency.

For much of the past few decades, the world economy moved in one broad direction: greater economic integration. A product could be designed in one country, contain components manufactured in several others, be assembled somewhere else and eventually be sold across dozens of markets. Companies built supply chains around efficiency, countries specialised in industries where they had advantages and consumers gained access to a wider range of products, often at lower prices. Globalisation was never perfect, but it fundamentally changed how the world economy worked and created economic relationships that connected countries more closely than at almost any other point in modern history.

That model is now under pressure. The COVID-19 pandemic exposed vulnerabilities in international supply chains, while the war in Ukraine disrupted energy and commodity markets. Growing strategic competition between the United States and China has affected technology, investment and trade, while governments across the world have introduced export controls, investment restrictions and industrial policies in sectors considered strategically important. Companies that once focused primarily on cost and efficiency are increasingly considering whether their supply chains can withstand geopolitical tensions, trade restrictions, natural disasters and sudden changes in government policy.

The [[World Trade Organization|https://www.wto.org/english/res_e/publications_e/gvcreport2025_e.htm]] has examined how global value chains are changing because of technological developments, the green transition and geopolitical conditions. Its research suggests that global value chains remain important, but their structure is being adjusted as businesses and governments place greater emphasis on resilience and diversification. This does not necessarily mean that globalisation is ending. It may mean that globalisation is entering a different phase in which efficiency is no longer the only consideration shaping international economic relationships.

For years, companies were encouraged to produce wherever they could do so most efficiently. If one country could manufacture a component at a lower cost than another, production naturally moved there. This created highly specialised supply chains that stretched across continents. The model worked particularly well when trade remained relatively predictable and geopolitical relationships were stable. But recent disruptions have shown that a supply chain that is highly efficient under normal conditions can become extremely vulnerable when one important link suddenly becomes unavailable.

Governments have therefore become more willing to support domestic production of semiconductors, batteries, critical minerals, pharmaceuticals, defence equipment and other strategically important products, even when domestic production may cost more. The objective is not necessarily to produce everything at home. Instead, countries are trying to reduce excessive dependence on a single foreign source for goods that are considered essential to national security or economic stability.

This shift can be seen in the growing use of terms such as “friend-shoring”, “near-shoring” and “China+1”. Companies are diversifying production across several countries rather than relying on a single location. Governments are encouraging investment in strategic industries, while trade relationships are increasingly influenced by questions of technology, national security, climate policy and industrial development.

The change creates both opportunities and risks for developing economies, including India. Companies looking to diversify manufacturing may seek additional production bases, and India has a large domestic market, a substantial workforce and growing capabilities in areas such as electronics, pharmaceuticals, automobiles and services. Government programmes designed to encourage manufacturing and investment are also attempting to position India as a larger participant in global supply chains.

But attracting investment is not automatic. Companies need reliable infrastructure, skilled workers, competitive logistics, predictable regulation and access to international markets. India will therefore have to compete with other countries that are also attempting to attract manufacturing and investment as global supply chains are reorganised.

From Efficiency To Resilience

India's position in this changing global economy also creates an interesting tension between strategic autonomy and international integration. The country has increasingly emphasised the importance of being able to withstand external shocks and develop domestic capabilities in strategically important areas. At the same time, India remains deeply connected to international trade, investment and technology.

Complete economic self-sufficiency is difficult for any modern economy. A smartphone can depend on minerals from one region, chips designed in another, components manufactured elsewhere and software developed across several countries. Electric vehicles require batteries, minerals, electronics and sophisticated supply chains. Even food and energy systems depend on international markets. The question is therefore not whether countries can eliminate dependence, but whether they can make that dependence safer, more diversified and less vulnerable to sudden disruption.

The [[World Bank|https://www.worldbank.org/en/news/press-release/2025/02/28/india-accelerated-reforms-needed-to-speed-up-growth-and-achieve-high-income-status-by-2047]] has highlighted the importance of greater investment, productivity and deeper integration with global markets for India's long-term development ambitions. This suggests that strategic autonomy does not necessarily have to mean economic isolation. India can attempt to strengthen domestic capabilities while continuing to participate actively in international trade and investment.

The same principle applies to other countries. A government can decide that certain strategic products should have domestic production capacity without attempting to manufacture every product within its own borders. A company can maintain suppliers in several countries without abandoning international production. A country can protect critical infrastructure while continuing to trade extensively with other economies.

This could eventually produce a different form of globalisation. International trade may remain large, but supply chains could become more regional and diversified. Businesses may maintain multiple suppliers even when one supplier would be cheaper. Governments may accept somewhat higher costs in exchange for greater resilience. Strategic industries may receive more government support, while international cooperation continues in areas where countries remain mutually dependent.

The economic consequences of this transition are complicated. Greater resilience can reduce the impact of future disruptions, but diversification can also increase production costs. Maintaining multiple suppliers requires additional investment, while building domestic capacity can be more expensive than importing from the cheapest producer. If governments impose tariffs or other restrictions, businesses may eventually pass some of those costs on to consumers.

There is also a risk that economic fragmentation could become self-reinforcing. If one country introduces restrictions on strategic goods, another may respond with restrictions of its own. Companies then adjust their supply chains around those barriers, and governments may introduce additional measures to protect domestic industries. Over time, the global economy could become increasingly divided into competing economic blocs.

The [[International Monetary Fund|https://www.imf.org/en/Topics/Geoeconomic-Fragmentation]] has warned that deeper geoeconomic fragmentation could carry significant costs for global economic activity, trade and investment. The impact would not necessarily be distributed equally. Smaller and developing economies could face particular difficulties if access to major markets, technologies or investment becomes increasingly dependent on geopolitical alignment.

For India, the challenge is therefore to benefit from supply-chain diversification without allowing a more fragmented global economy to reduce access to markets and technology. The country has an opportunity to become an important manufacturing and services hub, but doing so will require continued investment in infrastructure, skills, logistics and institutions.

There is another possibility as well. Countries could use the current period of disruption to build a more resilient form of globalisation rather than abandoning globalisation altogether. International trade does not have to mean that every country produces everything in exactly the same way. It can mean that countries remain economically connected while developing safeguards against excessive concentration and supply shocks.

Such an approach would require international cooperation. Countries need rules that allow governments to protect legitimate national-security interests without turning every economic relationship into a geopolitical confrontation. They also need trade systems that can accommodate climate policies, technological standards and industrial development without creating permanent divisions between economic blocs.

For developing countries, this balance matters enormously. A fragmented world can make it harder for smaller economies to access markets, technology and investment, but diversification can also create opportunities for countries that are able to become reliable suppliers in new global value chains. The outcome will depend partly on whether governments choose cooperation where cooperation remains possible.

The world is unlikely to return completely to the assumptions that shaped global trade during the first decades of the twenty-first century. Governments have learned that economic interdependence can create vulnerabilities as well as benefits, while businesses have learned that the cheapest supply chain is not necessarily the safest supply chain. Yet interdependence remains a reality because countries continue to depend on one another for energy, technology, raw materials, food, investment and markets.

The future of globalisation may therefore be less about choosing between complete integration and complete separation and more about finding a balance between efficiency, resilience and national interests. The global economy can remain interconnected while becoming more diversified, but achieving that balance will require countries to recognise that economic security and international cooperation do not always have to be competing objectives.

Globalisation may be entering a new era, but that does not necessarily mean the end of globalisation. It may mean a world in which trade continues but is shaped by a greater awareness of geopolitical risk, strategic dependence and economic resilience. How countries manage that balance will influence not only international trade, but also investment, technology, employment and the structure of the global economy for decades to come.