Understanding Globalisation
Globalisation is a process of integration between countries, economies, and markets through systems such as international trade, the advancement of information technology, and the development of transportation infrastructure. Largely speaking, globalisation often points to economic growth and societal development. This includes countries benefiting from lower manufacturing costs abroad, the creation of new employment, increased access to new consumer markets, and the exchange of ideas and values across cultures.
Hyper-Globalisation from 1999 to 2020
Hyper-globalisation refers to an era, from the late 1990s to much of the early twenty-first century, where economic integration across borders was at its ascendancy. During this phase, merchandise exports increased from 15 per cent of global GDP in 1990 to 26 per cent in 2008, and goods and services openness reached approximately 33 per cent for exports alone in the following year (Subramanian and Kessler, 2013). Hyper-globalisation not only fuelled quantitative shifts in the global economy and integration, but also qualitative shifts. This includes the surge in global value chains (GVCs), which reshaped global manufacturing by fragmenting production across multiple borders, and China transforming into a worldwide manufacturing hub, absorbing substantial foreign direct investment (FDI) and exporting intermediates worldwide. Undoubtedly, hyper-globalisation proved transformative for the global economy, but not without its drawbacks. Hyper-globalisation made countries and economies around the world highly vulnerable to global shocks and disturbances in supply chains, causing nations to suffer from periods of soaring inflation, heightened unemployment rates, and shortages.
The Driving Forces of Hyper-Globalisation
One major factor behind the surge in globalisation was the creation of the World Trade Organization (WTO) in 1995, which helped institutionalise international efforts to reduce trade barriers. As a result, MFN tariffs fell from over 25 per cent in the mid-1980s to around 8 per cent by the 2000s. This contributed to a rise in the ratio of merchandise exports to GDP, from 15 per cent in the early 1990s to 26 per cent by the 2010s (Subramanian and Kessler, 2013). At the same time, global value chains (GVCs) expanded rapidly, growing by around 4.3 per cent each year and becoming an increasingly important part of international trade. Products shifted from being manufactured entirely in one country to their production process being split amongst dozens of countries. This GVC participation accelerated globalisation as it allowed producers to benefit from economies of scale and increase both productivity and efficiency, increasing global output.
Notably, in 2001, China joined the World Trade Organization, allowing it to surpass the USA in 2012 as the world’s most massive exporter and importer of manufactured goods (Subramanian and Kessler, 2013).
In 2004, the European Union was enlarged with the incorporation of ten additional Central and Eastern European countries, thus integrating over 74 million citizens into the EU (Council of the European Union, n.d.). This fuelled the free movement of goods, services, capital, and labour, and GDP per person was 30 per cent higher in 15 years (Beyer, 2024).
Although the examples mentioned above are only a few drivers of hyper-globalisation, they provide a thorough understanding of the soaring integration of the time. This stage of hyper-globalisation led to a significant decrease in poverty, and the world population living in poverty fell from 36% in 1990 to 10.0% by 2015 (Poverty and Shared Prosperity). Inflation also saw a decline during the 1990s and 2000s as heightened competition and decreased manufacturing costs led to lower consumer prices and increased purchasing power (ECIPE, 2014).
However, by 2011, trade had grown at roughly the same pace as GDP, compared to growing around 1.9 times faster in the 15 years before the crisis (ING; Powell, 2016), alluding to a shift in emerging globalisation.
The Slowdown of Globalisation
In 2007–2008, the United States experienced a major financial crisis known as the “Great Recession”. This recession was caused by a severe contraction in liquidity in global financial markets, resulting from the collapse of the U.S. housing market. Consequently, the country’s gross domestic product was approximately 7 per cent lower in the long run than it would have been if the crisis had not occurred (Barnichon, Matthes, and Ziegenbein, 2018). It is also worth noting that the US generates around a quarter of global gross domestic product (GDP) at nominal prices (World Bank, 2023), and some of the world’s largest financial institutions are US banks that operate globally (Financial Stability Board, 2023).
Within a decade, this recession decreased the international movement of capital to roughly a third of its 2007 peak (McKinsey Global Institute, 2017), and attitudes towards globalisation began shifting as other countries also felt the financial and economic shock of the recession due to heavy integration with the US.
Another clear indication of a change in globalisation came in 2018 with the U.S.–China trade war. In 2018, the US began imposing tariffs and other trade barriers on China, claiming that China engaged in unfair trade practices, intellectual property theft, and forced technology transfer. Subsequently, CCP General Secretary Xi Jinping’s administration retaliated by imposing further tariffs on the US. A trade war between the world’s two largest economies leaves its mark globally. Simulations by the Kiel Institute, based on tariff rates in force in April 2025, projected that the conflict would cut global output by about 0.75 per cent and raise global prices by about 0.7 per cent within a year (Kiel Institute, 2025).
This trade war marked a significant turning point in globalisation as countries stepped back from multilateralism towards economic nationalism. Companies reliant on Chinese manufacturing saw a spike in their production costs due to the tariffs — the IMF estimated around a 0.8% loss in global GDP by 2020 because of trade tension — and countries began to prioritise their own domestic industries over global integration.
Alongside the rise of protectionism and economic contagion, hyper-globalisation declined during the COVID-19 pandemic as supply chains were disrupted and governments increasingly prioritised domestic resilience over efficiency.
The pandemic had a devastating effect on globalisation, which was impacted in terms of mobility, trade, and travel. Tourism and travel saw a steep decline as the number of passengers travelling by airline decreased from 4.5 billion in 2019 to 2.2 billion during the pandemic. Tourism in the Asia-Pacific region was specifically affected, with an estimated 14% decline in employment related to the industry.
Developed countries also faced disruptions in production and supply chains due to restrictions on local and international mobility, delays in customs, and distress in credit markets.
An IMF forecast (June 24, 2020) called for an 11.9% decline in trade volume in 2020. Similarly, an OECD forecast (June 10) called for a 9.5% trade decline in 2020, not accounting for a second outbreak, and an 11.4% decline when accounting for a second outbreak. Forecasts from the World Bank (June 8) called for a 10–24% shrinkage in trade in 2021.
Although signs of anti-globalisation sentiment existed before COVID-19 — such as the withdrawal of the UK from the EU (Brexit) and the U.S.–China trade war mentioned above — the pandemic appeared to have amplified these symptoms through disruptions in global supply chains, emerging economic and political tensions, and tides of nationalism. Undoubtedly, many governments responded to the pandemic by boosting domestic production and prioritising economic ties with regional partners.
Globalisation Today
Despite emerging concerns of declining globalisation, present-day evidence of globalisation paints a different picture. Worldwide merchandise and services trade reached a $33 trillion record in 2024 — as a result of excellent economic performance in developing countries — indicating a 3.7% increase or $1.2 trillion expansion from 2023. An analysis of global flows from 2019 to 2023 showed no significant decline in cross-border economic integration, indicating that trade and investment patterns are adapting rather than declining, and global FDI inflows stabilised at around $1.5 trillion annually by 2023 despite geopolitical tensions.
Unlike the era of hyper-globalisation, where firms relied heavily on single manufacturing hubs such as China, businesses have begun diversifying their suppliers and relocating parts of their production to key consumer markets. It is also true that near-shoring has seen a rise, where business processes are outsourced to nearby countries in order to reduce transportation costs and improve reliability. Many multinational corporations (MNCs) have also adopted the “China Plus One” strategy, expanding manufacturing into countries such as Vietnam, India, Indonesia, and Mexico while maintaining operations in China.
Services trade currently accounts for 20 to 25 per cent of total trade and has been increasing substantially, even faster than the trading of goods. Since the Great Recession, knowledge diffusion has increased by a factor of 1.4, and multinational firms are actively working on establishing research and development hubs around the world. It is also worth noting that total information industries are expanding globally faster than total manufacturing sectors. Global economic integration is manifesting in new ways, and trading in goods is no longer expanding as rapidly across borders as information, data, and intangible services are.
Altogether, these ideas suggest that globalisation is being reinvented rather than diminishing, and is materialising in ways that differ from what the world has seen before. As long as digitalisation and production continue, we can count on globalisation continuing alongside them.