The past three decades have seen the phenomenon of globalization based on a very basic concept: producing where costs are minimum and marketing anywhere where demand is present. The result has been the formation of very efficient global production chains throughout the world. From 1995 to 2024, international trade has experienced tremendous growth, growing from 16 percent of world GDP at the start of the 1990s to about 45 percent today.
However, the global economy is currently experiencing the biggest structural change since the end of the Cold War. This is due to the Russia-Ukraine conflict, the strategic competition between the United States and China, economic sanctions, export controls, disruptions in the Red Sea area, and worries about technology dependency. This has led to a reevaluation of production, sourcing, and investments for many governments and MNCs. What has happened is not the death of globalization, but its rebirth in another form.
The data clearly explains the above trend. As per WTO statistics, the global trade in goods and commercial services stood at USD 34.65 trillion in 2025, witnessing an increase of 7 percent on a yearly basis. The growth in trade in goods stood at 6 percent, while the growth in services trade stood at 8 percent, which was the highest among all the components of global business.
These figures suggest that globalization is far from dead. However, the geography of trade is changing rapidly. The most important driver of this change is the deterioration of the U.S – China economic relations. Since the launch of the U.S.-China trade war in 2018, tariffs, semiconductor restrictions, investment screening mechanisms, and technology controls have become permanent features of international commerce. What began as a tariff dispute has evolved into a strategic competition affecting virtually every major supply chain.
The consequences are visible in investment patterns. Instead of relying exclusively on China, multinational firms are increasingly adopting a “China Plus One” strategy. Production capacity is being diversified across countries such as Vietnam, India, Indonesia, Thailand, and Mexico etc. This process is often referred to as the China manufacturing shift.
The aim is not to get out of China. What they try to do is diversify themselves so that the geopolitical risks could be minimized for them. Apple suppliers have expanded into India and Vietnam. The large electronics, textiles, and automotive makers are spreading their production facilities throughout several countries.
In such a context, there emerges a fresh economic term – “friendshoring.” As opposed to conventional globalization that emphasizes efficiency and cost-cutting, friendshoring emphasizes political trust. In other words, governments now urge businesses to set up manufacturing units in geopolitically reliable countries.
For the IMF, this represents one of the biggest economic challenges of the decade. According to the IMF’s own research, significant trade fragmentation could result in a decline in global GDP ranging from 0.2 percent to 7 percent, contingent upon the degree of decoupling of the economies involved. If we were to see an economic balkanization of the world into separate economic factions, global GDP would decline by 5 percent on average each year, equivalent to losing an economy about the size of Japan’s annually. Even friendshoring, which is relatively moderate when compared to other forms of economic behavior, comes with economic costs. A model put together by the IMF indicates that friendshoring would cause global GDP to fall by around 1.8 percent, while reshoring would cost 4.5 percent.
The war between Russia and Ukraine further exacerbated this situation. The reliance of Europe on energy supplies from Russia highlighted the fragility of the inter-connectedness in their supply chain system. Prior to the outbreak of the war, Russia was responsible for about 45 percent of the natural gas that came into the European Union. Russia is one of the major exporters of crude oil and petroleum products for the European Union. The disruption forced the European Union to rapidly diversify suppliers, invest in LNG infrastructure, and rethink the strategic implications of economic dependence.
The message was loud and clear that efficiency will not always guarantee security. It is for this reason that governments all around the world began embracing the concept of industrial policies. America passed the CHIPS and Science Act and Inflation Reduction Act of 2022 to promote domestic manufacturing in strategic industries like semiconductors, electric vehicles, and clean technologies through subsidies worth USD 54.2 billion and aid of USD 280 billion from the federal government. Meanwhile, the European Union has implemented programs like “European Industrial Strategy” to increase strategic autonomy, whereas India launched Production Linked Incentives in 14 strategic sectors valued at Rs. 1.91 lakh crore.
This resurgence of economic nationalism is also reflected in trade policy. According to WTO monitoring, approximately USD 2640 billion worth of global imports, representing more than 11 percent of world imports, became affected by tariffs and trade-restrictive measures between late 2024 and 2025. Similarly, UNCTAD reported that tariff increases accelerated significantly during 2025 and since 2020 around 18000 new discriminatory trade measures have been introduced
Economic nationalism is also manifested through trade policies. According to data gathered by the WTO, the value of global imports amounting to an estimated USD 2640 billion worth of imports or about 11 percent of the total imports in the world was affected by trade restrictions between late 2024 and 2025. The same organization, UNCTAD, noted an increase in tariffs and said that a total of 18000 discriminatory trade restrictions have been adopted since 2020.
However, the unfolding story is more complex than that of deglobalization. According to the Global Value Chain Development Report 2025 by WTO, there is scant evidence to show any major case of reshoring or the unravelling of global value chains. Instead, what we have seen is that companies are seeking alternative suppliers, building regional production bases, and creating redundancy in their supply chains, instead of giving up on manufacturing internationally. The trade flow itself continues to exhibit great strength. As per the WTO statistics, in Q1 2025, the volume of merchandise trade went up by 5.3 percent year-on-year as businesses imported products in anticipation of higher tariffs.
However, despite all existing geopolitics, world trade remains very much interdependent. In accordance with recent estimates, global trade volume in goods and services today exceeds its level in 1950 by about 45-fold, stressing the great extent of economic integration. However, what really changes is not the presence of globalization, but rather its nature.
In the end, it becomes clear that the current period does not represent an end to globalization, but rather its next stage. While international trade continues at record levels, the rules that govern it have changed. Efficient trade that minimizes cost is not the only consideration anymore, as resilience and security matter just as much. With the rise of conflicts, sanctions, and international rivalry, supply chains have begun to adapt to become more diverse and more political. In other words, future international trade will not involve deglobalization but rather globalization that has transformed into something new.
