Deglobalisation: what you need to know

In response to COVID-19, Russia’s war with Ukraine and climate change, governments and global companies are seeking security and resilience over the benefits of global value chains.

There are strong signals that the era of globalisation is coming to an end, analysis by research analysts at Barclays Corporate and Investment Bank suggests.

The rise of globalisation was never entirely smooth or assured. The reduction of global trade that was bookended by the two world wars was followed by 60 years of increased globalisation. This included the hyper-globalisation period from 1990 to 2008.

However, the 2008 financial crisis, trade wars, disenfranchised middle classes in developed economies and rising concerns about over-reliance on trade with single partners led to a period of relatively stagnant "slowbalisation".

Today, "slowbalisation" appears to be moving towards deglobalisation. Recent disruptions to global value chains such as the COVID-19 pandemic, the war in Ukraine, growing ideological differences and the green transition have prompted governments and corporations to reconsider external dependencies. They are looking closer to home and to trusted partners for more resilient growth models.

This sentiment is transcending media headlines and political posturing, and is becoming part of general corporate rhetoric. According to Barclays’ Investment Sciences team, a small but notable fraction — 4% — of corporate transcripts mentioned onshoring in 2022. Striking, when this has been under 1% prior to the pandemic.

While M&A (Mergers & Acquisitions) and jobs data suggest that deglobalisation is occurring, it is not happening uniformly across the planet. Increased onshoring of jobs is taking place primarily in Asia. Domestic employment is also increasing in the US and Europe, but this appears to balance local resignations, and the net trend in both regions is still towards globalisation, albeit among more junior roles.

Barclays also found evidence that fewer announced M&A deals have been completed recently than historical patterns would suggest. Moreover, deals between target firms in Europe and North America are less likely to succeed when the acquirer is outside these regions, especially for target firms in industries such as advanced technology, finance and retail. On the other hand, deals targeting firms in, for example, consumer staples, are more likely to succeed.

Similarly, the slowdown of M&A activity may not be caused solely by macroeconomic trends, but also by regulatory concerns, as the European Commission and the UK antitrust authority increase scrutiny on deals.

Energy is a key sector to watch in terms of both globalisation and deglobalisation. The common incentive for nations to address climate change has been a major source of globalised cooperation in recent years. Yet the mechanics of the green transition itself also necessitate a more local focus.

The push towards a long-term increase in the share of energy coming from renewables is being driven by the reduction of carbon-intensive transportation infrastructure and carbon pricing mechanisms acting as de facto tariffs. Rising concerns about energy security and fossil fuel pricing volatility have also heightened interest in domestic renewables.

However, as the green transition is a global challenge, Barclays suggests it still needs a globalised approach — one that complements local and regional solutions. Although the rise of renewables will fundamentally reshape fossil fuel trade flows, the green transition will have to be supported by the minerals industry that will be used to build its infrastructure. This will result in the increased trade integration of mineral-endowed countries.

The era of globalisation may be coming to an end. What replaces it remains to be seen, but it is clear that global cooperation is necessary to confront shared challenges.