Mains Practice Questions

Introduction

The liberal international economic order (LIEO) rests on principles of free trade, open capital flows, multilateralism, and rule-based cooperation, largely institutionalised after World War II.

• Deglobalisation, seen in rising protectionism, reshoring, sanctions, and fragmentation of supply chains, directly challenges these principles by prioritising national economic security over global economic integration.

Body:

How Deglobalisation Challenges The Liberal International Economic Order?

• Erosion Of Free Trade And Open Markets: Deglobalisation weakens the commitment to tariff reduction and market access, a core pillar of the LIEO.
  • The rise of trade barriers, export controls, and industrial subsidies undermines comparative advantage and distorts global trade flows.
  • Trade wars (like China-USA) and selective tariffs (US's tariffs on India) have diluted the spirit of free trade championed under the World Trade Organization framework.
• Weakening Of Multilateral Institutions: The liberal order relies on multilateral institutions for dispute resolution and coordination.
  • Deglobalisation shifts decision-making toward bilateral and regional arrangements, reducing the relevance of global rules.
  • For instance, the Paralysis of WTO’s Appellate Body reflects declining faith in multilateral trade governance.
• Rise Of Economic Nationalism And Strategic Protectionism: Policies such as reshoring, friend-shoring, and strategic decoupling prioritise national resilience over global efficiency.
  • This challenges the LIEO’s assumption that economic interdependence promotes stability.
  • Export controls on critical technologies (eg, China’s restriction on magnet exports to India) and resources justified on national security grounds.
• Fragmentation Of Global Value Chains: Deglobalisation disrupts globally integrated production networks that were central to post-1990s economic globalisation. Fragmentation increases costs and reduces efficiency.
  • Post-pandemic and geopolitical tensions have led to export controls on advanced semiconductors and active pharmaceutical ingredients (APIs), prompting countries to reshore or friend-shore production.
  • This has raised production costs, reduced economies of scale, and increased input prices, especially affecting electronics and pharmaceutical manufacturing in developing countries.

Impact Of Deglobalisation On Developing Countries

• Slower And Less Inclusive Economic Growth: Developing countries historically relied on open trade and foreign direct investment to drive export-led growth and industrialisation.
  • Deglobalisation restricts access to global markets, capital, and demand, making it harder for manufacturing-oriented economies to scale production.
  • As exports stagnate and investment inflows decline, overall growth slows and becomes less inclusive, particularly affecting countries dependent on global demand.
• Adverse Employment Outcomes: Global value chains earlier created large-scale employment in labour-intensive sectors such as textiles, electronics assembly, and business process outsourcing.
  • Fragmentation of these chains reduces production volumes and discourages new investment, limiting job creation.
  • This leads to job losses, informalisation of work, and shrinking employment opportunities for women and youth who dominate export-oriented sectors.
    • For example, Indian steel and aluminium exports to the EU fell by about 24.4 % ahead of the EU’s Carbon Border Adjustment Mechanism rollout, reflecting early market impacts on competitiveness and potential job losses.
• Restricted Access To Technology And Knowledge: Trade, FDI, and participation in global value chains were key channels through which developing countries accessed advanced technologies and managerial know-how.
  • Deglobalisation, combined with export controls and strategic decoupling, disrupts these channels.
  • As a result, firms in developing economies struggle to upgrade technology, slowing productivity growth and movement up the value chain.

While deglobalisation poses risks to growth, employment, and technology access, it also opens strategic opportunities for countries like India (that is pursuing Atmanirbhar Bharat Policy) if supported by strong domestic reforms, skill development, and infrastructure expansion.

Opportunities For India In A Deglobalising World

• Supply Chain Diversification And Friend-Shoring: As firms seek to reduce over-dependence on single-country supply chains, India can position itself as a reliable alternative manufacturing and services hub.
  • Its large domestic market, democratic credentials, and geopolitical acceptability make it attractive for “China+1” strategies, especially in electronics, pharmaceuticals, and automotive components.
• Boost To Domestic Manufacturing And Industrial Policy: Deglobalisation allows greater policy space for strategic industrial support without immediate multilateral backlash.
  • India can leverage this to strengthen domestic manufacturing through targeted incentives, infrastructure development, and cluster-based industrialisation, improving value addition and employment.
• Services And Digital Economy Advantage: While goods trade faces fragmentation, services trade and digital exports remain relatively resilient.
  • India’s strength in IT, digital services, fintech, and global capability centres enables it to benefit from continued cross-border demand for skilled services despite physical supply-chain disruptions.
• Strategic Technology And Capability Building: Restrictions on global technology flows highlight the need for domestic capability.
  • For India, this creates momentum to invest in semiconductors, green technologies, defence production, and critical minerals, reducing vulnerability while fostering long-term technological self-reliance.
• Enhanced Geopolitical And Negotiating Leverage: Fragmentation of global blocs increases the relevance of large, non-aligned economies.
  • India can leverage its position across multiple groupings to attract investment, negotiate favourable trade terms, and shape emerging rules in areas like digital trade, climate finance, and resilient supply chains.

Conclusion

Deglobalisation constrains trade, investment, and technology flows, hurting developing economies, but for India it also creates opportunities to attract diversified supply chains, boost manufacturing, and build technological capacity, provided these are leveraged through sustained reforms, skilling, and infrastructure, while upholding a fair multilateral trading system.