As protectionism, geopolitical tensions and supply-chain vulnerabilities reshape the global economy, Prime Minister Narendra Modi re-emphasized the push for a self-reliant India in his Independence Day address. Yet, even as talk of de-globalization gains momentum worldwide, the evidence points to transformation rather than an across-the-board retreat.
Traditional merchandise trade is facing growing headwinds from higher tariffs and other trade barriers. But cross-border integration continues through services, investment and digital flows. Supply chains are being reconfigured rather than dismantled, while new trading partners are gaining prominence.
For India, the push to strengthen domestic capabilities need not be at odds with deeper global integration.
Despite the growing momentum of protectionist tendencies over the past two decades, several countries have not translated into a fundamental retreat from globalization, which extends beyond merchandise trade to services, investment and financial flows.
The KOF Globalization Index, which captures economic, social and political integration, shows that the world became more globalized between 2010 and 2023, though countries followed markedly different paths. Major industrial hubs such as the US and China have increasingly turned inward on merchandise trade, using industrial subsidies, import restrictions and policies aimed at strengthening domestic production. Yet, their overall globalization scores continued to rise, reflecting deeper integration through other channels.
Connector economies such as Vietnam, India and the UAE have become more globally integrated, benefiting from shifting supply chains, investment diversification and multinational firms broadening their production bases. European economies such as Spain and Germany also remained deeply integrated through regional trade and investment ties.
The emerging world order, therefore, points less to wholesale de-globalization and more to fragmentation and reconfiguration as the channels and geography of global integration shift.
Even as globalization shows little sign of retreating, it is changing lanes, with services gaining ground as goods trade loses momentum. The era of hyper-globalization in goods may have run its course, with merchandise trade surging from 32.4% of world GDP in 1995 to 51% in 2008, but never sustainably regaining that level since the global financial crisis.
The rise of trade wars since the first Trump presidency has added to these headwinds, as higher tariffs, non-tariff barriers and industrial policies increasingly constrain merchandise flows. Services, however, tell a different story. Their share of world GDP has continued to trend upwards, increasing from 12.4% in 2008 to a record 15.1% in 2024, compared with just 8.5% in 1995.
Unlike goods, services are not directly subject to tariffs, although regulatory and market-access barriers remain. Digitalization has also made services ranging from software and consulting to finance and business processes increasingly tradable across borders, opening new channels for global economic integration.
A key indicator of global integration is the foreign value-added content of exports, which measures the share of a country’s exports that comes from inputs sourced abroad.
A product exported by one economy may contain components, raw materials, technology and services sourced from several others, reflecting the deep integration of production across borders. On this measure, international production networks remain closely intertwined. The global average foreign value-added share of gross exports increased from 19.5% in 1995 to a record 26.9% in 2022, before stabilizing to around 25% in recent years.
Notably, neither the global financial crisis nor the pandemic produced a lasting reversal, highlighting the resilience of these networks. Even amid the ongoing disruptions in West Asia, firms have largely responded not by abandoning international supply chains, but by diversifying suppliers, exploring alternative markets, and rerouting shipments to manage emerging risks.
Thus, as supply-chain security assumes greater importance in the changing global order, the response appears to be diversification rather than isolation.
Most global goods trade either takes place among geopolitically aligned countries or involves unaligned economies, while trade across rival geopolitical blocs accounts for a much smaller share. This limits the extent to which geopolitical fragmentation necessarily translates into deglobalization.
