Stating that trade frictions cannot be resolved by raising protectionist barriers, Giovanni Tria, Italy’s former minister of economy and finance, told the Global Times, “Tariff tensions are having a big impact on the global economy.” He stressed that countries need to practice globalisation, which is the basis for development around the world.

Former Italian prime minister Paolo Gentiloni, while stating that globalisation will continue, remarked during the seminar, “the risk is that global trade in the future will not be based on rules, but on force and coalition,” stressing that the European Union (EU) is “very concerned” about such a shift.

He further added that raising protectionist barriers is not the solution to trade frictions. He called for efforts “to keep rules-based trade, free trade, going,” and requested countries to “invest in WTO reform… and give credit to the WTO.”

Former US Secretary of Commerce Carlos M. Gutierrez, who was part of the panel, added that the economic cost of protectionism is also becoming more evident. He told the Global Times, “Tariffs are not a way to manage the global economy permanently.”

He further noted that despite ongoing frictions between Washington and Beijing, room remains for economic cooperation between the world’s two largest economies.

Li Cheng, a professor in the Department of Politics and Public Administration at the University of Hong Kong, said that the current wave of tariff and trade tensions should be seen as part of a broader and widely shared trend in the West, especially in the United States. He also said that protectionist sentiment and scepticism toward globalisation have been growing across political and economic circles right now, reflecting deeper structural issues in the US, when it comes to domestic distribution challenges and shifts in the global economic landscape.

Cheng doesn’t see trade conflicts disappearing in the near term, and Washington’s current protectionist approach should be seen as a result of weakness, confusion and fear. Stressing that these trends indicate a fundamental transformation in the global trade and economic landscape, he called for greater emphasis on multilateralism, international cooperation and respect for global institutions such as the WTO.

Wong Kan Seng, former deputy prime minister of Singapore, said that rising trade tensions, supply chain reconfigurations and increasing government interventions (subsidies and investment screening) are driving up costs and fragmenting global trade in the process. Such shifts will only make things like duplicated supply chains, higher trading costs and conflicting regulatory regimes the new normal, thereby placing greater pressure on smaller and emerging economies.

However, according to Robert Koopman, former chief economist of the World Trade Organisation and Hurst Senior Professorial Lecturer at American University, China has shown strong resilience and adaptability amid the ongoing global trade warfare and has started diversifying its portfolio.

The post Boao Forum for Asia Conference: Panellists advocate for rules-based free trade appeared first on International Finance.

The goal was simple: securing Artificial Intelligence (AI) and semiconductor supply chains, with countries like the US, Australia, Greece, Israel, Japan, Qatar, Republic of Korea, Singapore, the UAE, and the United Kingdom feeling the urge to derisk their supply chains in the coming years. In February 2026, the group saw a notable entry, with India, the world’s fourth-largest economy, joining the alliance.

When talking about the Pax Silica, Jacob Helberg, US Undersecretary of State for Economic Affairs, told CNBC, “Pax Silica is really not about China, it is about America. We want to secure our supply chains.”

But then, the question remains: to secure from whom?

Let’s go back to October 2025, when the Xi Jinping-led China decided to tighten export controls for its critical rare-earth metals, effectively turning the global economy’s dependence upon these materials into a strategic leverage.

So, if we look at the developments that made the headlines since October 2025, we may be witnessing a phenomenon where globalisation is evolving into a pattern where it is picking sides, with supply chains getting reorganised along geopolitical lines. Is it going against the core principle of globalisation as a concept itself, which preaches the growing interdependence of the economies, cultures, and populations, facilitated by factors like cross-border trade in goods and services, technology, flow of investment, people and information.

Weaponised supply chain

Let’s go back to October 2025 again, when China announced its ’announcement number 61 of 2025’, increasing export controls for five rare-earth metals in addition to the seven the Xi Jinping administration announced in April in the same year.

Out of the 17 rare-earth metals in total, China put export restrictions on 12 of them. Not stopping there, it also placed restrictions on the export of specialist technological equipment required to refine rare-earth metals. Foreign companies were mandated to obtain special approvals from Beijing if they wished to export rare-earth magnets and certain semiconductor materials containing a minimum 0.1% heavy rare-earth metals from the world’s second-largest economy.

Citing the rationale of national security interests for the move, which has been in effect since December 2025, China made sure that foreign companies end up explaining the intended use of the product they wish to make using Chinese rare-earth metals, attacking the very basis of globalisation, which advocates unrestricted flow of cross-border trade in goods, services and technology.

The Xi Jinping administration, however, believes that since rare-earth-related items have dual-use properties for civilian and military applications, implementing export controls on them is an ’international practice’.

In October 2025, the Chinese Commerce Ministry spokesperson told these exact things to the global media: “Certain foreign organisations and individuals have been directly transferring – or processing and then transferring – controlled rare-earth materials originating from China to relevant organisations and individuals directly or indirectly for military and other sensitive applications.”

Rare-earth metals are used in the production of electric cars, lithium-ion batteries, LED televisions, AI semiconductors and camera lenses. Most importantly, these raw materials are crucial for the US defence industry. According to the Centre for Strategic and International Studies (CSIS) think tank, rare earths are used to manufacture components of F-35 fighter jets, Virginia and Columbia-class submarines, Tomahawk missiles, radar systems, Predator unmanned aerial vehicles, and the Joint Direct Attack Munition series of smart bombs.

In 2023 alone, the United States emerged as the largest importer of Chinese rare-earth minerals and products, importing $22.8 million worth of products from the world’s second-largest economy, according to the Observatory of Economic Complexity (OEC). China, in total, exported $117 million in rare-earth metals and products that year. As per the US Geological Survey report, Washington sourced 70% of its rare-earth compounds and metals imports from China between 2020 and 2023.

Some argue that China’s weaponisation of its rare-earth supply chain is a strong response to the United States limiting Beijing’s access to semiconductors in 2022. The policy, formed under the watch of the previous Democrat administration, led by Joe Biden, hasn’t changed at all, even in 2026. And the approach has been a bipartisan one, with some American lawmakers even pushing for greater restrictions, warning that Beijing could reverse-engineer or independently develop advanced semiconductor technologies, with the bid to overtake Uncle Sam in both technological and military terms. The ongoing tariff conflict between the two sides has complicated matters since the start of Trump 2.0.

Pax Silica countering Chinese pressure?

Rahul Nath Choudhury, a Delhi-based economist specialised in international trade, trade policy, investment, advisory and research who has handled several economic and trade-related projects for the Government of India’s Ministry of Commerce, World Bank, Asian Development Bank, International Finance Corporation and Singapore government’s Ministry of Trade and Industry, told International Finance that globalisation has always been transactional and geopolitically inclined towards the countries that are politically and strategically aligned and share common interests.

“Inter-country blocks, such as BRICS, ASEAN, and the EU, all have some common features. The emerging incidents like trade war, political unrest, and civil disorder have further influenced the decision of various countries to align or tilt towards like-minded countries and reduce the impact of global uncertainties. This is evident as countries increasingly enter into trade, investment and strategic agreements, with those countries that are geopolitically aligned, rather than purely based on commercial efficiency,” he said.

On the other hand, Derek Scissors, Resident Scholar, American Enterprise Institute, whose research concerns the Chinese, Indian, Japanese and other Asian economies, and their connections to the American economy, commented, “Globalisation was initiated and led by the US. The Trump administration wants to partly reverse that, to make trade and investment more transactional. However, Trump administration agreements are being reached without approval from the US Congress, and may not last beyond 2028. The long-term path for globalisation is unclear. The global economy may fade somewhat in favour of regional blocs. It’s hard to see China’s goal of taking a dominant position in as many supply chains as possible being compatible with the goals of other large economies.”

However, there is no doubt that China is weaponising its supply chains. Given that it is the largest producer of rare-earth metals, mining at least 60% and processes about 90% of these resources (as per CSIS’s report in 2024), it is going to use this as a leverage to gain a position of dominance in global geopolitics.

This raises questions about the idea of a deeply connected global economy.

Stating that he doesn’t believe in a deeply connected global economy, Derek said, “All the connections and associations have always been among like-minded countries that share common interests. We are now experiencing the emergence of a bipolar/ multipolar world where power is no longer concentrated with one country. The entire concept of a deeply connected global economy is getting reshaped with the advancement of new developments. The idea of ‘Pax Silica’ also brings together like-minded nations, which, in turn, reflects a broader shift toward concentrated globalisation, instead of one integrated global system.”

The trend now is “China Plus One”

A new feature of the post-pandemic global order is the ‘China Plus One’ business strategy. Companies are now diversifying their supply chains and manufacturing bases beyond China, adding alternative locations in Southeast Asian countries like Vietnam, Thailand or India. The reason: mitigate business and supply chain-related exposure to China, given the geopolitical tensions that crop up often between the world’s second-largest economy and the United States-led Western Bloc.

Tim Cook-led Apple has become the brand ambassador of this practice. The iPhone maker has been aggressively diversifying its supply chain in the last couple of years, placing its bets on Vietnam and India. Till COVID-19 showed up, China used to be at the centre of everything Apple used to do, especially in terms of manufacturing. Then, as the pandemic kicked in, lockdowns in key manufacturing hubs like Zhengzhou, dubbed ’iPhone City’, caused severe production bottlenecks and shipment delays for the American giant, ultimately impacting the global product availability.

Also, given that bilateral trade relations between the world’s two largest economies have been anything but normal, manufacturing and shipping products from China will always face the risk of being tariffed.

So, Apple wanted a resilient and future-proof manufacturing network and, in that pursuit, found their answers in Vietnam and India, with advantages like considerable lower labour costs, attractive government policies, and import tariff rates suiting high-tech manufacturing, and, most importantly, capturing the lion’s share of one of the world’s largest and fastest-growing smartphone markets (again India), while maintaining its sales and profits lead in the home market of United States.

Rahul Nath says, “The China Plus One strategy does not seem to be over. Companies in various parts of the world are still exploring the option of relocating their base from China to other locations, despite it being a very difficult task. I don’t see this ending in the near future, at least in 2026.”

Derek, however, had a nuanced view of the unfolding scenario.

“The China Plus One strategy is much more a response to predatory Chinese policies than US-China decoupling. The problem with American policy is its inconsistency, as with President Trump being extremely conciliatory to China prior to his trip to Beijing at the end of March 2025,” he noted.

Another trend, which is also likely to redefine the transactional nature of the neo-globalisation, is ’friend-shoring’, which is already happening in domains like technology and semiconductors, with politically allied nations (read Uncle Sam and his friends) strategically relocating supply chains in a way to gradually reduce dependence on China.

Initiatives like the CHIPS and Science Act in the US, implemented by the Joe Biden administration, incentivise domestic semiconductor manufacturing while mandating that companies receiving federal funds restrict capacity expansion in China. While preventing access to high-end semiconductors for China, to maintain an edge over Beijing in the AI race, has been a consistent policy take in the White House, irrespective of the administration’s political alignment, ’Pax Silica’ in 2026, looks like an extension of a ’Minus China’ approach – building resilient, secure, and trusted networks for critical components without Beijing.

On this, Rahul Nath said, “Today, every major government is trying to reshape their supply chains in a way that insulates them from geopolitical risks. This is affecting big businesses in all areas and influencing their strategy and investment decisions. The semiconductor industry is particularly active in responding to these changes. According to a report by The Engineer, manufacturers from the EU and the US are increasingly moving their supply chains to North America, the UK, Mexico, Vietnam, India and North Africa to minimise geopolitical risks and increase proximity to key markets. Several major projects are underway in North America. Numerous new semiconductor factories are being built in the US and Europe to boost regional production and reduce dependence on Asian suppliers.”

Middle powers’ strategic cooperation path

Hurt by China’s rare-earth minerals’ export control in 2025, European policymakers have taken a new stance, which is basically a ’do no harm’ approach. Bilateral engagement continues, while carefully avoiding escalation. And Donald Trump’s maverick approach to the continent, especially in the garb of resetting trade ties, is forcing the European leadership to seek diplomatic and commercial reassurance from the Xi Jinping government, despite structural issues like widening trade imbalances, persistent concerns over industrial overcapacity, growing unease over economic coercion risks, and China’s continued alignment with Russia remaining firmly in place.

Canada, United States’ all-weather North American ally, too, has faced a tariff onslaught from the Trump administration, forcing Ottawa to reassess its economic ties with Beijing, which were marked by years of tension on account of tariffs, import restrictions, and diplomatic disputes.

In fact, India, the latest entrant to the Pax Silica, was another global player which got hurt by Uncle Sam’s strong-arming tactics. It resulted in the Narendra Modi-led government increasing its engagement with the BRICS (supposed rival of the G7), while increasing economic engagement with China and Russia.

So, even if we take into consideration the fact that the above-mentioned incidents were results of short-term policy blips from the White House, the fact remains, there are players like India, Canada and Europe, who believe in the concept of a ’multi-polar world’, where instead of overcommitting to one particular geopolitical block, interest-driven approach will rule foreign policy and diplomacy.

Scissors said, “India is big enough to stand on its own, but only if it pursues reforms much more aggressively. Labour laws continue to favour existing workers, with the result that new workers cannot contribute properly to the economy. The demographic boom is being repressed. Smaller, but still sizable economies, should place their long-term bets on the US. America has pulled away from China in GDP over the past decade, and has a history, at least, of being open to its partners. However, these countries should also protect themselves from US policy shifts over the next three years.”

“All these middle powers are aligning or re-aligning with one or other superpowers. Global South nations are forming new trade alliances and partnerships that sidestep the US and the EU. India’s changing approach towards FTAs and partnering with new economies, like Australia and the UAE, shows its participation in bloc-based trade realignment,” Rahul Nath concluded.

The post Pax Silica: The new global order appeared first on International Finance.

Those who have long profited from the abundance of globalisation find the waves moving toward “de-globalisation” unsettling. But are we seeing a deliberate, if sloppy, diversification of supply chains and allegiances, or is this a worldwide unravelling?

To address this, one must navigate a sea of tariffs, trade conflicts, and rising tensions—both metaphorical and real. The rise of a global powerhouse wasn’t limited to the rivalry between the United States and China. Their economic connection perfectly embodied the promise of globalisation throughout much of the late 20th and early 21st centuries.

With its large workforce and developing infrastructure, China became the world’s factory. Accounting for 28% of world production in 2018, it had surpassed the United States as the biggest value-added manufacturer by 2010.

A Harvard Business Review analysis claims that China’s explosive climb was not accidental. It drew upstream players—those handling components and raw materials—by using its size, low-cost labour, and major expenditures in infrastructure and education. Drawn by China’s competitive advantages and promise of large profits, over a million global businesses set up operations there. For the United States, this system was mutually advantageous until it wasn’t. The political currents started to change as industrial employment disappeared on American territory. Once praised as economic synergy, it turned into a disadvantage for US politicians.

Trump’s trade war: Filing for divorce

Under Donald Trump’s administration, 2018 saw the first notable cracks in US-China ties. Driven by a vision of “make America great again,” Trump started a trade war, imposing 25% tariffs on $34 billion worth of Chinese imports, including vehicles, hard drives, and aircraft parts. China retaliated, leading to a reciprocal exchange of taxes and levies that shook global markets.

Companies caught in the crossfire had an ugly choice: stay in China and pay the expenditures or move and deal with logistical headaches and exaggerated expenses. Although Trump presented the trade war as a battle to recover American jobs, the truth was more complex.

Decoupling from China, America’s biggest trading partner, was not easy work. China’s excessive reliance on international supply networks has isolated the US economy, necessitating more than just aggressive language and punitive taxes.

US-China relationship: Ballooning tensions

By 2020, the COVID-19 pandemic exacerbated the US-China relationship, transforming from a health crisis into a geopolitical flashpoint marked by mutual accusations over the virus’s origin, further eroding trust between Washington and Beijing. Trump’s voice wavered between confrontational and conciliatory. He said at Davos in January 2020 of his unmatched friendship with Chinese President Xi Jinping: “Our relationship with China has now perhaps never, ever been better… He is for China; I am for the United States; other than that, we adore one another.”

Four months later, the tune evolved. Declaring Beijing to have “ripped off the US like no one has ever done before,” Trump charged China in a Rose Garden speech with decades of misbehaviour. Once regarded as a victory, the first trade pact collapsed. China had far missed its buying targets by the end of 2020.

Little relief came when Joe Biden entered the White House. Biden instead doubled down, tying economic recovery to manufacturing independence, whereas many expected his presidency to take a softer posture. Declaring in his first speech to Congress, “There is simply no reason the blades for wind turbines can’t be built in Pittsburgh instead of Beijing.”

Decoupling in “Use Decoupling” for the United States meant spreading supply chains and depending less on Chinese labour. Among the alternatives were Mexico, Vietnam, and other ASEAN nations.

Mexico had grown to be America’s top commodities trading partner by 2023; US imports of Vietnamese computers doubled between 2017 and 2023. China was not lazy either. By raising domestic content in important sectors to 70% by 2025, the “Made in China 2025” project sought to lessen reliance on outside technologies.

Beijing simultaneously signalled a turn from Western markets by strengthening connections with rising economies in Latin America and Southeast Asia. There was a drawback, though, with this “diversification.” Many Vietnamese computers, for example, depended on parts imported from China. Thus, the US unintentionally kept indirect linkages even as it tried to separate itself from Chinese manufacturing.

Lessons learnt from Russian

As the United States and China navigate their uneasy relationship, another decoupling is reshaping global trade and geopolitics—Russia’s growing estrangement from the West and its deepening partnership with China. Triggered by Western sanctions and Russia’s own geopolitical ambitions, this pivot is altering power balances and creating new challenges for global stability.

Russia’s decoupling from the West began in earnest after it annexed Crimea in 2014 and accelerated following the 2022 invasion of Ukraine. The West responded with sweeping sanctions that targeted Russian energy exports, financial institutions, and access to advanced technology.

Europe, once Russia’s largest market for oil and natural gas, reduced its energy imports drastically. The Nord Stream pipeline explosions in 2022 symbolised the end of Russia’s dominance in European energy markets.

Faced with economic isolation, Russia sought alternatives to maintain its resource-dependent economy. This included diversifying trade relationships, strengthening self-reliance, and deepening ties with non-Western allies. Among these, its growing alignment with China emerged as the most significant development.

China and Russia have long shared a pragmatic relationship, rooted in mutual distrust of the West and complementary economic interests. As the West imposed sanctions on Russia, China became a critical economic partner. Bilateral trade reached $190 billion in 2022 and continues to grow, largely driven by energy. Russia’s crude oil and natural gas exports to China have surged, facilitated by major infrastructure projects such as the Power of Siberia pipeline. This partnership is not limited to energy. Russia has turned to China for advanced technology, including semiconductors and telecommunications equipment, to mitigate the effects of Western embargoes. Military cooperation has also deepened, with joint exercises and arms trade fostering strategic alignment.

For China, Russia represents a reliable energy supplier and a geopolitical ally that can help counterbalance US influence. Russia’s willingness to sell energy at discounted rates makes it an attractive partner for Beijing, especially as it seeks to diversify its supply sources amid its own tensions with the US.

The Russia-China alignment has profound implications for global geopolitics and trade. Economically, Russia’s dependence on China risks making it a junior partner in the relationship. While Beijing benefits from favourable trade terms, Moscow faces limited bargaining power, which could undermine its long-term strategic autonomy.

Geopolitically, this partnership challenges the Western-led global order. It strengthens the influence of authoritarian regimes and creates a bloc that can resist American economic and diplomatic pressure. For instance, Russia and China’s cooperation in forums like BRICS and the Shanghai Cooperation Organisation enables them to advocate for alternative financial systems and governance models.

However, the partnership is not without vulnerabilities. China’s cautious stance on openly supporting Russia during the Ukraine conflict demonstrates its interest in balancing ties with the West. Meanwhile, Russia’s over-reliance on China could stifle its ability to diversify trade and modernise its economy.

In the long run, the Russia-China alignment underscores the fragility of a polarised global order. While it provides short-term gains for both nations, it also risks creating economic dependencies and deepening divisions that could destabilise global trade and diplomacy. As with the United States-China decoupling, the question is not whether this relationship will reshape the world but how sustainable it will be in the face of shifting geopolitical priorities.

The cost of de-globalising

One cannot overestimate the financial effects of de-globalisation, or its variants. McKinsey claims that up to 90% of important commodities and services traded between Eastern and Western countries might be reduced by a fragmented global trade system.

From technology to agriculture, the repercussions would affect several sectors and challenge economic stability. Not everyone, meanwhile, believes that de-globalisation is approaching. Zidong Gao and Joe Seydl contend in an article for JP Morgan that rather than swiftly de-globalising, supply networks are diversifying.

This “slow-moving maturation” shows a movement from too high a concentration in China away from a full retreat from globalisation. Education in Economic Diplomacy In a 2022 Vogue story, Gwyneth Paltrow compared her divorce from Chris Martin to the detonation of a helium balloon.

She noted, “The beginning of the end was something more unconscious than conscious.”

A genuine helium balloon, China’s infamous “spy balloon,” would capture the frailty of United States-China ties months later. Beijing said it was a meteorological gadget gone off course, while Washington argued it was surveillance equipment.

Biden said the episode represented a new low, embarrassing Xi Jinping, a “dictator” ignorant of the events in his own country. One wonders whether the two countries may adopt Paltrow’s “conscious uncoupling” idea among these theatrics.

If a friendly economic split is conceivable, it would benefit both sides significantly more than the current cycle of escalation and retribution. Despite their disputes, the United States and China remain deeply intertwined.

Goods valued at $576 billion came from China to the United States in 2022; $179 billion made the opposite trip. Such amounts underscore the challenge of achieving a clear break. Watching as these two economic heavyweights negotiate their tense relationship is the world. Whether they can coexist—or even cooperate—will decide the direction of world trade for the next decades. Right now, on all sides, the language of economic nationalism rules.

As history has demonstrated, nevertheless, isolationism hardly produces wealth. Instead of whether the US and China should decouple, the question is how to do so without destroying the global economy.

According to McKinsey, diversification rather than de-globalisation will define commerce going forward. Let’s hope the United States and China follow this counsel for the sake of world stability—and maybe draw some lessons from Paltrow’s book. After all, even the most turbulent relationships may finish civilly.

The post The price of decoupling: Global trade under strain appeared first on International Finance.

Wolf, however, said that there would be a sense of uncertainty about a possible escalation in various directions, while commenting “Uncertainty is bad for the world economy – it affects people’s willingness to take risks.”

We have already seen what the Russia-Ukraine war has done to the global economy. As the battle completed its one year on February 2023, daily necessities like food items and electricity became dearer in significant pockets of the world, as trade disruptions became a routine affair. Add the price rise into it, the problem gets murkier. Even though the developed economies around the world tried to be resilient in front of the crisis, they too felt the pinch of skyrocketing inflation.

Even though the situation is easing now, the central banks and experts are predicting a growth slowdown in the coming days.

Listing down the risks

“A world ordered for decades by globalisation and geoeconomics has quickly become a world grounded in geopolitical risk. Accumulating shocks such as the COVID-19 pandemic and the Russia-Ukraine conflict have persisted, significantly reorganising global structures and relationships in 2023,” commented a report from S&P Global, clearly implying the role of the geopolitical risks in deciding the economy’s course.

In fact, the above report, which came out in June 2023, listed the principal geopolitical risks for the global economy in the coming days. These were Russia-NATO tensions in Ukraine (resulting in greater risk exposures in capital flows, trade and commodity markets worldwide), cyber-attacks (Russia-linked threat actors wreaking havoc in United States and Europe), US-China strategic competition (Beijing’s increased military presence in the South China Sea, technological advancements and ongoing trade tensions with Washington in the domains like semiconductor), climate risks (growing incidents of hurricanes, droughts, floods and wildfires across the world) and energy security (Europe’s energy supply from Russia facing uncertainties as Ukraine conflict continues).

Add the impacts of the COVID pandemic too. Although the global supply chains are at the final stages of their recovery period, no one can predict that what we witnessed during the 2020-2021 period was the last such occurrence on our planet.

Understanding the pattern

“A potential decoupling of the global trading system into two blocs – a US-centric and a China-centric bloc – would reduce global welfare in 2040 compared to a baseline by about 5%. Losses would be largest (more than 10%) in low-income regions that benefit most from positive technology spillovers from trade,” comments a VOXEU article.

We are all part of the globalised world and such ‘Decoupling’ efforts will complicate matters further.

In fact, we are living in the era of ‘Open Markets’ (an unrestricted market with free access by and competition of buyers and sellers, governed by the principles of supply and demand, with limited interference/outside influence from large conglomerates/governmental agencies) and ‘Free Trade’ (international buying and selling of goods, without limits on the amount of goods that one country can sell to another, and without special taxes on the goods bought from a foreign country), an international order which emerged from the ruins of the Second World War.

“A large consensus on the benefits of lower trade costs and prioritising gains from trade led to a continuous deepening of the international trade regime. With the end of the Cold War, that consensus moved eastwards. The EU expanded to the east and many countries joined the WTO, including Russia and China,” commented economists Carlos Goes and Eddy Bekkers in their research titled “The impact of geopolitical conflicts on trade, growth, and innovation: An illustrative simulation study.”

“However, the last decade has witnessed the beginning of a backlash against global trade integration. Political scientists conjecture that the emergence of China as a new superpower against the incumbent US might lead to strategic competition between these countries, one in which geopolitical forces and the desire to limit interdependence take primacy over win-win international cooperation,” the experts commented further.

To prove their point, Goes and Bekkers took the Ukraine war as an example. As the battle broke out in February 2022, the United States-led Western Bloc imposed sanctions on anything and everything Russian.

The West thought of hurting Russia’s energy trade, the same resource on which Europe’s entire economy keeps running. Moscow countered it by diverting much of the commodity to allies like China and India. It resulted in the United Kingdom’s domestic population almost sliding into the ‘Energy Poverty’ in 2022.

The European country’s economy too got plagued due to inflation and the cost-of-living crisis. Although the energy scarcity situation is not so severe now, the uncertainties are there as the West is in no mood to give up on capping Russia’s trade revenues.

The Black Sea Grain Deal, signed in 2022 by Ukraine, Russia, Turkey and the United Nations has constantly come under the worry of breaking down. The deal, which till August 2022, saw some 32.9 million metric tonnes of food items to be exported from Ukraine, helped some of the developing and impoverished regions of the world to feed their populations under the World Food Programme (WFP). In July 2023, Russia pulled out of the deal, thereby putting the arrangement in jeopardy.

“The Russian invasion of Ukraine led to sanctions imposed by a group of Western economies and has reinforced the debate on decoupling between blocs of regions. Although the sanctions are so far focused on Russia and Belarus, there is a risk that the conflict could widen and reinforce support for a policy driven by geopolitical considerations. This raises the question of how much real income might be lost if win-win international trade cooperation were given up and the global economy were to decouple, disintegrating into an Eastern bloc and a Western bloc,” Goes and Bekkers summarised the situation perfectly.

In fact, what we are now witnessing is not only a geopolitical crisis dominating the global economy, it literally challenging the concepts of ‘Open Markets’ and ‘Free Trade’, as one can’t dismiss the notion of Russia, armed by the Chinese support, may end up severely challenging the concept of a ‘Globalised World Order’, thereby leading to the restoration of the Cold War-era ‘Eastern Bloc’ and ‘Western Bloc.’

Fragmentation of the global order

The worry raised by Goes and Bekkers gets further backing from the Atlantic Council which stated that the geopolitical tension between China and the United States has fragmented the world on political, economic, trade, and financial fronts. This is challenging the existing globalised monetary and financial system, so much so that the International Monetary Fund (IMF) whose core mission is to ensure that the market remains in a liberal, deregulated and reformed manner, to facilitate easy capital flows, may face operational difficulties as well. A rigid global economy divided into two camps, will spell doom for the emerging markets as well.

In 2017, the then United States President Donald Trump criticised China’s ‘unfair trade practices’ behind substantial and persistent US trade deficits and “hollowing out its manufacturing base”. Since then, the world’s largest economy has kept on punishing China economically, be it unilaterally imposing tariffs on imports from Beijing, restricting the latter’s access to cutting-edge technologies like semiconductors, and acting against Chinese telecom companies. The Inflation Reduction Act is incentivising high-tech investment and manufacturing in the United States through the use of subsidies, tax incentives, and other favourable regulatory treatments.

Europe too has followed the lead by launching the ‘Critical Raw Materials Act’ to reduce its dependencies on countries that are not union members. Targeting China, some nations in this part of the world have restricted the use of Huawei equipment in their telecom infrastructures. The reality is instead of liberalising the global economy, developed nations are taking the lead to make the system a rigid one by adopting protectionist policies.

China, under the leadership of Xi Jinping, has termed these moves as unfair ones, born out of ‘suspicion’, and countering them by promoting a ‘multipolar world’, something which has increased manifold after Moscow came close to Beijing after being globally isolated post Ukraine war.

Be it projecting its BRICS alliance as an alternative to the West-led groupings or promoting the idea of ‘de-dollarisation’, China has been playing an aggressive game since 2022. In addition to participating and hosting a series of government-to-government groups like BRICS and the Shanghai Cooperation Organisation (SCO), China is also conducting meetings with the Association of Southeast Asian Nations (ASEAN) and Central Asia, Africa, Middle East, and Latin America groupings.

China is also creating international development banks like the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB).

“The aim is to build up alternative international institutions to facilitate cooperation between China and other countries on China’s terms and not under the tutelage of the United States and Europe—which has contributed to the fragmentation and weakening of the current global order and its institutions,” commented Atlanta Council.

If China wants a global order sensitive towards its geopolitical aspirations, global bodies like the IMF, World Bank and World Trade Organization are coming under a severe threat. While China is now taking a key role in giving out loans to some of the world’s small and emerging economies, IMF, World Trade Organisation and World Bank have been and will be at the forefront, when it comes to bailing out world economies from any sticky situation, while protecting the low-income and vulnerable nations from the crisis’ fallouts.

IMF’s ability to continue functioning seamlessly looks secure as of now, as voting power is weighted by members’ capital contributions. while the United States commands 16.5% of the total votes, the G7 has 41.25% of the voting shares. West is in the driver’s seat here. However, the Atlanta Council feels that the rising level of mistrust and hostility between the United States and China will make it very difficult for the IMF to develop an international consensus to reform its governance structure and give more voice and representation to emerging markets and developing countries (EMDCs).

Is globalisation under threat due to the existing geopolitical crisis? Yes. Will we see the restoration of ‘Eastern Bloc’ and ‘Western Bloc’ kind of economic order? Maybe, that’s a subject of debate. However, the unanimous verdict here says that geopolitics is certainly dictating the 21st century world economy and it doesn’t augur well.

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Leveraging M&A as a Growth Engine – The Green Investing

Green investing is one of the most interesting approaches in M&A and presents itself as a thematic M&A opportunity that is gaining popularity in global markets. Interestingly, early indications of such acquisitions demonstrate considerable outperformance from a shareholder value creation standpoint. Companies that prioritise sustainability can create value through a variety of channels, including improved finance availability and lower fund costs, higher market valuation, operational cost savings from decarbonisation-related efficiency gains, and so on.

While M&A can be a powerful value-creation tool and a growth engine for most firms, especially in today’s market environment, strategic, financial, and operational discipline and focus are important to unlocking not just strong but also long-term value from transactions. Buyers must aggressively seek targets with the correct strategic fit, develop razor-sharp conviction in the business case, and establish best-in-class integration skills in order to realise the maximum value potential. Sellers must understand their future investors’ demands, create compelling proof points to back up their equity narrative, and plan ahead of time to mitigate any separation issues.

Companies that create M&A expertise and apply a systematic approach to acquisitions will win the race to reform India’s sectors and capture a large piece of the country’s spectacular growth in the coming years. Furthermore, for global businesses, it is important to invest only in consistent and active portfolio management, as well as other practises like ecosystem sourcing, target cultivation, and building culture and integration capabilities. This will help in mitigating the external pressures thereby expediting the M&A process, while delivering consistent value through M&A.

Global M&A Growth

The world of M&A, has seen an unparalleled upsurge, and it has become a key factor in the global economy and industry’s transformation. This spike in M&A activity is indicative of a time of strategic consolidation, heightened by globalisation, technological development, and changing market conditions. Geographical borders do not affect the transformative power of M&A, which unites businesses from various industries and geographical areas in search of synergies, market expansion, and competitive advantage. A number of factors have contributed to the global growth of M&A in recent years. In order to expand into new markets, diversify their product lines, and take advantage of synergies to strengthen their competitive positions, businesses are looking more and more for inorganic growth opportunities.

Additionally, because technological innovation is redefining industries at a rapid pace, businesses are being forced to engage in M&A in order to acquire disruptive technologies or gain a competitive advantage in the digital space. Furthermore, advantageous economic circumstances, like low interest rates and strong investor confidence, have created an environment that is conducive to M&A activity and has sparked a surge in deal-making across all industries. Market globalisation has accelerated cross-border M&A growth by allowing businesses to take advantage of opportunities outside of their home countries.

Global M&A Challenges

The global M&A market faces a challenging 2022 with M&A volumes and values declining from record-breaking highs (65,000 deals) in 2021 – respectively by 17% and 37% – although remaining above 2020 and healthy pre-pandemic levels. In the second half of 2022, deal volumes and values declined by a greater portion – by 25% and 51%, respectively – compared to the year prior. Regardless of market cycles, the programmatic strategy aids in effective M&A.

Companies across sectors should aim for a minimum of two to four small or medium-sized acquisitions per year. This helps in creating the required difference from peers and generates higher TSR (Target Shareholder Return) with less risk. According to McKinsey, programmatic acquirers’ median annual returns to shareholders outperformed their counterparts by 2.3% between 2013 and 2022.

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