Are we witnessing end of globalisation? What’s at stake for Sri Lanka?

Globalisation can be understood as relations between countries, and it fosters a greater relationship between countries that involve the movement of goods, services, information, technology, money, and human beings between countries. These relationships transcend economic, cultural, political, and social contexts.

Globalisation in the modern world today is a significant shift from the past. Globalisation in the modern world today is a state in which the world becomes interconnected and interdependent. This change occurs due to better technology, transport, communication, and foreign trade.

Trade routes have joined areas for centuries. The Silk Road and colonial sea trade routes are the best examples. But today, nobody can match the speed and scope of globalization.

Globalisation began to modernise after World War II. During this time, countries came to understand that they had to work together. They wanted to have economic cooperation and peace so that they would not fight any more. These significant institutions united countries for political and economic purposes and advantages. They allow free movement of products, services, and capital between countries. It encourages cooperation all over the world.

The second half of the 20th century saw fabulous technological advances. These advances sped up globalisation. The internet changed everything. It changed the way people communicate, share information, and do business. Traveling became faster and more efficient. Products and humans travel from one continent to another in record time. Companies can now do business globally. They outsource jobs, get access to global markets, and use global supply chains. This was the dawn of multinational firms and a global economy.

Flow of information is one of the characteristic features of the current age of globalisation. The internet allows news, ideas, and culture to be shared in real-time. Societies are experiencing unprecedented cultural interconnectedness. This has led to controversy over cultural sameness and dissimilation of local cultures. For example, the same is observed within countries too. In countries such as Sri Lanka the language differences between districts have become a non-issue, and the western province’s language has paved the way for others to emulate. Globalisation has allowed millions of individuals to lift themselves out of poverty, especially in Asia and Latin America. It does this by creating new employment opportunities and expanding markets. It has also increased economic inequalities, though. Wealth flows to those who possess technology and capital. Poor workers and communities are unable to compete regionally or internationally. Some countries have seen political backlash. In these countries, some people feel left behind by the benefits of globalisation.

Modern globalisation has a lot to do with environmental concerns. More production, transportation, and consumption have destroyed the planet. These are pollution, deforestation, and climate change. Global issues need global solutions. That is why international cooperation is essential in solving environmental problems. The Paris Climate Agreement is one such international effort to cooperate. There are constant debates regarding justice and responsibility between poor and rich countries.

Modern-day globalisation deeply influences our daily lives in many ways. It has opened up possibilities for economic growth, innovation, and cultural exchange. However, it also carries with it dire consequences like inequality, environmental destruction, and displacement of culture. The future of globalisation will be determined by the way we handle its impact. We have to see to it that its benefits are distributed evenly across all societies.

Tariffs are globalising-era import taxes. Governments levy them to protect domestic firms from foreign competition. But employed ruthlessly and as retaliation like today, and they can trigger trade wars. Such battles, especially between big economies such as the U.S. and China, can skew trade. They can destabilise markets and challenge the new era of globalisation. Tariff wars will slow or shift globalisation but won’t bury it.

Globalisation is not just a product of dismantling trade barriers. It is the product of enormous forces like technology, communications, and economic integration in markets across the globe. Tariffs can limit trade between countries or markets. They cannot undo the fact that most economies in the world today are interdependent. Firms, consumers, and governments depend on coordination across borders. They collaborate on energy, finance, manufacturing, and information technologies.

However, the effects of tariff wars should not be downplayed. Excessive tariffs among dominant nations compromise international supply chains. This also raises the cost for consumers and creates uncertainty for investors. The 2018 U.S.–China trade war created billions of dollars’ worth of tariffs. It also lowered the two countries’ trade. Industries such as agriculture, electronics, and automotive manufacturing lost money. These wars can harm international trade confidence. They also discourage higher economic integration.

There are some nations that are facing challenges. They are, therefore, diversifying trade blocs. Others are creating domestic industries. Some are also shifting to regional economic blocks. This may result in more fragmented globalisation. Global supply chains can become short and local. The COVID-19 pandemic and tariff tensions forced countries to re-examine the use of foreign suppliers. They began to stress self-sufficiency in vital sectors. These are medicine, technology, and food production.

Despite these trends, globalisation is not robust. The global economy can withstand crises. It does so due to innovation, new trade relations, and digitalisation. E-commerce, teleworking, and online communication link people and businesses across the globe. Sometimes these links are even stronger than before. Countries need to come together in order to combat challenges like climate change, pandemics, and cybersecurity. This is happening even as economic tensions rise.

Tariff wars can disrupt trade and create tensions.

However, they will not be likely to end globalisation, but instead, they reshape it. They might change its structure, create new partnerships, and help countries find a balance between openness and security. The globalization forces are strong and complex. They can be slowed down or reorganized, but not readily undone. The future of globalisation will depend on how countries strike their economic interests. They must also recognise their interdependence on each other in our globalised world. The world economy has a tendency to change during crises.

It does this through innovating, policy reform, building strong institutions, and changing economic behavior. But they also stimulate innovative and pragmatic responses by governments, companies, and citizens. The world economy has shown that it can heal, change, and change after crises like financial downturns, pandemics, and geo-political conflicts. One of the more notable examples of economic adjustment occurred in the 2008 global financial crisis. The crisis started when the housing market in the U.S. collapsed. The big banks collapsed, and then the effects spilled over to the world. This led to recessions, very high unemployment levels, and a drop in consumer confidence. In response, central banks like the U.S. Federal Reserve and the European Central Bank acted very quickly. They cut interest rates to near zero. They also started large-scale quantitative easing. Governments spent stimulus money in their economies. They assisted in bailing out banks and introduced tax-tight financial regulations. These actions stabilised markets and ultimately restored economic growth. The crisis also led to new financial watchdog mechanisms. One example is the Financial Stability Board, which has the objective of avoiding such collapses in the future. The COVID-19 pandemic created a unique crisis.

It reached health systems and economies globally. In 2020, the world suddenly stopped. Lockdowns and supply chain disruptions followed. This led to a sharp fall in GDP in almost all countries. Sri Lanka experienced it acutely. However, the world economy has adapted at a breathtaking speed. Remote work and online shopping flourished, driven by digital technology. Firms transitioned to new formats like contactless offerings, delivery platforms, and remote platforms. Governments rolled out massive stimulus packages to businesses and employees. Central banks infused liquidity to support financial systems. International cooperation on vaccine development and distribution also helped accelerate economic recovery. By 2021 and 2022, various economies were quicker to recover than expected, though unevenly by region. Another outstanding one is the manner in which economies adapted to geostrategic struggles:

The war of 2022 between Ukraine and Russia ravaged across world markets of food and energy, with special impact on Europe and the Global South.

European nations moved swiftly to abandon Russian natural gas. European nations also looked around for other sources of energy and increased usage of renewables. While shock caused inflation as well as supply shortages to a peak first, markets began to shift ultimately. And world grain markets looked elsewhere and established new channels of commerce. Such changes show the ways that economies can change under stress, even if ancient structures are upended. Climate change is demanding long-term change in the world economy.

The climate crisis isn’t a sudden crisis, like war or pandemic. But it’s pushing nations and businesses to make big changes. Green technologies are on the rise. Electric vehicles, solar and wind power, and carbon capture are the best examples. These technologies are indicative of how economies address environment crises. Financial institutions and banks are now embracing sustainable investing guidelines. Countries are uniting in a low-carbon future under the terms of the Paris Climate Accord. Technology is leading economic resilience.

The digital economy is going stratospheric—AI, cloud computing, and e-commerce are the jetpack! These technologies enable companies to be agile and resilient. Consider the pandemic and the financial crisis, for instance. Technology businesses did not just survive; they flew like eagles. They gave us remote work tools, digital payments, and virtual conversations, allowing us to stay connected when it was most important. These innovations have irreversibly shifted the terrain of worldwide business and work. The global economy’s history is marked by crises and its capacity to adapt and transform in response. The global economy proves strong during financial crises, pandemics, conflicts, and climate issues. Resilience shines through innovation, teamwork, and strategic adjustments. Though challenges linger and vulnerabilities remain, we’re not without hope.

Learning from crises helps us fortify and adapt our systems. This adaptability signals a promising evolution for the global economy amid future uncertainties.

The current trade war, especially between the United States and China, is reshaping globalization. It may lead to a new form of it. These tensions do not terminate globalization. Instead, they push it to evolve into a more complex and regional form. The new model includes economic factors. It also includes political, technological, and security factors. This leads to a world that remains interconnected but in more cautious, selective, and fragmented ways.

Trade wars tend to begin when countries want to protect their industries.

They might want to lower trade deficits. They also respond to unfairness, including intellectual property theft or state subsidies. The ongoing trade war between China and the U.S. has seen massive tariffs, export quotas, and increasing geopolitical tensions. This is a sharp departure from the post-Cold War era, which saw more free and open trade. Now, companies and governments prepare for everything. Safety and national interests are their concerns. This change is reflective of a trend that some experts call “de-risking” or “strategic decoupling.” One of the most obvious signs of this new course is the reorganization of global supply chains.

Many global companies want to diversify away from relying on one country. They especially want to decouple from China for manufacturing and raw materials. They diversify production by investing in different regions. It is called “China plus one.” It means relocating operations to locations like Vietnam, India, and Mexico. This relocation takes global supply chains from centralized to more regionalized and redundant networks. These networks prepare for future shocks. Moreover, technology and digital infrastructure have an increasing role in this new globalization.

Trade tensions are an indication of the strategic value of semiconductors, telecommunications, and artificial intelligence. Nations are realizing that technology is a national security issue. Therefore, they have invested in their local capabilities and restricted foreign technologies’ access. The U.S., for example, has put export restrictions on high-end microchips and blocked some Chinese technology companies from accessing its market. China and other nations have increased efforts in developing independent ecosystems for technologies. This has given rise to parallel technology realms. This could result in a “bifurcated” global economy with different standards and systems. The current trade war is also strengthening the advent of regional trading blocs.

Global trade agencies like the World Trade Organization are getting weakened. This is owing to the fact that the world’s major nations are competing with one another. Hence, the nations are currently opting for regional agreements to develop economic cooperation. Discuss the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) in Asia. And let’s not forget the United States–Mexico–Canada Agreement (USMCA). Collectively, these agreements represent a new era of globalization. It’s no longer a free-for-all; rather, it’s a strategic web spun with trusted partners and regional ambitions resulting in ‘islands’ or ‘regions’ of globalization. The new model of globalization creates greater independence and security for some but presents issues.

The countries that previously prospered from the exportation of goods and involvement in the global market may face greater challenges. As protectionism rises and competition becomes greater, customers may pay more. Economic inefficiencies are a likely reason. Additionally, the disintegration of international institutions may stop countries from agreeing on important issues. Problems like global warming, pandemics, and economic downturns can become harder to resolve. The current trade war will not end globalization, but it is reshaping it. We see a new type of globalization that is fragmented, regional, and strategic in character. Countries are still interdependent, but such economic dependency is underpinned by trust, security, and competition. Globalization is changing, so we must balance these changes with the imperatives of cooperation in our globalized world.

New types of globalization include regional trade blocs, reshaping supply chains, tech decoupling, and growing geopolitical tensions.

For Sri Lanka, the changes have far-reaching consequences.

Being a small nation strategically located, Sri Lanka relies on trade, tourism, and foreign investment. Globalization is, however, more fragmented and politicized and security-oriented. This offers opportunities and challenges for Sri Lanka. To survive, the country must reform its economic policies. It must diversify relationships and maneuver the rival interests of global powers with caution.

One of the most immediate effects of the new globalization is realigning global supply chains.

Multinationals want to wean themselves from China. They want to shift production elsewhere. Sri Lanka can be a new hub for light manufacturing, logistics, and services. Being located on key shipping routes in the Indian Ocean means that it is a vital node in global ocean trade. Sri Lanka can lure more foreign investment by improving its infrastructure, bolstering digital strength, and upgrading the regulations. This would help firms to open up business. This would create employment as well as improve export-led growth. But the shift towards regionalism in global trade also poses danger.

The rest of the countries outside these alignments might be left out as major economies create closed trading blocs. Examples include the Regional Comprehensive Economic Partnership (RCEP) and bilateral agreements like the Indo-Pacific Economic Framework. Sri Lanka is not part of most of the world’s biggest trade blocs, limiting its access to large markets and preferential trade conditions. Exclusion could make exports less competitive. It could also reduce the nation’s appeal as an international production base. To fulfill this, Sri Lanka must pursue trade agreements with regional powers like India and ASEAN nations in order to keep up with shifting trade networks. One key feature of the new era of globalization is a focus on ‘technological sovereignty’.

This includes the rise of alternative digital ecosystems, especially between China and the US. Sri Lanka must manage the tech divide wisely. Countries are closing doors to other people’s technologies and creating their own networks. Cyber security, digital infrastructure, and data governance require investments. Sri Lanka also needs to balance embracing new technology while preserving its digital sovereignty. Dependence on technology from a single country could yield dangers, as digital tools will be the main movers in the realms of governance, finance, and communication. Geopolitical competition, especially in the Indo-Pacific, also affects Sri Lanka’s economic and strategic location.

The island’s location has drawn China and India and Western nations. China’s involvement in Sri Lankan infrastructure projects, such as the Hambantota Port and the Colombo Port City, has yielded economic advantage as well as concerns regarding debt dependence and strategic control. Meanwhile, India and its allies have expressed interest in balancing Chinese power in the region. This is a sensitive balance that Sri Lanka has to exercise strategic diplomacy to reap foreign investment without being entangled in great power rivalry or compromising sovereignty. In addition, economic resilience in the face of global shocks—such as the COVID-19 pandemic, energy shocks, and food crises—has emerged as a top priority in the new era of globalization.

The recent economic slump in Sri Lanka, marked by a sovereign default, foreign exchange crises, and inflation, underscored the country’s vulnerability to global shocks. These events underscore the need for greater economic diversification, sound fiscal management, and long-term development. Sri Lanka must build stronger domestic industries, shift to clean energies, and transform regional supply systems that are less vulnerable to shocks from the outside. Generally speaking, therefore, the new patterns of globalization present Sri Lanka with a risk-laden world of possibility too.

While transforming global patterns of trade and investments creates new doors to economic growth, it steers the country towards more aggressive competition, geopolitical tensions, and internal vulnerabilities. To thrive in this fast-evolving world, Sri Lanka must adopt an assertive strategy of regional integration, technological resilience, strategic diplomacy, and inclusive economic reform. On the way, it can transform foreign uncertainty into a platform for sustainable and sovereign development.

by Professor Amarasiri de Silva