Okuyiga and Lakshmi Ratan in NextBillion: What the Backlash to Trade Liberalization Means for Business Growth and Global Inequality

Understanding Deglobalization: What the Backlash to Trade Liberalization Means for Business Growth and Global Inequality

by Aishwarya Lakshmi Ratan and Bomi Okuyiga 
This article first appeared in NextBillion on March 14, 2023

Extensive trade liberalization, often referred to with the shorthand term “globalization,” stands as one of the most transformative economic events of the last century — and also one of the most controversial. To some, the most important effect of globalization has been the rise in global living standards through the expansion of the middle class and the sizable reductions in poverty in countries — such as Japan, South Korea, Singapore, China, Vietnam, Malaysia and Bangladesh — that have leveraged export-oriented production and trade to their advantage. Other analysts focus on how trade liberalization has created winners and losers, and increased economic fragility.

In response to these downsides, many of which are fueled by price competition from foreign entities and the greater ease of shifting jobs from high- to low-wage parts of the world, some countries are reconsidering their attitudes toward greater trade openness. Given these trade-offs between reducing global inequality and protecting domestic interests, is globalization here to stay, or will low- and middle-income countries (LMICs) need to find alternative sources of growth in an increasingly protectionist world?

While there is a continuing debate around who has reaped the greatest rewards from globalization, a key consideration from an economic development perspective is how trade impacts the production possibilities of firms and the earnings of workers in LMICs. As countries reassess the extent of their engagement in international trade and as political support for protectionist policies grows, we’ve compiled relevant research insights to help illuminate the dynamics and repercussions of international trade. Our goal is to better understand what the current backlash might mean for business growth and poverty reduction in low- and middle-income settings, and for inequality across and within countries.

We will explore these questions below — with one small caveat: Globalization has important consequences in terms of environmental impact. And increased flows of capital across borders can also have disruptive effects on economies. Though these topics are worthy of further exploration, we limit our discussion to the economic impacts of global trade in goods and services in this article.