Economic theory argues that free trade leads to an increase in the aggregate real income for countries engaging in trade only under ideal conditions. The literature on international trade often refers to a situation wherein the ‘gainers bribe the losers’.

As a result, state needs to design a compensation mechanism which implies that the state will tax the gainers and transfer enough to compensate the losers. Even if trade benefits a nation in aggregate measures and promises long-run benefits, affected groups would continue to suffer if enough compensation is not made available to them to cope with short-run adjustments. For instance, wage inequality between the skilled and unskilled workers in developed countries has widened considerably with the rising volume of trade.

Brexit in itself, represents the first formal vote of no-confidence against the policy of free trade in goods, services and factors as a majority of Londoners voted to remain in the EU while many industrial workers and low-skill, less educated citizens voted to leave. Many have interpreted this as a decision against rising inequality within the UK caused by deteriorations in the labour market and social provisions resulting from immigration from the poorer European countries.

In a democracy, rising inequality is a critical issue for political competitors. Without proper attention, such inequality can jeopardize good economic strategies. Thus, it seems natural to seek compensating policies to counter rising inequality due to trade. The losers must be compensated more than what is needed to keep them on the same level of real income as before if inequality is rising. One of the plausible mechanism of compensation can be designed through a transfer from gainers, but the same may not create negative sentiments in the economy.

Tighter trade and financial integration have increased the importance of Emerging Market Economies (EMEs) in the global economy. But globalization extends well beyond the flow of goods and services. Perhaps the most debated aspect of globalization is the flow of people, at least in some advanced economies.

While there has been a strong increase in overall trade openness in EMEs, there is a high degree of variation across countries. Notably, Hong Kong SAR and Singapore have been by far the most open for a long time as Hong Kong has long been a globalised economy, while due to the lack of natural resources and a natural economic hinterland, Singapore has had to depend on global markets, free trade and free capital flows. In central and eastern Europe , integration into the global economy coincided first with the transition from a planned to a market economy and, later, with accession to the European Union. Several EMEs in Latin America remain relatively closed even today (e.g. Argentina and Brazil) despite some liberalization in the 1990s.

While trade in primary commodities accounts for a similar proportion of GDP, it has been dwarfed by the growth in trade in manufactured goods and services. Together, in 2015 these two categories accounted for about 80% of total trade in emerging market economies. As trade volumes in manufactures grew, the nature of the goods also changed. Emerging market economies have become much more integrated in international production networks and global value chains.

A prominent feature of trade globalization has been the rise of global value chains (GVCs), as declining trade barriers and advances in communication and transportation technologies have allowed firms to split up production processes into various stages and locate them around the world to exploit differences in factor endowments and comparative advantage. This has resulted in long production chains that span multiple sectors over many countries, with intermediate goods shipped several times before finally becoming embodied in final goods for consumption. Thus, financial globalization has grown more rapidly than trade integration. FDI is perhaps the most praised aspect of globalization. It is regarded as a major driver of growth and development in emerging market economies.

The increasing flow of migrants across countries over the past few decades has perhaps been the most controversial aspect of globalization. According to the United Nations, the total number of immigrants across the world has more than doubled in the last three decades, from 104 million in 1985 to 234 million in 2015. Migration flows have been unbalanced across the world, with emerging market economies mostly experiencing net emigration and advanced economies net immigration.

The growth of international trade in emerging market economies over the last two decades was driven mainly by favourable external conditions. Before the financial Crisis, they saw robust global demand, substantial improvements in terms of trade and abundant capital inflows from advanced economies. Nevertheless, trade growth has been weak post-crisis, and whether this shift is permanent or transitory is still an open question. The declining growth of global value chains (GVCs) may also be driving the slowdown in trade growth. Despite the rapid expansion from 1995 to 2011, the growth of GVCs has stalled in recent years. The supply chain is moving out of China. Moving supply chains from one country to another is not the death knell for globalization. Automation and lower cost labor in Asia, dominated by China, has been problematic for the electorate not only in the U.S. but throughout Western Europe.

In a scenario of increased protectionism, a new suboptimal equilibrium might emerge, in which affected countries could react, leading to further protectionist measures and potentially damaging global trade. In response to more protectionism, firms could postpone or even cancel long-term investments, or lose their inclusion in trade chains, which would take time to be rebuilt in the future.

The term de-globalization broadly highlights the trend of several countries wanting to go back to economic and trade policies that put their national interests first. These policies often take the form of tariffs or quantitative barriers that impede free movement of people, products and services among countries. The idea behind all this protectionism is to shield local manufacturing by making imports costlier.

The present talk around ‘trade war’ and ‘de-globalisation’ cropped up after the US imposed 25 per cent and 10 per cent duty on steel and aluminium imports, respectively, from certain countries, citing national security and job creation as the triggering factors. China hit back by imposing additional levies on a range of American imports, including walnuts, raisins and almonds. The value at stake in the US-China trade wars range from $100-150 billion. The European Union too has jumped into the fray, with a 25 per cent duty on certain US products.

In a world where the common citizen in developed countries does not want to be stuck competing for hourly wages in globalized industries with Asians, a deglobalization trend is a sigh of relief. For corporations, relocating manufacturing abroad will only make sense on a taxation basis or if it brings a company closer to the market it is trying to sell to. Labor will be more of an afterthought.

If globalization, the idea, was a tangible thing, living and breathing, it would be like an angry, frightened coyote boxed in a corner. It might yet escape unscathed. But the people approaching it are really starting to tick it off.

We still live in a highly globalized world, and these protectionist moves upend the fundamental premise on the basis of which global growth is estimated and organizations such as the WTO regulate global trade. When large, industrialized and prosperous nations break ranks to erect new entry barriers for goods and services, this can drastically impact the fortunes of their many trade partners. De-globalization with respect to the mobility of services and people can impact both the export of services, and the trend of Indians migrating abroad for higher education and jobs.

Globalization has now reached another turning point. The popular narrative has changed from being associated with opportunity and progress towards being viewed as a threat. Anti-globalization sentiment made a significant contribution to the ballot-box surprises in 2016 (Brexit and Trump), which have shaken the political status quo. However it is pertinent to deeply analyse the pros and cons of a globalised world before blindly embarking on the bandwagon of deglobalisation.