From UPSC perspective, the following things are important :
Prelims level: Geo-Economic Fragmentation
Why in the News?
The Economic Survey 2024-25 highlights the shift from globalization to geo-economic fragmentation (GEF). Countries are now forming economic blocs, with concepts like “friend-shoring” gaining prominence.
What is Geo-Economic Fragmentation (GEF)?
- GEF refers to the breakdown of global economic integration, caused by strategic national policies.
- It involves disruptions in trade, capital flows, foreign direct investment (FDI), and migration.
- The shift resembles the Cold War era, with countries aligning into economic blocs.
- Western nations’ imposition of uniform environmental, labor, and social standards has fueled economic divisions.
- The World Trade Organization (WTO) Trade Monitoring Report (October 2024) recorded:
- 169 new trade-restrictive measures, affecting $887.7 billion worth of trade.
- A sharp rise from $337.1 billion in 2023, reflecting escalating protectionism.
- The IMF notes that trade fragmentation today is costlier than during the Cold War, when global trade was just 16% of GDP.
- Today, it is 45%, making economic isolation riskier.
Significance and Impacts of GEF:
- Decline of Global Trade: WTO reported 169 new trade restrictions covering $887.7 billion in 2023-24, making trade costlier.
- FDI Relocation: Friend-shoring is concentrating FDI among geopolitically aligned nations, reducing capital for emerging economies.
- China’s Economic Dominance: Controls 80% of solar panels, 80% of batteries, and 60% of wind energy, reshaping supply chains.
- Supply Chain Disruptions: Firms are shifting from China to India, Vietnam, and Mexico to diversify risks.
- Emerging Market Challenges: Increased trade barriers, inflation, and tech restrictions slow down growth.
- Rise in Economic Nationalism: Nations are prioritizing domestic industries, energy security, and localized production over global collaboration.
PYQ:[2022] Elucidate the relationship between globalization and new technology in a world of scarce resources, with special reference to India. [2017] Which of the following has/have occurred in India after its liberalization of economic policies in 1991? 1. Share of agriculture in GDP increased enormously. 2. Share of India’s exports in world trade increased. 3. FDI inflows increased. 4. India’s foreign exchange reserves increased enormously. Select the correct answer using the codes given below: (a) 1 and 4 only (b) 2, 3 and 4 only (c) 2 and 3 only (d) 1, 2, 3 and 4 |
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