The nature of globalization is changing, with palpable and dramatic consequences for the global South. Contestation over what might replace the current neoliberal order and intellectual framework means we lack consensus about the shape of the future. But while policy responses to these changes do not need a consensus about ends, they do need a solid diagnosis of the current historical juncture.

The newly released Trade and Development Report provides that diagnosis. The report analyses how technological, policy-driven, and geopolitical shifts combine to reshape the speed and topography of global integration. Three big dynamics in the global economy – a possible reversal of globalization, trade stagnation, and the erosion of the growth impulse from manufacturing – profoundly shape growth trajectories of countries of the global South. 

While globalization itself may not be in retreat, three ongoing geo-economic and geopolitical shifts are transforming the long-term conditions for development and growth. First, fundamentally protectionist and interventionist policies are replacing the trade liberalization measures typical of the decades after 1990. Second, a host of conflicts has disrupted a relatively stable global security regime. Third, new technologies associated with the green transition, AI, precision bioengineering, digitalization and financial innovation have the potential to fundamentally transform the global division of labour. These three shifts inflect globalization away from a growth promoting process in the global South towards a growth inhibiting process.

The second peculiar dynamic of the current juncture is slowing global trade. While global trade continues to increase in absolute terms, its relative share of global GDP has stagnated since the 2008–2009 financial crisis. Between 1995 and 2007, trade grew twice as fast as global GDP, but the share of trade as a percentage of GDP peaked at 25% in 2008 and has stagnated or declined since, gradually levelling off in 2023.

 

In 2024, global trade is projected to grow about 2% in real terms, a feeble recovery from the pandemic induced slump. Within this marginal rebound, trade in services has been more dynamic than trade in manufactured goods, expanding by around 5% in 2024. Services now account for 25% of gross trade flows globally (and up 50% in value terms). 

The third big dynamic of the global economy is the marginalisation of manufacturing as a growth engine. While manufacturing remains an important pillar of economic transformation, the effectiveness of manufactured exports as a growth strategy for developing countries is diminishing. The comparative advantage of cheaper, less skilled labour no longer aligns with the needs of modern skill- and capital-intensive manufacturing production. In the 2010s, only 18% of global trade was based on labour cost arbitrage. Over the last two decades, cross-border manufacturing investment has halved, while investment in service activities within manufacturing surged to nearly 70% by 2023.

The initial, trade-driven wave of globalization led to lost manufacturing jobs in the advanced countries, and a partial shift of workers into higher value services. But for many developing economies, the current turn away from manufacturing reinforces the risks of reverting back to the extraction of primary materials (re-primarization) and increased dependence on the production and export of basic commodities. In both the global North and the global South, the loss of stable industrial employment feeds a wider sense of discontent with globalization and requires new sets of national and international policies and governance mechanisms around employment, life chances and global demand.

 

 

Going forward, developing economies are likely to face a radically changed global environment that would require new thinking on climate-constrained development, structural change and growth models. Each of these three dynamic shifts potentially limits export-led growth strategies, presenting a major challenge to decision-makers across the developing world. 

New technologies, changing market structures, home-shoring (repatriating production), and a deteriorating security environment endanger contemporary development strategies based on expanded manufactured exports and some resource exports. 

Major petroleum exporters will likely encounter increasing constraints in funding existing import levels over the next two decades. For some economies – in particular, those where fuel exports comprise over 40 percent of total GDP – the green transition poses an existential risk. For others, where oil exports comprise over 25 percent of GDP, it likely means diminished revenues and the need to diversify exports.

Yet the current pivot also opens up opportunities. The fact that most developing countries are in locations favouring solar electricity generation might enable them to free themselves from oil imports and the related need to fund oil-import-driven trade deficits with debt. 

Some developing economies will benefit from increased demand for raw materials critical for electrification. In 2022, global exploration budgets for minerals increased by 16 per cent after a strong 34 per cent rise in 2021. Latin America attracted 25 percent of exploration activity, followed by Africa at 17 per cent. Investment in critical minerals surged by 30 per cent in 2022 on the heels of a 20 per cent rise in 2021. And while this growth is significant, it may not be sufficient to meet rising demand for critical minerals associated with the green transition and new technological wave. 

Finally, the robust expansion of South-South trade opens new opportunities for growth and integration. Between 2007 and 2023, South-South trade more than doubled, from $2.3 trillion to $5.6 trillion. This evolution can help lower dependence on traditional trade partners, foster regional economic integration, and help generate more equitable trade and financing agreements. But realising these opportunities will require a revised, integrated approach to trade, investment and financial regulation policies, both nationally and at the multilateral level. 

Several factors matter here. The emerging new technological wave differs distinctly from earlier global economic inflections: as in the past, new technologies are labour-replacing; unlike some earlier growth waves, new technologies are concentrated in only a handful of companies. Some new technologies favour home-shoring. 

The global food system provides an example. Agricultural production has shifted from a labour-intensive sector to a complex, financialized landscape dominated by a few under-regulated corporations. New digital and AI technologies can further accelerate the concentration of data in the hands of a few large seed companies. For instance, Brazil’s efforts to engineer soybeans for local conditions still leave the country capturing only 36% of soy profits, as the economy relies heavily on foreign inputs for fertilisers and technology. 

Failure to respond to the challenges posed by new technologies and ongoing financialization will likely result in a significant portion of the global economy being controlled by large corporations and private entities, undermining inclusivity and public interest.

Therefore, improved governance and international policy coordination are increasingly important in three key areas. 

First, policies around competition, trade, industrial strategy, data protection, digitalization, labour, consumer protection and taxation, among other, need greater coordination and coherence. More stringent enforcement should tackle the national and international concentration of economic power and control. Closing data gaps and innovating more granular methodologies to make corporations socially accountable, especially in developing economies, should be a national and international priority.

Second, artificial intelligence needs to be globally governed by agreed principles and standards. Policies and governance arrangements on precision technologies for agriculture, as one example, are sparse and fragmented. Without legislation, private actors propose codes of conduct or certification schemes that may or may not align to broader development benefits.

Third, while Asian-type manufacturing export-oriented development models were highly successful in the era of globalization, they appear to be limited in today’s context. Strategies of structural transformation and diversification need to be recalibrated to encompass other economic sectors, including finance, insurance and real estate. 

This will help many commodity exporters to avoid, or at least minimise, the exposure to the commodity and financial cycles that tend to be particularly pronounced for many developing economies. 

The possibilities for such a recalibration will ultimately depend on the strength of the institutions and capacities of the state, including in mobilising revenues and directing them towards investment in human capital, developmental and climate needs, and towards regularizing and stabilizing local employment. That said, the global North can and should help ease the green transition and a shift to service exports, as this will benefit both the global North and the global South in the short and long run by expanding global market demand.

 

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Anastasia Nesvetailova is Head of Macroeconomics and Political Development Department at UNCTAD.

Herman Mark Schwartz is Professor of Politics at the University of Virginia.