By  Kung Chan and Li Xiaofeng

In recent years, major economies around the world have faced mounting development challenges. Although U.S. economic growth in the third quarter of 2025 exceeded expectations, persistently high unemployment and structural inflation remain significant headwinds. The country’s increasingly pronounced K-shaped divergence in income and consumption patterns further underscores underlying imbalances. Europe, meanwhile, remains trapped in prolonged stagnation. Core economies such as France and Germany are constrained by weak innovation and shrinking manufacturing sectors, resulting in limited growth momentum. China is likewise grappling with slowing growth, mounting pressures from industrial upgrading, and rising deflationary risks.

Many economists attribute these difficulties to cyclical fluctuations or the disruptive effects of U.S. tariffs. Yet a growing body of analysis suggests a deeper structural shift: the steady advance of de-globalization. In fact, the U.S. tariff hikes, tightened chip export controls, European trade protectionism, and tax adjustments in countries like Mexico should rather be better understood as symptoms rather than root causes. The globally integrated economic order that took shape over the past several decades is fragmenting at an unprecedented pace. This systemic transformation is increasingly seen as a central factor behind the slowdown in global growth.

For decades, the world functioned as a highly integrated mega-market characterized by deep interdependence and efficient global division of labor. Advanced economies in Europe and the U.S. leveraged strengths in capital, technology, and management to allocate resources globally and capture substantial returns. Emerging economies across Asia and Latin America, seizing opportunities created by industrial relocation, integrated into global value chains through cost advantages in labor and production. The result was a significant expansion of the global economic pie and a foundation for sustained growth across many regions.

De-globalization, by contrast, is a structural reversal. It is about the retreat in trade, cross-border investment, technology flows, and supply-chain integration, as nations turn toward protectionism and regional insulation. Its manifestations include rising trade barriers, supply-chain reconfiguration, technological containment, exclusionary rule-making, and even direct geopolitical intervention in economic affairs.

As de-globalization deepens, the once unified global mega-market is gradually fragmenting into smaller, regionalized blocs. Economically, this fragmentation amounts to a contraction in the effective size of global markets. Reduced scale undermines efficiency in resource allocation, raises transaction costs, weakens economies of scale, and ultimately diminishes overall welfare. In this sense, de-globalization resembles a balance-sheet contraction of the global production system, eroding the very foundations that once supported expansive growth.

The consequences of this are far-reaching. Declining external demand, “friend-shoring” of supply chains, tighter regional clustering of production, and even outright localization are reshaping global industrial patterns. These shifts are often accompanied by capital withdrawals, more concentrated production footprints among multinational firms, and shrinking multilateral financing flows, which strain public finances. Economies on the margins of the global trading system may find it increasingly difficult to remain embedded in global value chains. Yet while this transformation is systemic, its impact and policy implications vary significantly across regions.

For China, the challenges are immediate and direct. Fragmented and restricted external markets place pressure on the long-standing export-oriented growth model. Although China’s resilient and comprehensive industrial chains may sustain or even expand export volumes, intensifying competition and protectionist constraints often force firms into price-based competition, eroding terms of trade and squeezing profit margins. These dynamics heighten the urgency of shifting toward consumption-driven growth and moving up the value chain.

Europe faces a different but equally profound test. Its economic model has long depended on globally sourced energy, raw materials, and primary goods, combined with exports of high-value industrial products, technology, and financial services. As globalization recedes, this model is under strain. Rising input costs threaten industrial competitiveness, while the relatively limited size of domestic markets and economic divergence among member states become more pronounced. Growth momentum could weaken substantially.

At the same time, Europe also confronts structural fiscal trade-offs. With public expenditure exceeding 40% of total fiscal spending, and healthcare alone accounting for a large share, balancing generous social welfare systems with increased defense commitments is becoming more difficult. Without the external tailwinds of globalization, sustaining both priorities may prove challenging. Moreover, Europe’s innovation performance lags behind that of the U.S. in several strategic sectors, limiting its capacity to lead new waves of industrial transformation. As de-globalization advances, the institutional cohesion and future trajectory of the European Union itself may face mounting pressure.

By contrast, the U.S. may exhibit comparatively strong structural resilience. Its vast domestic market, leadership in technological innovation, and longstanding economic influence across the Americas provide buffers against global fragmentation. An innovation-driven economic model reduces reliance on traditional supply chains and may, in certain sectors, even benefit in the short term from technological decoupling and market segmentation. This positions the U.S. to adapt to, and indeed potentially shape, the evolving international economic order.

Nevertheless, vulnerabilities persist. U.S. stock indices have repeatedly reached record highs, but gains are heavily concentrated in a small number of technology giants. Such concentration signals structural imbalance and suggests that growth is not broadly based. At the strategic level, the U.S. is refocusing on consolidating its economic position within the Americas, leveraging the region’s population scale, resource base, and consumption potential as a stabilizing anchor amid global shifts.

As things stand, while global growth has not come to a halt, the logic underpinning it has changed profoundly. The world economy is no longer driven primarily by the expansion of a single integrated marketplace. Instead, it is increasingly shaped by fragmentation, regionalization, and strategic competition. Recognizing this structural shift is essential to understanding the new realities of global economic development.

About the authors:

Kung Chan is think thank ANBOUND’s founder , and Li Xiaofeng, is an Economist of China Macro-Economy Research Center at ANBOUND.