A Requiem for Hyperglobalization

The Berlin Wall’s fall was a unique moment in geopolitical history, ushering in an era of unipolarity as the United States became the world’s hegemon. But it also heralded an unprecedented economic phenomenon: convergence. As early as the fifteenth century, formerly prosperous societies from Mesoamerica to China suffered reversals of fortune, falling—or being pushed—behind the West. With the advent of the Industrial Revolution, growth rates in rich and poor nations diverged even further. But as the Cold War drew to a close, this grim historical pattern broke, and developing countries started growing faster. Within another decade, they began catching up, albeit slowly, with living standards in the rich West.

Some poorer economies had already experienced success in the twentieth century—South Korea and Taiwan prospered beginning in the 1960s, followed by Indonesia, Hong Kong, Singapore, and Thailand. But the era of convergence that began around 1990 stands out for its ubiquity of remarkable growth, extending to a plurality of developing countries. As a group, they started reversing their previously bleak economic fortunes. The world saw a historic decline in poverty not just in China and India but also in Latin America and, starting in the mid-1990s, in sub-Saharan Africa.

Every country pursued unique policy choices. But although ideology and favorable macroeconomic conditions helped power this astonishing era of convergence, arguably the most important factor was hyperglobalization, the rapid increase in trading opportunities beginning in the late 1980s. It is uncanny how convergence coincided in timing with hyperglobalization: they began together in the late 1980s and early 1990s, when developing countries became more exposed to trade and then started growing faster than their rich counterparts. Hyperglobalization and convergence also peaked together. And since the end of the COVID-19 pandemic, both phenomena appear to be coming to an end. As a share of GDP, developing countries’ trade has returned to where it stood at the start of the twenty-first century, and developing economies have started growing more slowly than advanced ones—returning to the pattern that dominated until the late 1980s.

Economists and politicians alike have concluded that hyperglobalization was responsible for rising domestic inequality and the loss of manufacturing jobs in the West, often ignoring its role in reducing inequality between rich and poor countries. Newer concerns about national security and vulnerable supply chains are pushing rich countries toward protectionist measures to combat China’s rise and, in particular, its dominance in critical technologies and products. The leaders of developing countries—responding in kind or mimicking policy fads in the West—have enacted their own raft of protectionist measures.

But all of these actors should pause before they turn their backs on hyperglobalization. The world will survive a U.S.-Chinese trade war. But it will become poorer and more unequal if it abandons the medium-term goal of achieving a more integrated global trading regime. Hyperglobalization’s total demise could mark a dangerous retreat from the policies that underpinned history’s most golden period of economic development.

WARP SPEED

Globalization occurs when the international flows of goods, services, capital, technology, and ideas experience a rapid increase. Hyperglobalization is simply globalization on steroids. Beginning in the late 1980s, three critical factors drove a truly exponential rise in these flows: a rapid decline in the cost of transporting goods and communicating across borders; political leaders’ embrace of more globalization-friendly policies; and perhaps most fundamentally, the end of the Cold War. That event seemed to promise an international environment in which the risk of war and geopolitical conflict was lower—a Pax Americana.

Hyperglobalization was perhaps the most important enabler of the convergence that occurred between the fortunes of rich and poor countries between 1990 and 2020. In the course of conducting research published in the Journal of Development Economics in 2021, we discovered that this convergence reflected three distinct and related phenomena: faster growth in poorer countries; less volatility in domestic countries’ economic growth rates, suggesting that poor nations were becoming less vulnerable to economic shocks; and particularly stellar and steady growth by middle-income countries, belying the assumption that such countries would struggle to grow once they crossed a certain income-per-capita threshold (the so-called middle-income trap).

It is a common view that after the Berlin Wall fell, developing countries—sometimes on their own and often directed by the International Monetary Fund and the World Bank—turned toward neoliberal economic policies. Reaganite and Thatcherite economic philosophies spread southward, this argument goes. But in truth, developing countries’ policy shifts were as much a nod to common sense as they were a Damascene conversion to a new neoliberal ideology. In the three decades before the Berlin Wall’s fall, many postcolonial developing countries had adopted reckless and populist macroeconomic policies that led to crises and instability; implemented overly complex trade, interest, and exchange-rate policies that fostered corruption and inefficiency; and sought to prop up loss-making state-affiliated companies. By the end of the Cold War, the evidence of these policies’ damage was glaring. The majority of developing countries began to follow a variant of U.S. President Barack Obama’s famous foreign policy dictum: “Don’t do stupid shit.” They turned toward the private sector, markets, and trade, abandoning the more heavy-handed statist policies that had in many cases delivered only stagnation.

The external environment also helped. Beginning in the 1980s, interest rates in rich countries started falling, in line with inflation. By the turn of the twenty-first century, low interest rates had become entrenched. This meant that developing countries could access cheap finance for infrastructure and other investments as global capital’s appetite to seek returns in poorer countries escalated.

But hyperglobalization was the key driver. In the era of rapid growth, nearly every country expanded trade. Most famously, China and India—followed by Vietnam and Bangladesh—experienced economic-growth miracles on the back of rapid growth in their exports and trade, in manufacturing in the case of China and East Asia and in services in the case of India. Commodity exporters, especially in sub-Saharan Africa, benefited from a surge in commodity prices, itself induced by China’s rapid growth and its voracious demand for oil, copper, iron, and other minerals.

HERD THINKING

After 2020, however, hyperglobalization halted. Even allowing for Brad Setser’s contention in Foreign Affairs that China and the United States are not decoupling and that globalization continues apace, it is clear that for developing countries writ large, the ratio of trade to GDP is declining. Convergence has stalled, too. In the wake of the 2008–9 global financial crisis, the differential between rich and poor countries’ growth rates began to narrow. But convergence truly ended after 2020, when rich countries’ growth rates again began to exceed those of developing countries. It is possible this shift in economic fortunes will be temporary. Key shifts in attitudes toward trade and globalization, however, show every sign of being here to stay.

Western intellectuals have not only recoiled from hyperglobalization because of its adverse impact on manufacturing employment in rich countries or the rise of China. Recently, leading economists have also contended that hyperglobalization has not, in fact, been beneficial enough, or beneficial at all, even for developing countries. Angus Deaton has denied that international trade helped growth or reduced poverty in developing countries. A subtler version of this claim accepts that increased trade powered growth in China in particular but argues that this growth did not fully benefit Chinese workers. Daron Acemoglu, for instance, has argued that China only gained a competitive advantage thanks to its repressive institutions and limited labor rights. Michael Pettis has gone a step further, arguing that trade based on China’s policies of wage suppression leaves everyone—workers outside and inside China—worse off.

The denial that hyperglobalization benefited developing countries is, however, hard to square with the newest data. Twenty years ago, the empirical evidence that developing countries would grow faster if they liberalized their trade policies was still somewhat ambiguous. But a 2024 review by the economist Douglas Irwin concluded that, looking back, there is little reason to remain agnostic: “A consistent finding is that trade reforms have a positive impact on economic growth, on average, although the effect is heterogeneous across countries.”

Our claim here, however, is much more modest: that trade itself, rather than trade reforms, became an engine of growth and poverty reduction in the 1990s and the first decade of this century. That surge in trade was not always achieved through an uncritical embrace of neoliberal dogma. Some successful exporters relied on heavy-handed state intervention and maintained strategic tariff barriers. But developing countries did repudiate many of their most protectionist policies, and Western countries, in turn, kept their markets open to allow developing countries to take advantage of export opportunities. According to the World Bank, the number of people living in extreme poverty worldwide fell from around 2 billion in 1989 to about 1.3 billion in 2008. Over the same period, India cut the proportion of its population living in poverty from about half to a third, and China from two-thirds to less than a fifth.

The critique that hyperglobalization’s benefits failed to trickle down to workers falls short, too. At the beginning of the hyperglobalization era, average Chinese wages in the manufacturing sector were mere pennies per hour; by the end of it, in 2020, they had surpassed $5 per hour. There is no doubt that China has suppressed labor rights and favored capital over labor in a host of policy domains, and China’s success in exports cannot cover all sins. But as China has grown, its average manufacturing wages have mostly remained higher in proportion to its per capita GDP than wages in other fast-growing East Asian economies such as Japan and South Korea. In China, workers have had the most dramatic, quick increases in their earning power in history.

Perhaps the more surprising repudiation of hyperglobalization was led by policymakers in developing countries. The old saying that “success has many parents, but failure is an orphan” was turned on its head. After experiencing the greatest era of economic flourishing in their countries’ histories, they, too, turned inward and away from markets. The role of trade declined in developing countries after the global financial crisis: after four decades of steady increases, in 2008, developing countries’ trade as a share of their GDP began to fall, and even before the COVID-19 pandemic, it had reached lows not seen since the 1990s. Under Xi Jinping, China stifled the private sector and throttled entrepreneurship. Under Narendra Modi, India bolstered protectionist policies, repudiating a 30-year-old domestic consensus in favor of free trade. According to data from Global Trade Alert, on average, developing countries imposed 101 new tariff measures per year between 2014 and 2023, compared with rich countries’ 89 per year.

After experiencing their greatest era of economic flourishing, developing countries turned inward.

The puzzle is why developing countries turned their back on globalization. This was a reversal without economic justification: trade skepticism was imported from the United States, where globalization was blamed for killing off traditional manufacturing, into countries where globalization had just lifted many millions out of poverty. One possible reason is mimicry. Often, the leaders of developing countries ask: if they can do it (institute protectionist policies, for example), why can’t we?

There is real evidence that economic sentiments percolate from the West to developing countries. Olivier Blanchard and others have argued that, during the hyperglobalization era, advanced economies had more fiscal space to finance macroeconomic stimulus measures than met the eye because of low interest rates. Developing countries thought they enjoyed the same leeway, and some went on unsustainable borrowing sprees. Similarly, during this period, consensus was growing among macroeconomists that borrowing was not as damaging as previously thought, provided countries could do so in their own currencies. Financial instability and crises in Argentina, Pakistan, Sri Lanka, and Turkey, as well as in other sub-Saharan African countries, stemmed in part from transplanting rich-world macroeconomic policies into contexts where they made little sense.

EXIT INTERVIEW

By joining the West in repudiating globalization, however, developing countries—especially larger emerging economies—have become complicit in biting the hand that fed them. And some Western progressives have swapped their cosmopolitanism for nationalism without much discomfort or remorse, justifying this shift on the doubtful grounds that globalization harmed developing countries. These days, the demise of hyperglobalization is often met with relief, even celebration.

But the world, and especially developing countries, may well look back on it and the era of convergence it underwrote more elegiacally, the sense of loss compounded by the guilt that perhaps not enough was done to defend it. Hyperglobalization’s death ought to elicit mixed feelings—if not lamentation, then at least not cheerleading. It is open to debate whether protectionist measures by industrialized economies will help to combat climate change or reduce dependence on or conflict with China. But for developing countries, hyperglobalization undoubtedly played a critical role in their post–Cold War economic renaissance. The alternative to hyperglobalization—developing economies become locked into regional and geopolitical trading blocs and struggle to exit from commodity dependence and tap into the more dynamic manufacturing and services sectors—may well prove worse.

No single tariff or trade dispute can determine the economic future of today’s developing economies. But broad strategic vision matters. Economic and political elites must decide whether a more integrated, globalized world is still an intermediate goal worth pursuing or whether globalization’s usefulness has passed. The architects of the world’s economic future must take a moment from their hyperfocus on great-power competition to look at things from developing countries’ perspective. The stunning nature of convergence illuminates the enormity of what has been lost: developing countries, as a group, broke from a 500-year pattern of development; then, for a few brief decades, that historical trend was arrested. Global inequality fell, and the consequences for human welfare were enormous. Just for having been a handmaiden in that extraordinary outcome, hyperglobalization deserves—if not three—at least two cheers.