Context

• Recent statements by U.S. President Donald Trump linking trade concessions to political approval illustrate a deeper transformation in the world economy.
• What is eroding is not only international commerce but the political framework that once governed it.
• The liberal system of globalisation is giving way to mercantilism, where economic exchange is subordinated to national interest and coercive bargaining.
• This shift marks a decisive break from the post-war order and signals a return to power-driven economic relations.

Globalisation as a Political Order

• Globalisation was never merely about markets. It was a political arrangement that shaped how states organised economies and interacted through multilateralism.
• This order rested on assumptions of open markets, mobility of capital, and rule-based cooperation, and it was closely associated with liberalism and institutional legitimacy.
• The weakening of shared rules and collective restraint has undermined this system, replacing cooperation with transactional bargaining rooted in sovereignty and strategic self-interest.

Historical Foundations of the Global Economy

• The global economy long predates liberal norms. Early integration relied on force, extraction, and unequal exchange, benefiting industrialised nations at the expense of colonies.
• The mid-20th century marked a turning point, as newly independent states and war-torn economies demanded a rules-based order.
• International institutions emerged to provide legitimacy and manage power asymmetries. Even unilateral actions were justified through normative language.
• The open abandonment of such restraint today reflects a fundamental historical reversal.

Unintended Consequences of Liberal Globalisation

• The liberal order generated significant economic expansion but also deep structural distortions.
• Rising inequality emerged as returns to capital far outpaced gains for labour, hollowing out manufacturing regions and intensifying migration pressures.
• These stresses fuelled political backlash and the rise of populism, as economic insecurity was channelled into nationalist sentiment.
• A second destabilising force was the rise of China, which integrated into global markets while retaining strong state control over finance, production, and information.
• This model allowed China to accumulate economic and geopolitical power without fully adhering to liberal norms.
• Persistent trade imbalances and export-driven growth constrained the industrial ambitions of poorer nations, reshaping global hierarchies.

The Return of Mercantilism and Decline of Multilateralism

• Together, inequality and geopolitical rivalry transformed how major economies viewed cooperation.
• Global engagement increasingly appeared as a constraint rather than a benefit. States turned inward, privileging industrial policy, border control, and economic coercion.
• Trade surpluses became symbols of strength, while deficits were framed as vulnerabilities.
• This environment encouraged nationalism and eroded confidence in shared governance, accelerating the collapse of the liberal multilateral order.

Consequences for the Developing World

• The retreat from cooperation has been particularly damaging for developing countries. International aid is now frequently conditioned on donor interests, while weakened institutions reduce collective bargaining power on issues such as climate change and financial regulation.
• At the same time, domestic pressures are rising as youthful populations demand jobs, mobility, and dignity.
• Without a supportive global framework, these states face heightened economic and political fragility.

India’s Position in the Emerging Global Order

• India occupies an uneasy position in this shifting landscape. It is geopolitically significant but constrained by internal weaknesses.
• Over the past decade, the country has failed to translate favourable demographics into broad-based productivity.
• While potential exists in digital public infrastructure, renewable energy, and services, limited state capacity and uneven governance hinder progress.
• Social stratification has deepened, weakening national cohesion.
• In a mercantilist world, such constraints carry long-term costs. Without sustained investment in human development and more inclusive growth, aspirations of global leadership risk remaining symbolic.
• Claims of becoming a Vishwaguru cannot substitute for robust institutions and economic foundations.

Conclusion

• The erosion of liberal globalisation represents a systemic shift toward power-centric economic relations.
• Mercantilism, nationalism, and strategic competition have displaced cooperation and shared norms. For developing nations, this new order narrows opportunities and amplifies vulnerabilities.
• India’s future relevance will depend not on rhetoric, but on strengthening institutions, enhancing state capacity, and rebuilding a social contract capable of sustaining inclusive growth in an increasingly unforgiving global economy.