Deglobalization And Glocalization In The Current World – Analysis

By He Jun

In today’s world, the impact of deglobalization on global economic and trade activities has become increasingly stronger, continuously and profoundly changing the pattern of global economic, trade, and investment activities.

Researchers at ANBOUND have previously analyzed that the transition from globalization to deglobalization is not only a surface change in economic and trade activities, but also a fundamental change in the underlying logic of economic operation. During the smooth period of globalization, trade and investment followed the logic of efficiency, with capital seeking low-cost areas globally. “Free flow of capital + low-cost manufacturing + free trade” became the standard mode of economic activity in the era of globalization. However, in the era of deglobalization, there has been a fundamental change in economic logic, with efficiency logic giving way to geopolitical logic. Political factors strongly intervene in economic activities, and investments by multinational corporations must prioritize political factors and “national security” considerations.

This change has a significant impact on industrial investment. Reflected in economic and industrial layout, the past economy was market-centered, while in the future, it will become industry-centered. During the time when it was market-centered, investors emphasized market proximity, and market participants agreed to exchange technology for market access. However, in the industry-centered era, the emphasis is on the strength of the industry, its ownership and control, and aims to be close to manufacturing centers while expanding manufacturing centers. The latter is the “close produce ” model as mentioned by ANBOUND’s founder Kung Chan. Some researchers also refer to it as the “geopolitical manufacturing” model shift, moving from the “offshore manufacturing” of the globalization era to “nearshore manufacturing”, “friendly shore manufacturing”, and “return shore manufacturing” in the era of deglobalization.

The semiconductor industry is a typical industry that reflects deglobalization and geopolitical competition. It is a crucial foundational industry for the information society and can be considered the cornerstone of the “silicon-based civilization”. It is also highly technology and capital-intensive, not something that any country can easily afford. Over the past few decades, it has developed into a highly globalized industry system. Because of this unique position, in the era of deglobalization, the semiconductor industry has become a focal point for geopolitical competition among major powers. The extreme measures taken by the United States and its allies against China’s semiconductor industry and Huawei’s chip business, including strict bans and ongoing suppression, are extreme examples of deglobalization in action.

The geopolitical era of competition and friction has led to changes in the global semiconductor industry ecosystem. One important phenomenon is that major countries and regions around the world are racing to build semiconductor chip (wafer) factories. According to incomplete statistics, in the past few years, semiconductor manufacturing giants have either already established or planned to break ground on over 20 wafer fabs in markets such as Europe, America, and Japan, with a total project value exceeding USD 200 billion. According to data provided by the industry association SEMI, more than 100 new wafer fabs are expected to be built globally within five years, with a total investment exceeding USD 500 billion by 2024. This signifies a significant change in the previous situation where wafer foundries were concentrated in East Asia.

The U.S. is a key driver of this round of chip factory construction. In 2020, the U.S. only accounted for 12% of the global semiconductor production capacity, far lower than the 37% in 1990. It is this recognition that led to the formation of the CHIPS Act. The legislation, signed by President Joe Biden on August 9, 2022, allocates nearly USD 52.7 billion for U.S. semiconductor research, development, manufacturing, and workforce development. Specifically, this includes USD 39 billion in subsidies for domestic chip manufacturing in the country, a 25% investment tax credit for manufacturing equipment costs, and USD 13 billion for semiconductor research and workforce training.

Through diversification of supply chains and increasing domestic chip manufacturing, the U.S. and some European countries are attempting to make their economies more adaptable to withstand future geopolitical crises. All of this signifies the arrival of a “new globalization” model for the semiconductor industry. During the period of smooth globalization in the past, the semiconductor industry was a typical global ecosystem, meaning that the completion of a chip product, from raw materials, design, wafer manufacturing to outsourced chip production and packaging testing, often involved collaboration among different companies globally. However, now there is a significant change today, as countries hope to have their own semiconductor ecosystems, along with controllable industry and supply chains.

Some research institutions refer to this new model in the semiconductor industry as “glocalization”. In this phenomenon, in order to curb China’s technological development, the U.S. and its major strategic partners, especially G7 members, are integrating into local semiconductor supply chains and industrial ecosystems through cooperation with major semiconductor manufacturers such as TSMC and Samsung. These industrial ecosystems and supply chains will be securely encircled, forming the so-called “glocalization”.

As it stands, “glocalization” is not limited to the semiconductor industry. Against the backdrop of the broadening concept of “national security”, there is a trend of “glocalization” to varying degrees in other manufacturing sectors with certain technological content. This trend can be observed in industries such as the photovoltaic industry, electric vehicle industry, pharmaceutical industry, high-end materials, and even in the field of rare metal mineral resources. According to reports from The Wall Street Journal and CNBC, the Biden administration recently planned to invest heavily in manufacturing cargo cranes domestically in the U.S. to replace Chinese-made cranes operating in U.S. ports, thus addressing domestic “national security concerns”. It is reported that this move is part of the Biden administration’s efforts to strengthen cybersecurity in U.S. port networks. The U.S. Coast Guard has also issued a security directive requiring foreign-manufactured cranes currently deployed in strategic ports to meet certain cybersecurity requirements.

Final analysis conclusion:

Deglobalization is a deconstruction and reactionary response to globalization, while “glocalization” is the manifestation of this change in the fields of economy, trade, and investment. Meanwhile, “close produce” is a result of the aforementioned changes in the manufacturing sector. Looking at the current situation and trends, geopoliticalization of the world will be a long-term phenomenon, and the less efficient “glocalization” will become a long-term trend.

He Jun is a researcher at ANBOUND