After globalisation: What's next for a fractured world? With Neil Shearing

Episode Summary

Executive Summary: The episode argues that globalization is not simply reversing, but fracturing into a U.S.-China-led order shaped by strategic rivalry, especially in technology, supply chains, and finance. Neil Shearing says most everyday trade will continue, while sensitive sectors like chips, EVs, and green tech will face tighter bloc politics. He is skeptical of de-dollarization and expects China to lose more than the U.S. in a fractured world.

Main Topics: From deglobalization to a fractured global order: Shearing challenges the popular narrative that the world is broadly deglobalizing, arguing the data still show high trade, capital, and migration flows; the real driver is intensifying U.S.-China strategic rivalry. Technology as the key fault line: Advanced tech, semiconductors, AI-related tools, green tech, and dual-use goods are becoming the main areas of restriction, with the U.S. trying to preserve leverage over China while preventing strategic leakage. China’s role in green technology and supply chains: China is not just a copier but a frontier leader in battery and green technologies, making complete exclusion economically difficult for Europe and costly for the U.S. Europe’s difficult middle position: Europe is pulled between U.S. pressure and Chinese inputs, lacks a unified strategic voice, and is unlikely to become a true third bloc despite talk of strategic autonomy. Dollar dominance and skepticism about de-dollarization: Shearing argues that the dollar’s reserve-currency role remains extremely resilient because of scale, network effects, and institutional strength, making de-dollarization unlikely in the near term. Winners, losers, and the risk of escalation: A fragmented world likely benefits some nearshore and peripheral manufacturing hubs, but China stands to lose the most. The U.S. could also undermine its own position if it alienates allies; the worst-case scenario is military conflict over Taiwan.

Key Arguments: Global trade has not collapsed; trade, capital, and migration flows remain high, so the evidence does not support a simple deglobalization story. The central force shaping the system is U.S.-China rivalry, not a generalized inward turn by all countries. Technology restrictions are becoming the main instrument of economic statecraft, but fully severing tech links is expensive and difficult. Green technology is an area where China is a genuine frontier innovator, especially in batteries, which makes European decoupling hard. The global trading system is likely to bifurcate: strategic sectors will harden into blocs, while most consumer goods trade continues largely as before. Trump’s second term may alter the form of fracturing, but trade patterns still show the U.S. targeting China more than allies overall. Europe cannot easily act as a neutral Switzerland because the U.S. and China, not smaller states, will define the fault lines. De-dollarization is unlikely because the dollar dominates global transactions, is supported by open institutions, and benefits from powerful network effects. China’s surpluses and external asset accumulation mean it still needs dollar markets, limiting how far financial decoupling can go. The biggest downside risk is escalation beyond economic competition, especially a Taiwan conflict, which could slash global GDP. Potential winners are peripheral manufacturing hubs such as Mexico, Vietnam, parts of Southeast Asia, Turkey, and Eastern Europe, though they may also face more competition from rerouted Chinese exports. By 2040, Shearing expects the Western share of global GDP to stabilize or even edge higher, while China’s growth could slow materially.

Data Points: Global GDP share of China and aligned economies in 1990: about 5% - Shearing compares the rise of China-aligned economies over the globalization era. Global GDP share of China and aligned economies now: about 25% - Used to illustrate how much the global economic balance has shifted since 1990. Share of global transactions denominated in dollars: just under 90% - Shearing cites BIS data to show why de-dollarization faces a very high hurdle. China growth outlook: as little as 2% a year by the start of the next decade - Potential slowdown if China’s model and fractured trade environment weigh on growth. Potential U.S. growth under a more America-first agenda: around 1% a year - Shearing warns the U.S. could damage its own long-term growth if it alienates allies. Possible global GDP loss from broad decoupling: 2% to 3% of global GDP - Estimate for a much broader severing of China-linked inputs from Western supply chains. Possible global GDP loss in a Taiwan conflict: up to 10% of global GDP - Illustrates the severe downside of military escalation beyond economic fragmentation. Time horizon discussed for the future world order: 2040 (15 years out) - Used to frame the long-term implications of fractured globalization. U.S. bloc share of global GDP: about 65%+ - Shearing describes the U.S.-aligned bloc as larger and more diverse than China’s bloc.

Pivotal Quotes: "the world isn't turning inwards. Rather, the underlying driver of what's going on is this intensification of a superpower rivalry between the US and China." — Neil Shearing: Core thesis explaining why the apparent deglobalization narrative is incomplete. "I think it's going to take an enormous amount to unseat the dollar from its central position within the global financial system and, therefore, the global economy." — Neil Shearing: His central argument against de-dollarization. "it's not for other countries to choose. The US and China will choose where the fault lines of this fractured world sit." — Neil Shearing: Explains why smaller economies and Europe cannot simply opt for neutrality.

Implications: Expect selective decoupling, not total deglobalization: strategic tech, EVs, and finance will harden into blocs while most consumer trade persists. Businesses should plan for supply-chain reconfiguration, allied-shoring, and higher geopolitical risk, especially around Taiwan and tech controls.