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Over the past six decades, tremendous progress has been made in the scientific, technological, and managerial areas that drive pharmaceutical research and development (R&D). Paradoxically, the efficiency of drug development has significantly declined during this same period. The number of new drugs approved per billion dollars invested has decreased dramatically, a phenomenon termed "Eroom's Law." This trend stands in stark contrast to Moore's Law, which describes the exponential growth patterns seen in Computer technology.

Researchers and industry experts have worked diligently to understand and enhance the commercial R&D process. Studies have pinpointed reasons for project overruns, factors impacting financial returns, techniques for outsourcing, and regulatory considerations. Despite these efforts, R&D efficiency continues to dwindle. While improvements in our grasp of project management and financial models are valuable, they have failed to reverse the central trend: less innovation for more money spent.

Despite a resurgence in global tensions in recent years, we live in an era of unprecedented peace between nations. Seventy years have gone by without a repeat of the major conflicts of the early twentieth century; and, since the end of the Cold War, the number of inter-state conflicts has steadily declined to practically zero. The expansion of international trade since World War II, in particular, is credited with ensuring a more secure global order by raising the economic costs of war (Polachek, 1980; Martin et al., 2008; Glick and Taylor, 2010). Nonetheless, global expenditure on defense in 2018 was roughly $1.8 trillion, a 76% increase in real terms from the post-Cold War lows of the late-1990s. Aside from the West’s recent interventions in the Middle East, a major driver of this trend is the rapid expansion of defense spending by emerging economies that have become more integrated into the world trading system in the past few decades.1 Though the growth of these economies due to trade has been welcome on the whole, the accompanying trend in their defense spending underscores the basic point that wealth created by trade is wealth that can be used to invest in one’s military capacity.

Economists have recently begun to expand the scope of international trade theory to explore the importance of arming and conflict (see, e.g., Skaperdas and Syropoulos (2001); Garfinkel et al. (2020) discussed below). These theories, however, are silent on why we continue to observe increases in arming in a seemingly peaceful and continually globalizing world. Furthermore, while “realist” security scholars have long expressed the view that the standard “gains from trade” could be outweighed by the negative consequences for a country’s future security if these gains are asymmetrically distributed, trade theory has not examined this argument specifically.2 This oversight diminishes our understanding of why and when nations expand trade with one another. Even in the present day, policymakers openly regard trade policy as an instrument for achieving security-related goals.3

The impression that trade has had a pacifying effect throughout history is an almost universal assumption in arguments regarding global affairs. Economic interdependence influences a manner in which a country behaves by giving it a false sense of security. The aforementioned argument is currently being misapplied to the United States’ foreign relations, with many over-stating the weight of trade relations with nations such as China and Russia. The idea that all types of trade are the same, and equally support peace, is a gross oversimplification. Countries should not feel secure simply because they have trade relations with possible enemies.

The theory that countries’ interconnected economies promote peace is not new and has been at the heart of the liberal school of international relations for years. The most well known theorist to posit this claim was Norman Angell in his 1909 work, The Great Illusion. In short, The Great Illusion argued that because of economic interdependence, war had become too costly. Modern history has disproved Angell’s thesis numerous times. Positive trade relations are usually the result of a myriad of circumstances. When taken as a whole, these positive relations can include: political, economic, environmental and even cultural attributes. It seems that a major reason for Angell’s enduring idea is the confusion of cause and effect. The trade between two countries is most likely the result of peaceful relations, caused by varied circumstances, as opposed to the trade promoting peaceful relations.[1]

You can’t trade with someone you’re at war with. So, the more two countries trade, the more costly a war between them will be, and the less likely they should be to fight. This argument is appealing for a few reasons. First, it makes intuitive sense. Second, it looks like it fits the data well, at least for the post-war period. Since WWII, international trade has grown dramatically while the rate of international conflict has fallen.

This theory also benefits from some seemingly-strong empirical support. Two prominent proponents, Bruce Russett and John Oneal, have produced a number of books and papers that show increased economic interdependence, usually measured as the value of bilateral trade between two countries divided by a country’s GDP, reduces the chance of war between two countries. More specifically, in a 2003 paper they report that “increasing economic interdependence from the 10th to the 90th percentile reduces the risk of a fatal dispute by 32 percent.” At that time, the volume of US-China trade was just below the 90th percentile for their data, and the authors conclude that the growth of US-China trade reduced the chance of conflict by 27%.

The IMF is worried about the risk of a return to the 1930s. It fears the current trend towards deglobalisation will result in trade barriers going up, countries adopting their own technological standards – and rival reserve currencies emerging to challenge the supremacy of the US dollar. Bad all round, in other words.

But hang on a minute. Greater international cooperation is a good thing, to be sure. There are global problems that need global solutions, as the IMF’s managing director, Kristalina Georgieva, rightly noted at a press conference yesterday.

As supply chains become longer and increasingly interlinked, managing them has become a considerably challenging task. Moreover, external factors like market volatility, pandemic-induced fluctuations, and increased attention to the environmental impact of supply chains have triggered regionalization and created a demand for optimization. Interestingly, this has spurred the advent of trade-tech to help SMBs and stakeholders focus on supply chain resilience to make global trade more efficient, inclusive and equitable. While it will take some time for this tech to fully integrate into the trade ecosystem, I believe it is important to share more about the types of technologies available and what they can do.

In December 2020, the World Economic Forum’s global survey revealed five emerging technologies: IoT in supply chains, digital payments, e-commerce platforms, cloud computing and 5G, which promise to change the traditional international trade landscape.

The World Trade Organization's (WTO) top decision-making body will have every reason to fret when it meets on February 26. International trade—a key engine of global prosperity since the fall of the Berlin Wall— has ground nearly to a halt and is set to remain anemic in the coming years. In 2023, trade in goods and services expanded by the slenderest of margins, an estimated 0.2 percent, the slowest pace in 50 years outside of global recessions. It would have declined outright but for the growth of trade in services. Trade in goods shrank roughly 2 percent, the sharpest contraction during this century outside of a global recession. Trade growth will improve this year but it will still be half the average rate in the decade before the pandemic. In fact, by the end of 2024, global trade will register the slowest half-decade of growth since the 1990s.

Global Trade Growth is Slowing

Globalization was meant to bring the world closer together, enmeshing advanced and developing economies in a web of mutually beneficial economic and financial linkages. From about the mid-1980s, trade and financial flows between countries expanded rapidly as governments dismantled barriers to these flows.

Not everything went according to plan. Tensions rose as the benefits were not equally shared within or among countries. Widening economic inequality, often attributed to free trade, roiled many advanced economies and has had far-reaching political consequences. While they benefited from access to foreign markets for their exports, many emerging market countries were ravaged by volatile capital flows and the fickleness of international investors. Still, there was a broad consensus that shared economic interests would ultimately triumph and even help smooth over geopolitical frictions.

In response to COVID-19, Russia’s war with Ukraine and climate change, governments and global companies are seeking security and resilience over the benefits of global value chains.

There are strong signals that the era of globalisation is coming to an end, analysis by research analysts at Barclays Corporate and Investment Bank suggests.

But since then, the opposite has happened. The overall direction is one toward better jobs, higher wages, safer workplaces, and less child labor, and it has happened the fastest in the countries that have opened the most and are most integrated in global supply chains.

Astonishingly, these data are ignored by officials in the United States and elsewhere who—parroting Stiglitz two decades ago—still cling to the race‐​to‐​the‐​bottom narrative and decry a “colonial” and extractive economic model supposedly fueled by “traditional free trade agreements,” as U.S. Trade Representative Katherine Tai put it in a recent speech on supply chain resilience. It’s long past time for them and other globalization skeptics to update their script.

Finally, maintaining peace and security is particularly salient these days. The increasing weaponization of trade relations and policy has cast doubt on the long-standing proposition that trade brings peace. Countries are understandably worried about becoming dependent on potential adversaries for critical goods. But as has been made clear, limiting trade to a few partners comes with opportunity costs: higher prices, diminished export options, less productive resource allocation, and new kinds of supply vulnerabilities.

Meanwhile, deep and diversified markets make it harder to weaponize international trade, by reducing countries’ dependence on any single source of supply. When the war in Ukraine cut off nearly all of Ethiopia’s wheat imports from that country, Ethiopia was able to fill the gap with imports from Argentina and the United States. Europe has made up for the loss of piped Russian gas with imports of liquefied natural gas from other sources. In a reglobalized world economy, a diffuse production base for all manner of goods would mean even fewer potential chokepoints. One prerequisite for reglobalization is a broadly open and predictable global economy, anchored in a strong, rules-based multilateral trading system.

We are in the longest stretch of peace between major powers for 1,800 years, the old archenemies France and Germany almost cozy up too much to one another, and Putin’s invasion is the first attempt to launch a major war of conquest since Saddam Hussein invaded Kuwait in 1990. In a world where peace used to be just a brief interlude while everybody rearmed, something has gone right in the post–World War II era. If you want the whole story, read Steven Pinker’s The Better Angels of Our Nature, but clearly doux commerce has something to do with it.

Proximity and interdependence are not always deterrents, especially if different groups share one pool of resources that they all want the largest share of. Additionally, not all cultures and communities are happily harmonious, and civil wars are often the most vicious. However, the general relationship between trade and peace is a strong one.

Frédéric Bastiat famously claimed that “if goods don’t cross borders, soldiers will.”

Bastiat argued that free trade between countries could reduce international conflict because trade forges connections between nations and gives each country an incentive to avoid war with its trading partners. If every nation were an economic island, the lack of positive interaction created by trade could leave more room for conflict. Two hundred years after Bastiat, libertarians take this idea as gospel. Unfortunately, not everyone does. But as recent research shows, the historical evidence confirms Bastiat’s famous claim.

But even as technology enables more complex procurement and collaboration, the importance of different factor costs is shifting. After years of choosing production locations largely on the basis of where low-cost labor is available, many manufacturers are beginning to reassess those decisions. Factors such as logistics costs, lead time, productivity, consumer preferences, and proximity to other company operations are being given greater weight.

For some products, low-cost labor will continue to be the decisive factor. As China’s wages rise and the country makes a push to move up the value chain into more innovative, higher value-added industries, more of its manufacturing business is up for grabs. Japan, for instance, has been shifting FDI from China to Southeast Asia. Now even some Chinese companies are shifting textile and apparel production to Africa.

Finally, goods-producing value chains (particularly automotive as well as computers and electronics) are becoming more regionally concentrated, especially within Asia and Europe. Companies are increasingly establishing production in proximity to demand.

Three forces explain these changes in value chains. First, emerging markets’ share of global consumption has risen by roughly 50 percent over the past decade. China and other developing countries are consuming more of what they produce and exporting a smaller share. Second, emerging economies are building more comprehensive domestic supply chains, reducing their reliance on imported intermediate inputs. Lower global trade intensity is a sign that these countries are reaching the next stage of economic development. Finally, global value chains are being reshaped by cross-border data flows and new technologies, including digital platforms, the Internet of Things, and automation and AI. In some scenarios, these technologies could further dampen goods trade while boosting trade in services over the next decade.

Globalization therefore creates powerful pressures on governments not to close off their economies through protectionism or military aggression. Interdependence can also tamp down conflicts that would otherwise be likely to break out during a great power transition. Of the 15 times a rising power has emerged to challenge a ruling power between 1500 and 2000, war broke out 11 times.109 Despite these odds, China’s recent rise to great power status has elevated tensions without leading to anything approaching war. It could be argued that the Sino-American economic relationship is so deep that it has tamped down the great power conflict that would otherwise have been in full bloom over the past two decades. Instead, both China and the United States have taken pains to talk about the need for a new kind of great power relationship. Interdependence can help to reduce the likelihood of an extreme event—such as a great power war—from taking place.

Will this be true for the next generation economy as well? The two other legs of the Kantian triad—democratization and multilateralism—are facing their own problems in the wake of the 2008 financial crisis.110 Economic openness survived the negative shock of the 2008 financial crisis, which suggests that the logic of commercial liberalism will continue to hold with equal force going forward. But some international relations scholars doubt the power of globalization’s pacifying effects, arguing that interdependence is not a powerful constraint.111 Other analysts go further, arguing that globalization exacerbates financial volatility—which in turn can lead to political instability and violence.112

Globalisation hit a record high in 2022 and remained close to that level in 2023 despite a series of global shocks over the past decade, including the pandemic, wars in Ukraine and Gaza, the US-China trade conflict, and the UK's withdrawal from the EU, the DHL Global Connectedness Report, 2024 said.

This evidence strongly rebuts the notion that the growth of global flows has gone into reverse. Trade growth played a crucial role in boosting global connectedness, said the report, adding that the share of global output traded internationally hit a record high in 2022 and, after a slowdown in 2023, is expected to accelerate in 2024.

The pandemic, Ukraine, simmering U.S.-China tensions, and rising American populism have led many politicians and pundits to boldly proclaim that a new era of de‐​globalization is upon us. Factories are “re‐​shoring,” economies are “decoupling,” and everyone has abandoned “neoliberal” free trade. Some have gone so far as to openly—and ominously—wonder whether we are witnessing the “end of globalization.”

Surely, the last few years have stressed the global economy and seen certain policymakers more pessimistic about foreign trade and investment than they’ve been in decades past. Nevertheless, the evidence thus far shows that globalization is not dying but instead evolving in response to various economic and geopolitical trends. In fact, one big problem with the current de‐​globalization chatter is that it misunderstands—sometimes wildly—what globalization actually is, as well as the rules that undergird it. It also ignores—as economist Jeffrey Kleintop has pointed out—the long history of people wrongly predicting globalization’s imminent demise. As this essay documents, today’s skeptics likely will be proven wrong once again.

After two and a half years of a pandemic that has exposed the fragility of global supply chains and eight months of war in Ukraine that has severed economic ties between Russia and the West and disrupted global food and energy markets, the world seems to be at a turning point. Globalization, many claim, is receding. A growing number of analysts now argue that much as World War I and the 1918 influenza pandemic brought an end to the first great era of globalization, the combination of Russia’s war in Ukraine, COVID-19, simmering populism, and geopolitical competition between the United States and China has kicked the second great era of globalization into reverse. “This new cold war marks the end of the era of globalization and integration that has shaped the international system since 1989,” the journalist Fareed Zakaria wrote in mid-October.

Prominent investors and policymakers agree. Larry Fink, the CEO of the asset management firm BlackRock, wrote to shareholders in March that the war in Ukraine had “put an end to the globalization we have experienced over the last three decades.” And at the World Economic Forum in Davos in May, International Monetary Fund Managing Director Kristalina Georgieva warned of a coming “geoeconomic fragmentation.” Countries and companies, she said, are “re-evaluating global supply chains” and undoing decades of integration.

Automation and additive manufacturing change production processes and the relative importance of inputs, and may reduce goods trade

The diffusion of automation and artificial intelligence technologies suggests that multiple industries will experience a profound shift in the importance of capital versus labour (McKinsey Global Institute 2017). The growing adoption of automation and AI in manufacturing makes labour costs less important and other factors – such as proximity to consumer markets, access to resources, workforce skills, and infrastructure quality – more important.