AI & Fragmented Globalization

The global order of the late 20th century was defined by one globalization. The 1990s and 2000s saw an unprecedented integration of trade, technology, and finance under US-led rules. China’s entry into the WTO in 2001 symbolized this convergence: supply chains stretched worldwide, capital moved without friction, and knowledge transfer was seen as mutually beneficial.

That era is over. The 2020s are not a story of deglobalization but of fragmentation. The world is reorganizing into parallel systems, with deeper integration within blocs and tighter barriers between blocs. This is the essence of fragmented globalization: multiple competing architectures coexisting, with technology and AI as the new fulcrum of alignment.

From Singular to Fragmented Globalization

• 1990s–2000s: One Globalization
  • US unipolar dominance set the rules.
  • Globalization was efficiency-driven: lowest cost dictated production.
  • Technology, semiconductors, and research flowed across borders with minimal restrictions.
• 2020s: Fragmented Globalization
  • Power has shifted to a multipolar environment.
  • Instead of one integrated global economy, we now see competing spheres of influence.
  • Access to critical technology is the dividing line.
  • Alliances are reinforced, not abandoned—yet separation is sharper.
• Future Trajectory: Parallel Systems
  • US-led and China-led architectures operate side by side.
  • Hedger states (UAE, Singapore, Turkey, Switzerland) profit by bridging both systems.
  • This produces a hybrid globalization: interlinked within blocs, selective between them.

The shift is not about less globalization but different globalization—one that is structured by trust, sovereignty, and access to technology rather than cost efficiency.

Technology Access: The New Sovereignty Hierarchy

The most important redesign of globalization is happening around technology sovereignty. Access to advanced technology is no longer universal; it is tiered:

1. Tier 1: Open Access
   • Reserved for core allies.
   • Full sharing of advanced capabilities, from semiconductors to AI models.
   • Example: US, Japan, South Korea, EU partners, and Five Eyes intelligence network.
   • Integration is deeper than ever, with joint R&D, defense cooperation, and coordinated chip strategies.
2. Tier 2: Managed Access
   • Available to “friendly but not core” states.
   • Comes with caps, monitoring, and restrictions.
   • Example: Middle powers allowed to purchase advanced chips but under strict volume and usage limitations.
   • This creates dependency without sovereignty.
3. Tier 3: Blocked Access
   • Applied to adversaries and strategic rivals.
   • No access to advanced semiconductors, leading-edge AI models, or quantum systems.
   • Forces parallel innovation tracks—costly, slower, and often less efficient.
   • Example: China building domestic GPU alternatives after US bans.

This system is not protectionism in the old sense—it is graduated inclusion. Technology access is the new passport of sovereignty. Without it, nations cannot compete in the AI race.

Parallel Supply Chains: The Architecture of Redundancy

Fragmented globalization also transforms supply chains. The old model optimized for maximum efficiency (one global chain). The new model optimizes for resilience and optionality through parallel architectures.

• US-Led Chain
  • Anchored by the US, EU, Japan, and allies.
  • Strategy: “friend-shoring” critical production to trusted partners.
  • Example: new fabs in Arizona (TSMC, Intel), subsidies under the CHIPS Act.
• China-Led Chain
  • Anchored by China, Russia, and BRICS networks.
  • Strategy: building alternative institutions (AIIB, CIPS payments) and supply hubs.
  • Example: Huawei and SMIC leading domestic semiconductor efforts.
• Switching Mechanism
  • Multinationals increasingly operate dual supply systems.
  • Production can shift depending on geopolitical conditions.
  • Example: companies running both US-compliant and China-compliant supply flows simultaneously.

This creates inefficiencies, but it buys strategic resilience. Companies pay more, but they survive shocks.

The Premium: From Efficiency to Resilience

Globalization is no longer cheap. Resilience now carries a premium.

• Old Way: Efficiency premium ~10%
  • Centralized supply chains.
  • Minimal redundancy.
  • Lowest-cost sourcing ruled.
• New Way: Resilience premium ~150–170%
  • Costs rise sharply due to duplication, relocation, and redundancy.
  • Example breakdown:
    • Chips: 50% premium (Taiwan + US co-production).
    • Rare Earths: 70% premium (diversifying away from China).
    • Assembly: 60% premium (splitting between China and US-allied hubs).

Companies accept these costs because optionality is worth it. The ability to switch between supply networks—rather than being trapped in one—is the most valuable hedge in a fragmented world.

Deeper Integration vs Parallel Systems

• US Bloc: Deeper Integration
  • Integration inside the US-led bloc is actually tighter than in the 1990s.
  • NATO, Five Eyes, Japan, South Korea, Taiwan, and EU partners align on chip strategy, AI standards, and cybersecurity.
  • This is not about decoupling from the world but super-integrating within allies.
• China Bloc: Parallel System
  • China builds alternative infrastructure:
    • Finance: CIPS instead of SWIFT.
    • Trade: Belt and Road Initiative.
    • Technology: Huawei, Baidu, and local GPU ecosystems.
  • Aim: reduce vulnerability to US chokepoints.
• Hedgers: Multi-Aligned States
  • Countries like UAE, Singapore, Switzerland, and Turkey profit by bridging both systems.
  • They sell neutrality and access, often acting as transfer nodes between competing blocs.

Strategic Insight

The US-led order has not retreated. It has restructured into a high-trust, selective network. The paradox of fragmented globalization is that it:

• Deepens ties within blocs.
• Builds walls between blocs.
• Creates redundancy at high cost.

The future of globalization is therefore multi-speed and bloc-centered, not universal.

Implications

• For Business: Dual supply chains are unavoidable. Cost efficiency is secondary to survivability.
• For Governments: Power means controlling access tiers, not just market size.
• For Investors: Profit pools shift from global arbitrage to resilience premiums—companies that manage dual networks well will dominate.