The long way to China: What chip smuggling reveals about trade today
A Taiwan chip-smuggling case reveals how export controls, geopolitical rivalry, and supply-chain governance are redefining the rules of global trade. ...
Geopolitics
Leadership
When globalization becomes a geopolitical weapon
Businesses must rethink resilience, competitiveness, and leadership in a more fragmented world....
As governments turn economic dependencies into instruments of geopolitical power, businesses must rethink resilience, competitiveness, and leadership in a more fragmented world.
Rapid read
- Globalization is not coming to an end, but its logic has changed. As governments turn economic dependencies into instruments of geopolitical power, businesses must rethink the risks of international integration.
- The pursuit of efficiency has created vulnerabilities that companies can no longer afford to ignore. Building resilience means diversifying suppliers, reducing dependencies, and recognizing the growing value of reliability, without retreating from global markets.
- Leaders cannot navigate today’s uncertainty using yesterday’s assumptions. Moving from being an optimizer to a navigator means developing geopolitical awareness, making decisions with imperfect information, and adapting quickly as circumstances change.
Have we reached the end of globalization?
It’s a question that has appeared repeatedly in newspaper headlines, television discussions, and podcasts. With geopolitical tensions rising, trade restrictions multiplying, and governments seeking to reduce their dependence on other countries, it’s easy to see why.
But what we are experiencing is something more complicated: geopolitical fragmentation amid continued global economic interdependence. The political order that supported globalization is weakening, even as companies continue to depend on global connectivity, enabling some governments to increasingly use economic relationships to exert power.
Business has become the battlefield
Consider the concentration of advanced semiconductor manufacturing in Taiwan, China’s dominance in rare earth processing, or the international financial infrastructure connecting banks around the world. Each reflects the economic logic of globalization, built around efficiency, specialization, and scale. But they have also become critical chokepoints that governments can exploit to exert pressure on other countries.
The United States has restricted China’s access to advanced semiconductor technologies. China has imposed export restrictions on certain rare earth materials. And some Russian banks have been excluded from the SWIFT financial messaging network under Western sanctions.
Political scientists Henry Farrell and Abraham Newman describe this phenomenon as weaponized interdependence: the ability of governments to exploit their positions within global economic networks to exert pressure on others.
For decades, companies built supply chains and commercial relationships around economic considerations. Now they are discovering that access to critical technologies, resources, and markets can depend on political decisions beyond their control. To understand why, we need to look at how the global balance of power has changed.
The US is no longer the undisputed global leader, and no other country has stepped forward to assume that role.
G-zero world
Following the Second World War, the United States played a central role in maintaining open markets and international stability. It did so largely because providing those benefits served American interests. But China’s emergence as an economic, technological, and military rival has changed that calculation.
The United States remains enormously influential, particularly through its financial markets. Yet it is no longer the undisputed global leader, and no other country has stepped forward to assume that role. Political scientist Ian Bremmer describes this as a G-zero world, in which no country or group of countries has the power, incentive, or willingness to lead the global agenda.
Weaponizing interdependence can undermine the very leverage that makes it attractive in the first place.
The paradox of weaponized interdependence
But there is a catch. The more aggressively a country exploits another’s economic dependence, the greater the incentive for that country to find alternatives.
American restrictions on advanced semiconductor exports may constrain China’s technological development in the short term. But they also encourage Chinese companies to develop domestic capabilities, potentially reducing their reliance on American technology. Nvidia has warned that restricting access to the Chinese market risks strengthening local competitors.
The same dynamic is playing out elsewhere, as countries develop alternative financial infrastructure, diversify critical mineral supplies, and find ways around vulnerable shipping routes.
DP World, a company we work with at IMD, responded to the closure of the Strait of Hormuz by purchasing 1,000 trucks to establish a land route to the Gulf of Oman. Rather than wait for shipping to resume, it found another way to move its goods.
Weaponizing interdependence can therefore undermine the very leverage that makes it attractive in the first place.
Paying 20% more for reliability might once have seemed excessive. Today, it can make good business sense.
A new premium on reliability
For businesses, these geopolitical pressures are changing the calculations that have shaped globalization for decades. Companies have traditionally concentrated production, minimized inventories, and organized supply chains around the lowest cost.
Increasingly, however, governments and businesses are thinking about globalization in terms of security and resilience. Not because efficiency has ceased to matter, but because the cost of excessive dependence has become harder to ignore.
During a recent discussion with supply chain leaders in Finland, I asked one executive how much more he would be willing to pay to make sure deliveries actually arrived. His answer was 20%.
Paying 20% more for reliability might once have seemed excessive. Today, it can make good business sense.
Companies are responding by developing additional suppliers, holding more inventory, and investing in alternative infrastructure. Some are deliberately building more slack into systems that they previously sought to optimize as tightly as possible.
None of this is free. But neither is a supply chain that fails when it is needed most.
Resilience does not mean retreat
This does not mean the world will divide neatly into competing regional blocs. The economic case for international trade remains compelling. What we are more likely to see is a patchwork of relationships, as countries pursue new agreements and businesses diversify their suppliers and investments.
Nor does greater resilience necessarily mean bringing everything home. Most countries cannot realistically provide everything they need domestically. Singapore is an obvious example. Its security and prosperity depend on maintaining international relationships, not withdrawing from them.
We need to move from thinking of ourselves primarily as optimizers to becoming navigators.
From optimizer to navigator
Adapting to this changing environment presents a particular challenge for business leaders, because many developed their professional instincts under very different circumstances.
In informal polling of around 700 executives across regions and industries, 91% said globalization had been increasing during most of their careers. Asked whether it was still increasing today, only 30% agreed. The shift in perceptions of macroeconomic stability was even more dramatic: from 52% to just 3%.
While this was not a representative survey, the responses reveal a striking shift in how executives perceive the world around them. Our early professional experiences shape the mental models we use to make decisions. For much of their careers, leaders could assume that globalization would continue to expand, Western technological leadership was relatively secure, and international institutions provided a degree of predictability.
Business schools have traditionally taught executives to optimize capital structures, supply chains, inventories, and the deployment of talent. These remain important capabilities. But there is a real danger in optimizing against an image of the world that no longer exists.
We need to move from thinking of ourselves primarily as optimizers to becoming navigators. A navigator knows the destination but understands that getting there rarely involves following a straight line. Winds change, currents shift, and unexpected obstacles emerge. The task is to keep moving forward, adjusting course as conditions change.
Businesses and institutions have an important role in maintaining the international relationships on which prosperity depends.
Learning to navigate uncertainty
For business leaders, that means recognizing that uncertainty is no longer a temporary disruption. It is part of the environment in which decisions must be made. Rather than waiting for 95% certainty, leaders need to become comfortable making decisions with 70–80% certainty, while remaining ready to adjust as circumstances change.
Geopolitical literacy is increasingly important, too. Leaders need to understand not only how political decisions affect their businesses, but also how the world looks from the perspective of different countries, customers, employees, and other stakeholders. They must be able to help their teams make sense of events that can feel overwhelming, while building resilience into their operations, organizations, and themselves.
There is a broader responsibility here as well. With governments struggling to provide effective global leadership, businesses and institutions have an important role in maintaining the international relationships on which prosperity depends.
The challenges remain global. So do the opportunities. Business leaders will need to step up, sustain those connections, and continue creating value in a more fragmented world.
Authors
This article is inspired by a keynote session at IMD’s signature Orchestrating Winning Performance program, Singapore (2026), which brings together executives from diverse sectors and geographies for a week of intense learning and sharing with IMD faculty and business experts.
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