Iqra Academy — CSS/PMS Current Affairs Notes

IQRA ACADEMY
Sargodha

CSS / PMS Current Affairs & International Relations

Compiled by Prof. Imran

Sources Consulted
• Editorial and opinion pages of leading Pakistani English-language newspapers (2025–2026)
• International Monetary Fund, World Economic Outlook and fragmentation research
• World Trade Organization, working papers on trade fragmentation and geopolitical distance
• World Economic Forum, commentary on regionalization and resilience
• Council on Foreign Relations, analysis on weaponized interdependence
• Foreign Affairs magazine, essays on economic coercion and chokepoint power
• Cambridge University Press, International Organization journal
• Islamabad Policy Research Institute (IPRI) commentary
• United Nations Conference on Trade and Development (UNCTAD) reporting
• Independent economic research and think-tank commentary on global trade blocs (2025–2026)

1. Setting the Scene: A World Rethinking an Old Bet

For about thirty years after the Cold War ended, the world ran on a simple bet: that opening borders to trade,
capital, and ideas would make everyone richer and, almost as a side effect, make war between major powers
too costly to consider. Supply chains stretched across oceans, tariffs came down almost everywhere, and a
phone made in one country could carry parts from a dozen others. That bet paid off in many ways — global
poverty fell sharply, and consumer goods became cheaper and more varied than at any point in history. But
somewhere in the last decade, the bet started to look shakier. The very ties that were supposed to keep peace
and prosperity together began to double as instruments of pressure and even punishment. Interdependence,
it turns out, cuts both ways — it can bind rivals together, or it can hand one of them a knife.

These notes examine three connected questions dominating today's debate on the world economy: whether
globalization is genuinely retreating or simply changing shape, how economic ties are being turned into
political weapons, and whether the old single, connected world market is breaking apart into rival regional
blocs. None of these questions has a clean answer, and that is precisely why they matter — the world is in a
messy, in-between phase, and getting the diagnosis right shapes what any serious response should look like.

2. Globalization in Retreat: Is the World Entering an Era of Deglobalization?

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The word "deglobalization" gets thrown around loosely, so it is worth being precise about what has and has
not actually happened. Trade as a share of the world economy did rebound after the pandemic, and outright
global trade collapse has not occurred. What has slowed is the deeper, structural kind of integration — the
willingness of firms to build supply chains without asking which government sits on the other end. Tariffs have
risen, technology transfers have been restricted, and firms increasingly treat "where is this made" as a
strategic question rather than a purely commercial one. Growth forecasts for the world economy in 2026 sit
meaningfully below the long-run average, and economists increasingly describe a slow, grinding downshift
rather than a single dramatic rupture.

The roots of this shift go back further than most headlines suggest. The 2008 financial crisis was the first real
shock, exposing how a housing bust in one country could freeze credit everywhere else, and prompting the
first serious rethink of unlimited financial openness. What has driven the more recent and sharper turn,
though, is not economics at all — it is geopolitics, above all the deepening rivalry between the United States
and China. Tariff battles, restrictions on advanced technology, and a general climate of suspicion have made
firms rethink supply chains that once ran purely on cost efficiency. Governments have piled in too, pouring
money into domestic manufacturing, defence, and critical industries to reduce reliance on the outside world;
global defence spending alone is on track to cross two and a half trillion dollars this year, a figure that says as
much about the mood of the age as any trade statistic does.

Yet calling this straightforward "deglobalization" may actually overstate the retreat. A more accurate
description is that globalization has not ended so much as been rewritten. Cross-border trade, investment, and
finance continue, but they no longer flow freely to wherever costs are lowest; they flow selectively, filtered
through questions of trust, alignment, and security. The world has not unplugged from itself. It has simply
started asking for ID at the door. For a country like Pakistan, watching this shift from the outside, the practical
lesson is sobering: an open world made it easier for developing economies to plug into global production
chains and grow through exports. A more selective, security-conscious world raises the bar for entry,
rewarding countries seen as reliable and aligned, and leaving those without a clear geopolitical anchor to
compete harder for a shrinking pool of open opportunity.

3. The New Geopolitics of Globalization: When Economic Interdependence Becomes a

If the first theme is about whether the world is pulling apart, the second is about how it is doing so — and the
answer is that economic ties themselves have become tools of coercion. Scholars call this "weaponized
interdependence": the idea that a country sitting at the centre of a global network, whether that network
moves money, data, or goods, can use its position to watch what flows through it and, when needed, cut
others off from it entirely. Two effects follow from this kind of centrality. One is what researchers call the
panopticon effect — the ability to monitor and gather intelligence simply by sitting astride the pipes through
which the world's transactions pass. The other is the chokepoint effect — the ability to slam a valve shut and
deny a rival access to something it depends on.

The clearest example is the global dollar system. Roughly nine in ten foreign exchange transactions worldwide
still involve the American dollar, and banks anywhere in the world that want to clear dollar payments must, in
practice, answer to American regulators. The SWIFT messaging network, though technically based in Belgium,
has repeatedly excluded targeted countries under pressure from Washington. This is not a hypothetical power
— it is one that has already been used, most visibly against Iran and, on a far larger scale, against Russia after

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2022, when the West's response demonstrated just how comprehensive a financial siege modern sanctions
can be. A single wire transfer, once purely a matter of banking, has become a small act of geopolitics.

What makes this moment different from earlier eras of sanctions is that the tool is no longer used by one hand
alone. China, having watched Washington wield chokepoints for two decades, built its own export-control
system, first in 2020 and expanded further afterward, giving Beijing leverage over the rare-earth minerals and
advanced components that much of the world's manufacturing depends on. Trade policy itself has been
treated as a weapon rather than a bargaining chip in the traditional sense, with the United States raising tariffs
unilaterally and effectively demanding that trading partners absorb the cost rather than retaliate. Once a tool
like this is normalized, though, it is difficult to contain to its original target. Sanctions and export bans have a
way of spilling past their intended victim, unsettling allies and ordinary firms caught in the crossfire, and
pushing everyone touched by the disruption to search for workarounds — alternative payment systems,
alternative suppliers, alternative technology stacks — that quietly erode the very centrality that made the
weapon powerful in the first place.

For countries on the receiving end rather than the wielding end of this power, the exposure is considerable.
Economies that depend heavily on the dollar, on Western financial institutions, and on imported technology
from either of the two rival blocs have very little leverage of their own if a geopolitical dispute suddenly
touches their access to these systems. When the giants fight with economic weapons, it is usually the smaller
economies standing nearby who catch the shrapnel. This is not an abstract risk for developing and middle-
income states; it is a live vulnerability that shapes how carefully they now have to calculate their financial and
technological dependencies, well before any dispute of their own ever arises.

4. From Globalization to Regionalization: The Emergence of a Fragmented World

The third strand of this story is about where global trade and investment are actually going once firms and
governments start hedging against the risks described above. The evidence points less toward a full retreat
into national self-sufficiency and more toward a reshuffling around regional and political blocs — a pattern
some economists have started calling "fragmentegration," a clumsy word for a real phenomenon:
fragmentation at the global level occurring alongside deeper integration within trusted regional clusters.

The numbers tell the story. The World Trade Organization now counts several hundred regional trade
agreements in force worldwide, and Asia offers perhaps the sharpest illustration of this shift. The Regional
Comprehensive Economic Partnership, linking fifteen Asia-Pacific economies, now accounts for roughly a third
of global economic output and population, making it one of the largest trade blocs ever assembled. The
world's commerce is increasingly organized around a small number of large hubs — North America, the
European Union, and an Asia-Pacific cluster anchored by China and Japan — with firms practising what has
come to be called friend-shoring: relocating production not necessarily to the cheapest available country but
to the most politically trusted one. Reshoring brings production back home; near-shoring moves it to a
neighbour; friend-shoring moves it to an ally. All three share the same underlying logic — efficiency is no
longer the only goal, and in some boardrooms it is no longer even the primary one. Resilience and political
comfort now compete with cost for the top spot on the list.

The costs of this shift are not trivial. The International Monetary Fund has estimated that a full fracturing of the
world economy into rival blocs could shrink global output by a significant margin over the long run, with the
pain falling hardest on smaller, trade-dependent economies that lack the size to matter much to either bloc on

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their own. There is also a heavy duplication cost: instead of one global semiconductor supply chain, the world
is now building three or four separate ones, each backed by tens of billions of dollars of government subsidy,
an enormous amount of redundant investment that adds no real new capability to the planet, only insurance
against the risk of depending on a rival. Building the same factory three times over is not innovation; it is the
price of not trusting one's neighbours.

Even so, the picture should not be painted as a simple return to closed national economies. Careful research
on actual trade flows finds only modest evidence of a broad-based retreat into blocs so far — trade between
rival geopolitical camps has grown somewhat more slowly than trade within them, but the overall picture is
one of selective realignment rather than wholesale collapse. Regional groupings such as ASEAN are pairing
trade integration with digital cooperation, betting that shared rules on data, payments, and e-commerce can
bind neighbours together as tightly as shared tariffs once did. What is emerging, in other words, is not a single
fractured world but several increasingly coherent regional worlds, each internally more open than the whole,
and more cautious toward the ones outside it.

5. What This Means for Countries Like Pakistan

None of these shifts are occurring in some distant arena with no bearing on Pakistan's own choices. A country
still heavily dependent on the dollar, on Western financial infrastructure, and on imported technology from
competing blocs has comparatively little insulation if a dispute between larger powers disrupts the channels it
relies on — a vulnerability that recent regional turbulence, from Gulf instability to shifting American trade
policy, has already made concrete rather than theoretical. At the same time, a more regionalized world
economy is not without opportunity. Supply chains being redrawn around trust and resilience rather than pure
cost create openings for economies willing and able to position themselves as reliable manufacturing or
logistics partners, provided the underlying governance and infrastructure exist to make that reliability
credible.

The deeper lesson of this moment is that non-alignment, in a fragmenting world, is no longer a passive, cost-
free position. Sitting on the fence used to be safe. In a world where fences are being turned into borders, it
increasingly just means being exposed on both sides. Countries that cannot demonstrate a stable place within
at least one trusted economic circle, whether regional or political, risk being treated as peripheral by all of
them — courted by none, trusted by none, and left absorbing the costs of a system they had little hand in
designing.

6. Conclusion: A World Between Two Descriptions

None of the three frames explored here, retreat, weaponization, or regionalization, fully captures what is
happening to the world economy on its own; together, they describe the same underlying shift from three
different angles. Globalization has not collapsed, but it has stopped being treated as a neutral, purely
economic force, and has instead become entangled with questions of security, trust, and political alignment
that a generation of policymakers had assumed were separate matters. The open, borderless market that
defined the decades after the Cold War is giving way to something more selective and more cautious: still
global in scale, but no longer global in spirit. The lesson of this moment is not that the world is closing its
doors. It is that every door now comes with a question attached: whose side are you on? How individual
countries answer that question, and how well they prepare for a world where the answer increasingly matters,
will shape their prospects for the decade ahead far more than any single trade statistic can.

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