Podcast Summary: The Long View — Neil Shearing: The World Isn’t Deglobalizing; It’s Fracturing
Host: Dan Lefkovitz (Morningstar)
Guest: Neil Shearing, Group Chief Economist, Capital Economics
Date: August 26, 2025
Main Theme & Purpose
This episode features economist Neil Shearing, whose new book, The Fractured: How the Return of Geopolitics Will Splinter the Global Economy, challenges the popular narrative of deglobalization. Shearing argues the world isn't simply reversing course on globalization; instead, it is fracturing into rival economic blocs led by the US and China. The conversation explores the origins of this shift, key trends, potential risks, and the likely winners and losers in this new global paradigm.
Key Discussion Points & Insights
1. Genesis and Thesis of the Book
- Motivation: Shearing’s research began with the observation that, despite rhetoric around declining globalization, global trade volumes were actually rising. The real trend, he notes, is intensifying rivalry between the US and China affecting not just trade, but also technology, capital, and resources.
[Neil Shearing, 01:44] - Quote:
"What was really going on was not a pullback from openness to trade necessarily, but an intensification of a superpower rivalry between the US and China... The global economy was not de-globalizing... but rather it was fracturing."
— Neil Shearing [02:40]
2. Redefining Globalization vs. Fracturing
- Not Just Trade: Globalization was not only about goods, but also about services, capital, labor, and technological integration, peaking after the Cold War.
[Neil Shearing, 05:47] - Turning Point: The global financial crisis (GFC) and China’s rise under Xi Jinping created an inflection point, stalling further integration and fueling Western skepticism on both economic and security grounds.
[Neil Shearing, 07:40] - Key Distinction:
"Too often people conflate the idea that globalization has reached a natural limit with the notion that somehow countries will therefore retrench, turn inwards... The key theme... is the idea that the global economy is fracturing, splitting into these two blocks."
— Neil Shearing [09:54]
3. Huawei as a Metaphor for Globalization’s Evolution
- Huawei’s trajectory—from symbolizing integration to representing security risk—traces China’s journey from openness to strategic challenge, mirroring shifting Western attitudes and rising distrust.
[Neil Shearing, 10:35] - Quote:
"Up until that point [mid-2010s], it had been the symbol of China's integration into the global economy... Then we started to get security concerns... this new phase of the global economy based around superpower rivalry."
— Neil Shearing [12:10]
4. Why China Likely Won’t Overtake the US
- China’s bloc is less economically diverse and more reliant on autocracies/commodity producers than the US-led bloc, making technological catch-up tougher and leading to inefficient allocation of capital.
[Neil Shearing, 13:15] - Quote:
"China’s really having to do all of that itself... that success is coming at a cost, I think, [which] explains why the US probably still stays ahead of China in terms of GDP."
— Neil Shearing [16:44]
5. Fracturing Under the Trump Administration (2025)
- New tariffs and trade agreements focus on pushing allies to cut out China from supply chains. Tariffs are steeper for China and its economic bloc.
[Neil Shearing, 17:28] - Quote:
"The fundamental drivers and causes of this fracturing are still in place, and they're still evident. They're evident in trade policy and investment policy."
— Neil Shearing [19:08]
6. Reshoring Manufacturing: The “Populist Pipe Dream”
- Political rhetoric around restoring US manufacturing ignores economic realities: demand has shifted to services, and low-cost production remains efficient overseas.
[Neil Shearing, 19:41] - Case in Point:
"If you want the kind of poster child for why reshoring is so difficult, look at the Foxconn plant in Wisconsin... those plans have been scaled back dramatically... because the economics of reshoring are difficult."
— Neil Shearing [22:20]
7. Lessons from the History of Globalization
- Globalization is not inevitable; it has reversed due to policy choices (e.g., Smoot-Hawley Tariff) rather than technology shifts. Policymakers—not markets—kill globalization.
[Neil Shearing, 23:47] - Quote:
"When it has waned... it has normally been not for reasons of technology... it's been because of policy interventions."
— Neil Shearing [25:50]
8. Could China Change Course Politically?
- While leadership changes are possible, Shearing is skeptical that a post-Xi China would liberalize. The current institutional architecture supports continuity.
[Neil Shearing, 26:32]
9. The Dollar’s Role Amid Fracturing
- Dollar dominance is likely to erode slowly, but not be seriously challenged. Network effects and transaction volume overwhelmingly favor the greenback.
[Neil Shearing, 28:28] - Quote:
"The dollar is so dominant... there are huge network effects supporting the dollar's position within the global economy."
— Neil Shearing [29:37]
10. Fracturing’s Effects on Inflation
- Fracturing won’t necessarily mean persistently higher inflation, but may create more volatility (e.g., price spikes in rare earth metals leading to new supply and price drops).
[Neil Shearing, 31:07] - Quote:
"You end up with a more volatile part of inflation rather than necessarily a higher part of inflation."
— Neil Shearing [34:16]
11. AI, Productivity, and Fracturing
- AI is poised to boost productivity as a “general purpose technology,” with the US positioned to benefit most—unless self-imposed policy restrictions (on immigrants, industrial policy) hamper adaptation.
[Neil Shearing, 34:32] - Quote:
"On all of those fronts, the US is the leader... But two big risks: curtailing China's access [may have unintended consequences]; and US policies that diminish labor market adaptability."
— Neil Shearing [36:58]
12. Capital Flows and Investment
- Most global capital flows will remain within the US-EU sphere; restrictions likely to increase on sensitive sectors (private markets, dual-use goods).
[Neil Shearing, 39:20]
13. Taiwan: Geopolitical Flashpoint
- Taiwan is the “biggest risk” to the global economy due to its centrality in chip manufacturing; even a non-military conflict (e.g., blockades) could cause systemic supply shock, costing up to 10% of GDP.
[Neil Shearing, 41:35] - Quote:
"Disruption to chips would be the main impact on the global economy from any Chinese intervention in Taiwan. And that could be enormous."
— Neil Shearing [43:40]
14. Regional Winners and Losers
- Mexico, Vietnam, India, and some Eastern European countries (like Poland) stand to benefit as supply chains realign out of China, contingent on political relationships with the US.
[Neil Shearing, 44:18]
Notable Quotes & Memorable Moments
- "Globalization is not inevitable... It’s policymakers that kill globalization and lead to a period of deglobalization."
— Neil Shearing [25:44] - "There's this nostalgia for the 1950s... If you ask most people, they don't want to work in a steel mill, thanks very much."
— Neil Shearing [19:46] - "Disruption to chips would be the main impact on the global economy from any Chinese intervention in Taiwan."
— Neil Shearing [43:40] - "AI... could increase productivity growth by about one to one and a half percentage points a year in the decade after widespread adoption."
— Neil Shearing [35:44]
Timestamps for Important Segments
- [01:44] - Genesis of the book and distinguishing “fracturing” from “deglobalization”
- [10:35] - Huawei as a symbol of shifting globalization
- [13:15] - Analysis of China’s economic prospects vs. the US
- [17:28] - Fracturing and US policy under Trump 2025
- [19:41] - The reality and limitations of reshoring manufacturing
- [23:47] - Historical patterns and reversals of globalization
- [28:28] - The future of the dollar as global reserve
- [31:07] - Impact of fracturing on inflation
- [34:32] - AI’s impact on productivity and how fracturing affects benefits
- [39:20] - Global capital flows amid fracturing
- [41:35] - Why Taiwan is an economic fault line
- [44:18] - Regional winners/losers from global supply chain realignment
Takeaways
- The era of “hyper-globalization” is over, but the world is not turning inward; instead, it's splitting into US- and China-led blocs, reshaping trade, investment, and technology relationships.
- Most capital and trade within the US bloc will remain robust, but sensitive sectors will see increasing controls.
- The promise of significant manufacturing reshoring is overstated; instead, “friend-shoring” is accelerating, with countries like Mexico, Vietnam, and India benefiting.
- Fracturing heightens the risk of global supply shocks—nowhere more so than in chips via Taiwan.
- The US stands to benefit most from AI because of its innovative ecosystem, but policy missteps could reduce its lead.
- The dollar’s international dominance will erode slowly but remain unchallenged for the foreseeable future.
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