WEF Davos 2026: ‘Globalisation-geopolitics balance is splintering,’ says economist Eswar Prasad

Trade is fragmenting along geopolitical lines, and the fine balance between globalisation and geopolitics is now off, said economist and Senior Professor of Trade Policy at Cornell University, Eswar Prasad. 

“Instability is becoming the norm. Trade brings a lot of stability and I don’t think we are going to see trade between countries cease. What is happening is that trade is fragmenting along geopolitical lines. Globalisation was seen as a positive sum game that could offset the zero sum game of geopolitics. Now that balancing force has gone. Even the traditional alliances are splintering right now. So the world order is splintering before our very eyes,” said Prasad in a conversation with Business Today at World Economic Forum 2026 in Davos. 

Speaking about US President Donald Trump’s tariffs and its implications on India, as well as the other countries, Prasad said, “At one level this is an opportunity for all the countries but there’s another very important element that enters the discussion right now. On one side we have the largest economy in the world putting up tariff barriers, and on the other hand we have the second biggest economy, China, which has a huge amount of excess capacity because their growth model in the last few years generated a lot of output but domestic demand is not keeping up. China last year recorded a trade surplus of $1.2 trillion.”

“So countries in the middle are getting squeezed from both sides, and are looking for alternatives. Hence, right, the European Union would very much like to have a trade deal with India because they see themselves beset by risks from both sides. The question is if this will be a durable set of arrangements. My sense is that countries are going to derisk by diversifying – in terms of the sources of imports, and also of exports. I think we are going to see diversification becoming the theme in the next few years,” he said. 

Prasad said that Chinese officials might want to portray the country as this “great protector of multilateralism” and that they want to preserve the world order. “I think one has to be a bit sceptical about that. China has managed to use the rules of the game very effectively to protect its own interests,” he said. 

“The question for the countries is, now that the US is turning them away, should they turn more towards China? They could do that but it comes with enormous risks,” he said, adding that China’s might is in its manufacturing. 

“The one option that India really has is the services exports. China runs a services trade deficit and is eager to import services. This could prove beneficial for India as it is very efficient if providing business and other services. The other thing is if something like AI is going to impact that too,” he said.

Watch the full conversation here: