Deglobalization, AI, and Labor Disruption
As the global economy emerges from a decade of low inflation, cheap capital, and interconnected supply chains, a new era is taking shape — one driven not by abundant resources and efficiencies, but by fragmentation, technological disruption, and labor mismatches.
In this article, Hatchworks explores the macroeconomic implications of three converging forces: deglobalization, the rise of artificial intelligence (AI), and structural labor disruption. Together, these shifts could trigger a modern supply-side shock that redefines price dynamics, productivity, and policy responses over the next decade.
Deglobalization
In the wake of the pandemic, geopolitical tensions and national security concerns have accelerated a trend that was already in motion: deglobalization. Governments and corporations alike are rethinking their dependence on extended, fragile supply chains in favor of regionalization and reshoring.
Key Drivers:
- U.S.-China trade tensions and technological decoupling: The rivalry between the U.S. and China has moved beyond tariffs into a full-blown technological arms race. Restrictions on semiconductor exports, national bans on telecom providers like Huawei, and mutual distrust in data security are forcing companies to split tech supply chains into U.S.-aligned and China-aligned ecosystems.
- Energy security and resource nationalism: Russia’s weaponization of gas exports during the war in Ukraine jolted Europe into energy diversification. Meanwhile, countries like Indonesia and Chile have imposed export controls on critical minerals such as nickel and lithium. This has prompted Western economies to seek local or allied suppliers to secure essential inputs.
- Tariff policies and export controls: Protectionist policies are resurging globally, with tariffs no longer used just for trade balance but for strategic advantage. The U.S. Inflation Reduction Act (IRA), for example, includes incentives that effectively penalize foreign green tech suppliers, leading to retaliatory trade measures from allies.
- War in Ukraine and trade route disruptions: The war has disrupted Black Sea shipping lanes, grain exports, and critical logistics hubs. Europe’s overland trade routes through Russia and Belarus are being rerouted, raising costs and uncertainty. The geopolitical premium is once again part of global trade calculations.
According to the World Trade Organization (WTO), the global trade-to-GDP ratio has generally increased over the past decades, rising from around 20% in 1995 to 31% in 2022. While it dipped slightly to 29% in 2023 due to post-pandemic adjustments and geopolitical disruptions, the long-term trend still reflects a high level of global economic interconnectedness.
However, new trade frictions and policy shifts suggest this trajectory may face growing headwinds. According to the WTO, global merchandise trade volume is projected to grow by 2.6% in 2024 and by 3.3% in 2025. Meanwhile, the IMF projects global GDP growth at 3.3% for both 2025 and 2026, slightly below the historical average of 3.7%. With further fragmentation on the horizon, we could expect increasing inefficiencies, higher production costs, and more volatile input prices.
AI Acceleration: The Productivity Paradox
While the diffusion of AI promises vast productivity enhancements, the transition phase may be economically destabilizing. Like prior technological revolutions, AI is unlikely to yield immediate inflation-reducing effects.
Instead, AI adoption may produce a short-term productivity paradox: rapid innovation in some sectors, while others lag behind, constrained by regulation, infrastructure, or cultural inertia. Companies investing heavily in automation may see capex rise before efficiency gains fully materialize.
Macroeconomic Implications:
The acceleration of AI adoption introduces significant economic frictions, particularly due to asymmetric productivity gains across sectors. Industries with high digital readiness — such as finance, e-commerce, and software — are poised to realize substantial efficiency gains through automation and data-driven decision-making. In contrast, more traditional sectors like retail, healthcare, and education face slower integration due to operational complexity or regulatory constraints. This divergence could lead to sectoral wage gaps, as AI-powered firms boost profits and compensation while others struggle to keep up.
This transformation also brings about job displacement in middle-skill roles. Repetitive, rules-based functions such as customer support, logistics coordination, and back-office processing are increasingly being automated by large language models and robotics. The transition may not result in immediate mass unemployment, but rather a slow erosion of demand for certain job categories, especially those that require some technical skill but are not yet creative or highly strategic in nature.
Simultaneously, demand is skyrocketing for talent in AI engineering, data science, and cybersecurity. However, supply remains severely constrained, as educational pipelines and training programs lag behind the market’s rapid needs. This talent bottleneck is already visible in salary inflation and aggressive poaching within the AI talent pool. If not addressed through public-private upskilling initiatives, this mismatch could delay the broad diffusion of AI technologies across the economy.
As you can see on the above chart, industries like It Services, Finance, and Logistics have experienced the most pronounced gains post-AI, while sectors such as Healthcare and Education have seen more modest improvements — highlighting the uneven pace of AI adoption across the economy.
Labor Disruption
Compounding the challenge is a labor market stretched by demographic decline in the West and reskilling gaps globally. The aging workforce in developed economies coincides with low birth rates and immigration pressures. Simultaneously, the nature of work is shifting faster than labor markets can adapt.
Major trends:
- Declining working-age population: Many advanced economies, particularly in Europe, Japan, and regions within the U.S., are experiencing a sustained decline in the proportion of working-age individuals (typically defined as ages 15–64). This is largely due to aging populations, lower fertility rates, and slowing immigration. For example, Japan’s workforce has been shrinking for over a decade, and Europe’s demographic outlook suggests a similar long-term contraction. In the U.S., the aging Baby Boomer generation is accelerating retirements, leaving fewer younger workers to replace them. This structural demographic shift is putting long-term pressure on labor supply, regardless of economic cycles.
- Shortages in skilled trades and tech-centric roles: Industries that rely heavily on specialized labor — such as construction, electrical work, software development, and cybersecurity — are facing acute shortages. These roles often require years of vocational training or technical education, and demand has outpaced the number of qualified candidates entering the workforce. In sectors like AI and data science, the competition for talent is global, and salaries have surged accordingly, creating bottlenecks in innovation and execution.
- Mismatches between education and labor market demand: Despite rising education levels in many countries, there is a growing disconnect between what students are trained for and what the economy actually needs. Many academic programs continue to emphasize generalized or outdated curricula, while employers seek practical skills in fields like AI, renewable energy, manufacturing automation, and health tech. As a result, even in regions with high educational attainment, employers struggle to fill critical roles, and graduates often find themselves underemployed or in unrelated fields.
The labor market tightness keeps upward pressure on wages, even in the face of tech-driven displacement. Ironically, the fear of AI replacing jobs may be overstated in the short term — in many sectors, labor is currently still scarce.
A new kind of supply shock
Traditionally, supply shocks have been triggered by war, oil crises, or natural disasters. What we may now be facing is a systemic supply constraint brought about by long-term strategic shifts. As globalization recedes, AI dislocates labor, and demographics reduce available workers, the result could be a structural supply limitation across key sectors.
This supply shock is not a singular event — it represents a chronic, compounding challenge driven by structural shifts in trade, labor, and technology. Unlike temporary disruptions caused by war or natural disasters, these pressures are embedded in the architecture of the global economy and are likely to persist for years to come.
- Inflation volatility: Traditional inflation shocks tend to be cyclical and transient, often responding predictably to monetary policy. However, supply-driven inflation — stemming from labor shortages, logistics bottlenecks, or reshoring inefficiencies — can be stickier and more erratic. This increases the likelihood of price spikes in sectors that lack redundant supply capacity, contributing to ongoing volatility.
- Central bank credibility: Central banks, particularly the Federal Reserve, have long relied on demand-side tools like interest rate adjustments to manage inflation. Yet, when inflation is driven by structural supply constraints, these tools lose some effectiveness. Persistent price instability without corresponding demand surges could undermine confidence in monetary authorities and increase calls for fiscal or industrial policy interventions.
- Capital allocation: In this environment, investors are re-evaluating traditional valuation metrics. Companies with pricing power, control over their supply chains, and minimal labor dependencies are becoming more attractive. Capital is shifting toward firms in infrastructure, resource security, and automation, signaling a broader reallocation toward resilience and long-term strategic positioning.
Hatchworks view
The next supply shock won’t arrive with a bang. It could unfold over years, shaped by policy choices, demographic realities, and technology adoption. But its impact could be no less disruptive than past crises. Central banks and governments may face renewed pressure to deploy industrial policy tools, including subsidies for strategic industries, vocational training programs, and reindustrialization incentives. Investors should watch fiscal signals as closely as monetary ones.
At Hatchworks, we see this transition not as a threat, but as a call to adapt. Structural change is fertile ground for innovation, capital deployment, and long-term value creation. The real winners in this evolving macro landscape will be those who recognize that supply-side economics isn’t obsolete — it’s simply entering a new chapter.
Source: https://www.wto.org/english/res_e/booksp_e/trade_outlook24_e.pdf
Source: https://www.oecd.org/en/topics/employment.html
Disclosure: Hatchworks is an investor in a range of equities, gold, bonds, bitcoin and other assets on a proprietary basis. The information provided in this document is not investment advice nor is it a solicitation to invest in any asset. For webinar, social media appearances you may send an email to info@hatchworksvc.com.
