The global trading system is undergoing significant shifts that are reshaping international supply chains and ushering in a new era of trade. Termed “reglobalization,” this transformation is driven by two primary forces: companies seeking to mitigate the risks of pandemic-related disruptions and governments aiming to secure access to critical materials in an increasingly fragmented global trade landscape. As these changes unfold, it is crucial to examine key indicators that provide insights into the scope and implications of the reglobalization trend over the next decade.
Contrary to the rhetoric of globalization’s demise, world trade has displayed remarkable resilience in the face of global challenges such as wars, natural disasters, and the pandemic. Although there has been a slight softening in the share of global production dedicated to trade in the past three years, the trajectory towards greater trade openness remains largely unchanged since the early 2000s. This indicates that globalization continues to play a vital role in economic integration worldwide.
One significant aspect of reglobalization is the ongoing decoupling between the United States and China, driven by escalating geopolitical tensions. While the value of US imports of Chinese goods and services reached record highs in 2022, the implementation of tariffs has resulted in a noticeable shift in bilateral trade flows. Analysis from the Peterson Institute for International Economics reveals that US goods imports subject to tariffs from China fell by approximately 14% compared to pre-trade war levels in 2017. This demonstrates the impact of trade policies on reshaping global supply chains.
Furthermore, the United States has been diversifying its trade relations, reducing its reliance on Chinese imports over the past five years. Through the implementation of tariffs, export restrictions, and subsidies, American companies have sought alternative sources for their imports, resulting in a decline of approximately 3 percentage points in China’s share of total US goods imports since 2018. This shift has benefited other Asian export nations like Vietnam, India, Taiwan, Malaysia, and Thailand. However, Chinese manufacturers are adapting to this change by establishing operations in countries such as Vietnam, Thailand, and Mexico, aiming to bypass tariffs and shorten supply chains.
Mexico has experienced a near-shoring boom, emerging as a crucial sourcing alternative to China for the United States. The proximity and well-established supply lines between the two countries, combined with favorable trade treatment under the USMCA, have created investment opportunities across the border. As a result, Mexican industrial space is in high demand, with occupancy rates reaching 97.5% in 2022. The region near Tijuana, along the US border, has particularly high demand for warehouses and industrial properties. With 47 new industrial parks planned or under construction, Mexico’s role in the reglobalization process is poised to expand further
President Joe Biden’s efforts to strengthen trade relations with Europe have resulted in a notable shift in US import patterns. The US is importing more goods from Europe than from China, with imports from Europe increasing by almost 13% in the past year, while imports from China grew by only 6%. This shift follows the suspension of duties on bilateral trade and the initiation of talks to address overproduction of steel and aluminum.
Reglobalization is also influencing specific industries. As the trade war between the US and China escalates, smartphone manufacturers like Apple are actively reducing their dependence on China. Apple, for instance, has significantly expanded its production in India, tripling its output to manufacture over $7 billion worth of iPhones. India now accounts for approximately 7% of Apple’s global iPhone production, showcasing the success of diversification efforts away from China.
Vietnam has emerged as another prominent hub for companies seeking to diversify their supply chains away from China. Over the past seven years, US imports of Vietnamese furniture have grown by 186%, surpassing the growth rate of furniture imports from China, which stood at 5%. Vietnam now accounts for half of China’s total export volume of furniture products bound for the US. However, recent declines in global demand for consumer goods have begun to impact Vietnamese furniture orders.
Notwithstanding these shifts, China continues to charge ahead in certain industries. Thanks to its robust industrial policies, China has become the world’s largest exporter of electric vehicles after Germany. With electric vehicles and plug-in hybrids projected to represent around 40% of China’s total vehicle deliveries this year, China’s dominance in this sector is undeniable. However, Europe’s share of global electric vehicle sales is expected to grow as supply-chain issues ease and more models become available.
We can conclude that reglobalization is underway, reshaping global supply chains and trade dynamics. While the process will unfold over the next decade, its impact is already visible in various aspects of international trade. Adapting to this new era of geostrategic economics will require businesses and governments to navigate shifting trade relationships, diversify supply chains, and seize emerging opportunities. The era of reglobalization demands a proactive approach to trade and a keen understanding of the evolving dynamics of the global trading system.