the health strategist
institute for strategic health transformation
& digital technology
Joaquim Cardoso MSc.
Chief Research and Strategy Officer (CRSO),
Chief Editor and Senior Advisor
October 30, 2023
What is the message?
The ongoing changes in the global economy are not primarily about deglobalization but rather regionalization.
The author argues that the world economy has been shifting towards regionalization rather than outright deglobalization.
Regionalization involves countries forming regional trade and economic partnerships, which has become more significant and profitable in recent years.
While international trade has slowed down, it remains a vital component of the global economy, and new regional trading pathways are emerging to replace traditional global supply chains.
What are the key points?
- Shift from Globalization to Regionalization: The author contends that the predominant trend in the international economy over the last five decades has been regionalization rather than deglobalization. This means that countries are increasingly forming regional economic partnerships and supply chain networks, which have become powerful and profitable.
- Slowing Trade but Still Significant: International trade has experienced a recent downturn, with a 3 percent decrease over the last twelve months. However, the author emphasizes that this decline is from record highs and that trade still comprises a substantial portion of the global economy, having steadily grown over the last forty years.
- China’s Changing Role: China, which was a major driver of global trade, has reduced its role in recent years. This shift in China’s position has contributed to the slowing growth of global trade. Other nations, such as Vietnam, Thailand, Korea, India, Mexico, Poland, and the Czech Republic, have stepped in to fill the gap left by China.
- New Regional Trading Paths: The author highlights the emergence of new regional trading paths and agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which have lowered tariffs and streamlined trade among their member countries. These agreements promote regional supply chains.
- Government Role and Geopolitics: The article emphasizes the role of government policies and geopolitical factors in shaping the direction of regionalization. Governments are increasingly involved in guiding and protecting their economies, which contrasts with the market-led opening of the 1990s and 2000s.
- Benefits of Regionalization: Companies find that regionalization makes sense for reducing costs, accessing talent, and increasing profits. Governments benefit from strengthening national security, enhancing supply chain resilience, and improving economic competitiveness through regionalization.
- Regionalization as a Balanced Approach: Regionalization is seen as a “Goldilocks middle” that allows governments to address national security concerns, enhance supply chain resilience, and support thriving companies. It strikes a balance between global and national interests.
DEEP DIVE
It’s Not Deglobalization, It’s Regionalization
Yale University Press
Shannon K. O’Neil
October 26, 2023
Decoupling and derisking, deglobalization, slowbalization, and localization. Journalists, columnists, and more than a few authors are touting the end of an era of hyperglobalization characterized by open markets and capital flows, of seamless transport and ever-rising trade across the world. Policymakers and CEOs caution that this fragmentation of the global economy is slowing innovation, boosting inflation, and leaving workers, shoppers, and citizens worse off.
Yet these takes largely miss the biggest international economic story of the last five decades. More than globalizing, the world economy was regionalizing. That means the starting point for today’s shifts in international supply chains is distinct from most conventional takes.
And these views tend to overstate the ability of government policies to disentangle international commerce. Even in the face of hostile geopolitics and industrial policy and protections, the factors that drove regionalization in recent decades will remain powerful and profitable. True globalization may not be in our future, but regionalization still is.
Much is being made of the recent downturn in trade, with international exchanges falling over 3 percent over the last twelve months. Yes, trade is slowing down, and no longer outpacing global growth. But this is off of record highs. And looking over the last forty years, trade has steadily grown in volume and importance to the global economy, now comprising a significant majority of all economic activity.
To be sure, production and trade are shifting as international supply chains reconfigure themselves. The biggest shift has been from China, which has pulled back as the main engine of global commerce. Trade as part of the Chinese economy has fallen from a high of 64 percent of the GDP in 2006 to just 37 percent today.
China’s pullback explains in part why global trade growth has slowed. Yet it has also opened opportunities for other nations to step in. And many have. Vietnam, Thailand, Korea, India, Mexico, Poland, and the Czech Republic are among those that have boosted exports in real terms.
None of these rising trading nations will make the singular splash that China’s entry into the world’s economy did at the turn of the 21st century. For most, their populations and markets are smaller, so they won’t individually impact global flows as significantly. India, the most obvious contender to replace China given its size and global ambitions, has yet to be able to get beyond its bureaucracy, limited infrastructure, and inherent protectionism. And for any nation aspiring to fill the trading gap being left by China, the market-led opening of the 1990s and 2000s, often dubbed the Washington Consensus, has given way to one increasingly guided by governments and public policies. The path China took to manufacturing dominance is no longer as clear or open in the 2020s.
Still, collectively this host of countries can be as significant for global flows, ensuring that deglobalization, just like globalization, remains a myth. These new trading paths will lean regional. Many of the winners in Southeast Asia are rejiggering supply chains around the region, bolstered by the Regional Comprehensive Economic Partnership, or RCEP, which lowered tariffs and cut out paperwork for inputs and finished goods moving between its fifteen members. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) helps its five Asian members as well by making it more efficient and profitable to trade with each other compared to those outside the club. Mexico’s trade growth also reflects deepening regional ties particularly with the United States through the USMCA, which replaced NAFTA in 2020.
What companies are finding is that internationalization still makes sense for costs, talent, and profits. Governments will find that national security strengthening, supply chain resilience, and economic competitiveness also benefit from a geographic spread. But as we are seeing, it is shifting directions from that of the last forty years. Geopolitics and industrial policy matter. And regionalization looks to be that Goldilocks middle that will enable governments to protect growing national security concerns, boosting supply chain resilience and allowing companies to thrive.
Originally published at https://yalebooks.yale.edu
