LSE - Small Logo
LSE - Small Logo

Guy Erb

Scott Sommers

May 11th, 2024

Why claims of deglobalisation are overblown

0 comments | 2 shares

Estimated reading time: 6 minutes

Guy Erb

Scott Sommers

May 11th, 2024

Why claims of deglobalisation are overblown

0 comments | 2 shares

Estimated reading time: 6 minutes

Global events have heightened concerns over the reliability of global supply chains and the prospects for globalisation. Focusing on value added, rather than gross trade statistics, Guy F Erb and Scott Sommers find no decoupling between the US and China. Instead, trade between the two nations is now redirected through other countries, so that much of the value added originating in China is still being consumed in the US.


World trade was disrupted by the COVID-19 pandemic, the escalation of economic and political tensions between the US and China and conflicts in the Middle East. These events have heightened concerns over the reliability of global supply chains and the prospects for continued globalisation.

In a new study, we address these concerns and characterise the evolution of globalisation from 2000 through 2021. We use data that capture value-added linkages in global value chains (GVCs), drawing on the GVC Indicators database created by the University of International Business and Economics, Beijing.

Indirect vs direct production linkages

The use of value-added production data, rather than gross trade data, allows us to provide a more accurate picture of world trade in our study. Gross trade statistics, which capture only the cross-border flows of final products, are commonly used in many studies due to their widespread availability. Although these statistics are easy to access and analyse, they do not reveal the complexity of modern supply chains.

Production for international commerce occurs within networks that often involve suppliers in multiple countries, which trade in intermediate goods across numerous stages of production. It is therefore useful to measure trade on a value-added basis, as value-added measurements capture the contribution of each nation’s producers to the process of bringing a product from its conception to its end use.

The data that we use in our study allow us to measure cross-country flows of value added through global value chains, as well as the gross trade measurements described above. The data include GVC indicators across 35 industries and 62 countries. Throughout our analysis we refer to gross trade flows as “direct linkages”, and value-added flows as “indirect linkages”.

Recent evolution of globalisation

We address the following three questions related to the evolution of globalisation during 2000-2021:

1) To what extent did North America and China decouple their supply chains?

2) Did globalisation (“nearshoring”) increase significantly?

3) What was the role of Free Trade Agreements (FTAs) in shaping bilateral production linkages?

Our results largely indicate that in terms of indirect value-added production linkages, there was no measurable decoupling between North America and China over the years analysed. In fact, the data show that China and North America increased their indirect production linkages between 2017 and 2021. Our results, therefore, highlight the importance of analysing both direct and indirect trade and production linkages when characterising trends related to decoupling and regionalisation.

Studies based only on direct linkages are likely to overestimate the degree of both phenomena. Specifically, recent gross trade data between the US and China indicate that some decoupling has occurred in terms of direct linkages. The fact that indirect linkages grew over this period but direct linkages did not suggests that trade in final goods that previously occurred directly between the US and China is merely being redirected through third-party nations, and that much of the value added originating in China is still ultimately being consumed in the US. This idea is corroborated by the recent, well-documented rise of Vietnam as an increasingly important trading partner of both the US and China.

We find no evidence of a global trend toward reshoring, or bringing production back to headquarters, during 2017-2021, as measured by indirect linkages. But when we extend the timeframe of our analysis through 2023, we detect some recent reshoring in North America in terms of direct linkages. Specifically, the IRA and CHIPS acts were signed into law in August 2022 and included numerous “Buy-America” provisions and sourcing requirements necessitating that production materials be sourced either domestically or from FTA partners. Direct US trade data in 2022 and 2023 show that a decline in trade from China occurred immediately following the passage of these two acts. Total goods trade with China from January to August 2023 dropped 21 per cent compared to trade with China through the first eight months of 2022.

Meanwhile, goods trade between the US and the rest of the world dropped by only two per cent. As can be seen in Figure 1 below, Mexico stood as the top source country for US imports at the time our study was performed, having surpassed China through the first eight months of 2023. Therefore, in terms of direct linkages, a trend toward globalisation is apparent in North America.

However, the trend in 2022 and 2023 is less clear in terms of indirect linkages, as increased trade between the US and Mexico is due in part to the establishment of Chinese-owned manufacturing plants in Mexico. Again, our findings highlight the importance of distinguishing between trends in indirect and direct linkages when assessing the degree of reshoring or regionalisation.

Figure 1- Gross US manufacturing imports by source country, 2019-2023

Source: US Census Bureau

Our quantitative analysis also provides strong evidence that neither direct nor indirect linkages supporting the production of goods and services receded worldwide during 2000-2021, and hence claims of “deglobalisation” are overblown. Instead, our results suggest that 2021 was a high mark for the global exchange of goods and services as measured by international value-added production linkages. The frictions involved in the reshuffling of GVCs and the corresponding “stickiness” of GVCs imply that globalisation in its current form is deeply entrenched. Regarding direct linkages, world trade as a percentage of global Gross Domestic Product (GDP) is a frequently used indicator of globalisation. We show below the performance of that ratio for selected years from 2000 through 2021:

Table 1 – Trade of goods and services as a percentage of world GDP

Source: World Integrated Trade Solution (WITS)

The latest trade figures show that trade in services grew to 13 per cent of global GDP in 2022 and merchandise trade approached an all-time high of 51 per cent. These trends indicate that while the rapid growth of world trade through the 1990s and early 2000s has recently reached a plateau, there is no sign whatsoever of a reversal of this trend. Overall, our findings echo the conclusions reached in the recent academic literature on deglobalisation, nearshoring and decoupling.

Trade agreements shape global value chains

Finally, given the uncertainty regarding global supply chain linkages, our study assesses the relative importance of factors shaping the formation of global supply chains from 2000-2021. We find that free trade agreements (FTAs) are quantitatively important in explaining growth in indirect linkages between pairs of countries, and that impact of trade agreements on GVC linkages varies across regions and by trade agreement.

Despite the claim by US Trade Representative Katherine Tai that FTAs are “20th century tools”, we argue that a large role for FTAs still exists, and that FTAs should be used as a tool to forge stronger bonds with trading partners in global supply chains.

Much of the world’s growth in global value chain networks is occurring in trade blocs outside of North America, such as within the European Union and ASEAN Free Trade Area. Forging new trade agreements with allies in Asia and Europe should be a top priority for the US if it is to maintain its influence in the reshaping of global value chains and play an integral role in GVCs’ future growth.


About the author

Guy Erb

Guy Erb is a former US trade policy official and investment banker.

Scott Sommers

Scott Sommers is a PhD student in Economics at the University of Minnesota.

Posted In: Economy

Leave a Reply

Your email address will not be published. Required fields are marked *

LSE Review of Books Visit our sister blog: British Politics and Policy at LSE

RSS Latest LSE Events podcasts