Increased economic integration did not bring about the greater global harmony that some had hoped it would. But fragmentation will not do much better, and it is all too easy to imagine it making things worse
Save time by listening to our audio articles as you multitaskNetworks of aircraft, email and container ships, not to mention railways and pipelines, have tied together businesses in Guangdong and Oregon, Durban and Dubai, Rennes and Punta Arenas. Masters of their use, such as Airbus or Apple, can create technological marvels from components provided in dozens of different countries using raw materials brought in from yet farther afield.
The direction of change is clearly visible in data on inventories, investment and hiring; its effects are in the news around the world. Apple’s shift of some production from China to Vietnam has whipped up a war for talent in the country. Chinese firms have filled up a giant industrial park in Monterrey, Mexico, in hope of meeting American customers’ demand from closer to home. In May alone, Samsung, Stellantis and Hyundai announced $8bn of investment in American electric-car factories.
“There are centrifugal and centripetal forces that pull the world together or apart,” notes Douglas Irwin, a trade historian at Dartmouth College. Today’s shift is not a swing from one extreme to the other; it is a strengthening of the centrifugal coupled with a weakening of the centripetal, which had, until recently, been at an historic high.
The fragility of the system had become more obvious, too. The Tohoku earthquake of 2011 shut down Japanese car suppliers and dented silicon-wafer production. Flooding in Thailand later that year submerged a hub of hard-drive manufacturing. But worries about such risks failed to prompt much action. The effects of Russia’s invasion of Ukraine have provided further, more profound shocks. It has disrupted markets in energy and, crucially, food in ways which highlight the need for more broadly based supplies. It has also made manifest the geopolitical risks of dependence on an autocracy with aggressive ambitions. That has further intensified concerns about China.
Many are informed by a growing appreciation of the size and scope of the industrial shift implicit in plans for net-zero emissions. The European Commission is dangling subsidies in front of makers of batteries and semiconductors. In America, where President Joe Biden began his term with a “Buy American” executive order, subsidies to help industry compete with China have attracted bipartisan support.There is little evidence of rich countries “reshoring” production from abroad.
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