The world economy is at a crossroads. International trade is slowing, economic uncertainty is rising, and trade between the US and China – the world’s two largest economies – risks pulling apart. And it is not just trade: the two countries also invest less in each other than they did just a few years ago.

What is driving this reconfiguration of trade? For some large economies, including the US under President Donald Trump, a desire for greater self-reliance is central. Between 2017 and 2023, American imports fell most sharply in the very products where the US had been most reliant on China – including industrial machinery, computers and computer parts, and other electronic equipment such as monitors.

This has important implications for global value chains (GVCs). GVCs are the backbone of international trade – production activities from research and product design to assembly are distributed across various locations, with “value” being added at each stage. This redistribution can take place across several countries, co-ordinated by multinational firms.

The reconfiguration of GVCs is accelerating, and so industrialised economies now have two main options. They can reshore production, bringing manufacturing back to their own countries (a stated priority for the current US administration).

Or they can “friendshore”, shifting imports and investments towards economies that are either geographically closer, or with which they have long-standing relationships.

Read more: After a year of Trump, who are the winners and losers from US tariffs?

For developing........

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