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.
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For developing countries, the balance between these two strategies is crucial. If advanced economies reshore a substantial share of production, developing countries could suffer as investment and jobs are lost.
And automation and digitisation now make it more convenient for advanced countries to produce goods at home, making this a greater risk to these poorer countries than it was a decade ago.
For consumers though, this reshoring could mean higher prices for everyday goods, at least in the short term, because of the higher costs of manufacturing in more advanced economies. It should be said, however, that the empirical evidence for this remains limited.
Risks and opportunities
But friendshoring offers an alternative. Early signals from countries like Mexico and Vietnam – which have recently seen an increase in investment and factory expansions from multinational firms – suggest that friendshoring can create opportunities. When paired with supportive government policies such as investment incentives or help to upgrade technology, these shifts can ensure that more production takes place domestically. This can lead to greater technology spillovers and learning.
To understand the risks and opportunities, we examined the specific products where US-China decoupling is most pronounced (that is, where trade is reducing). From this analysis, two broad clusters emerged, each with different implications for developing economies.
The first group mainly includes relatively complex goods – things like consumer electronics, vehicle components, chemicals and machinery. Here, the US is both diversifying its imports quickly and is already producing these goods competitively.
The products and sectors at the heart of the reconfiguration of GVCs
Author provided (no reuse)
These products can easily be reshored, particularly if automation lowers costs. Semiconductors, for instance, are already the focus of major US reshoring efforts. Yet the risk to current producers of the US reshoring appears limited for now. While the US has reduced imports from China of these products, other developing regions have not experienced a similar trend.
In the second group, the US is diversifying but is not competitive enough to bring production home. This group accounted for just over 6% of finished products that the US imported in 2023 – roughly US$181 billion (£134 billion). This is a small share overall, but economically significant.
Within this group, two types of opportunity emerge. Technologically complex goods, such as electrical equipment, computers and car parts, offer the greatest potential for middle-income economies with strong manufacturing experience to win contracts and investments. Lower-tech goods like textiles and furniture are better suited to lower-income countries. In both cases, governments need to negotiate carefully to ensure investments add value locally, support skills development and avoid social or environmental harm.
For consumers worldwide, friendshoring offers a more benign outlook than reshoring or tariffs. Goods may simply be made in different countries, with prices remaining broadly stable.
Who could gain?
So far, east and south-eastern Asia – including Vietnam, Thailand, Malaysia and Indonesia – have captured the largest share of these friendshoring opportunities, particularly in high-tech sectors like computers. Their exports to China have also risen, reinforcing their central role in Asian manufacturing networks. But whether this momentum continues will depend on tariffs, production costs and the pace of automation.
Other beneficiaries could include Latin America and Caribbean nations, led by Mexico. Here, the automotive sector dominates export growth. South Asia could also benefit, with India expanding in both high- and low-tech products, and Bangladesh at the lower-tech end. In contrast, Africa and western Asia remain largely absent from the emerging friendshoring landscape.
The risk to these countries of large-scale reshoring remains limited for now but cannot be ignored amid shifting global trade and investment patterns. But friendshoring could offset or even exceed potential losses, offering new pathways for industrialisation.
As economic uncertainty and technology reshape global value chains, developing economies that invest in production capabilities – and implement smart industrial policies – will be best placed to harness opportunities. In some cases, friendshoring may even allow them to leapfrog into more sophisticated activities faster than traditional development paths would allow.
For consumers, there are benefits too. The label on our next laptop, charger or T-shirt might change, but prices will remain broadly stable – at least before tariffs kick in. In this sense, globalisation will not disappear. But it will take on a different geographical shape.
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