For more than a decade, experts have been predicting a shift to more regionalized trade patterns, as companies adopt nearshoring strategies to produce goods closer to the markets where they will be sold. Many expected Covid-19 to turbocharge this trend.
Trade Regionalization: More Hype Than Reality?
Experts have been predicting a shift away from global trade, but recent data suggest otherwise.
May 31, 2022
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Summary.
While experts have been predicting a shift away from global trade towards more regionalized patterns, recent data suggest a more skeptical take is in order: An analysis of trade data based on four different regional definition shows a clear trend toward less regionalized trade between 2003 and 2012, and no consistent trend in more recent years. Since 2004, trade flows have generally stretched over longer distances, a trend that increased during the pandemic. Looking forward, while geopolitical tensions, technological trends, and environmental concerns all have the potential to contribute to an increase in trade regionalization, other forces, such as decreased container shipping costs and the ongoing improvement of technologies that ease long-distance transactions, will continue to favor long-distance trade. When deciding whether to regionalize, leaders should focus on the economic fundamentals that have always guided such decisions.