The second article in our dossier on how value chains are changing* comes from the Treasury Department of the French Ministry of the Economy, Finances and Industrial and Digital Sovereignty. In it, Aymeric Lachaux analyses the ‘factors driving the reconfiguration of global value chains’. After some observations on international trade, Lachaux points out the potential impact of the invasion of Ukraine — and of geopolitical tensions more generally, particularly between China and the USA. He also highlights the challenges that will have to be faced, on the one hand, by companies to secure their supply chains and, on the other, by governments to promote their own domestic production (by so-called ‘reshoring’), or production in nearby or friendly countries (known respectively as ‘nearshoring’ and ‘friendshoring’).
Sadly, in the time since the European Union and its member states realized their vulnerabilities and declared that it was crucial to remedy them, years have passed and Europe has been slow to wake up to these issues by comparison with the dynamic action of China and the measures taken by the USA, such as the Inflation Reduction Act, adopted more than a year ago now, in August 2022.
*Dossier / Europe: How are Value Chains to be Repatriated?
Globalization and a boom in international trade were major trends of the last decades of the past century, as a result, among other things, of the fragmentation of value chains. However, the Covid pandemic, followed by war in Ukraine and the tensions between China and the USA, together with the policies adopted by those two countries, have given rise to both a worry and a hope. A worry, on the one hand, since the EU realized that it was dependent, for example, for its supplies of pharmaceutical products, on active ingredients that it needed to import. A hope, on the other, that it could bring production back to its own territory and, failing that, diversify the origin of its imports. It became apparent at that point that the disadvantages of extending its value chains had been greater than the advantages, with the situation evolving to be detrimental to the strategic autonomy of Europe, its member states and its businesses.
How, then, have these value chains changed since that realization and the resolutions adopted at the time, including the European Union’s recovery plan (NextGenerationEU) adopted in December 2020, the ‘recovery and resilience facility’ (REPowerEU), established in February 2021, and its roll-out in the member states?
Let us recall, lastly, that, a fortnight before the G20 Summit in New Delhi on 9-10 September 2023, the International Monetary Fund (IMF) and the World Trade Organization (WTO) were sounding the alarm over world trade becoming increasingly ‘fragmented’. Bemoaning ‘technological decoupling’, Kristalina Georgieva, Managing Director of the IMF, wrote in late August, that ‘as trade falls and barriers rise, global growth will take a severe hit.’ She estimates that ‘annual global GDP growth in 2028 will be only three percent — the IMF’s lowest five-year-ahead forecast in the past three decades’. To which the American Commerce Secretary Gina Raimondo, replies: ‘We do not seek to decouple or to hold China’s economy back,’ adding, ‘we will never of course compromise in protecting our national security’.
In order to initiate thinking on the question of strategic dependency, we are publishing two articles in this brief dossier: one by Vincent Vicard and Pauline Wibaux of the CEPII (the leading French center for research and expertise on the world economy), and this one by Aymeric Lachaux of the Treasury Department of the French Finance Ministry.
