Regionalism is not something a nation can create—it has to be something it exploits. So, do we see any evidence of regionalism occurring naturally? Indeed, we do. In January 2019, McKinsey & Company, perhaps the world’s premier strategy consulting firm, released a report entitled, “Globalization in Transition: The Future of Trade and Value Chains.” This report contains evidence of regionalism emerging. They find it occurring in the world’s industrial underbelly—the flow of goods from raw material to finished products.
The calculus that held in the past is different today. New automation technologies, changing factor costs, an expanding set of risks, and the need for speed and efficiency are all driving regionalization in many goods-producing value chains.
Three macro-level factors are driving this shift from global trade to more regional trade. First, developing nations are beginning to consume more of what they produce.
Emerging economies are building more comprehensive domestic supply chains, reducing their reliance on imported intermediate inputs. Lower global trade intensity is a sign that these countries are reaching the next stage of economic development.
Second, low cost manufacturing is making it possible for corporations to locate production facilities closer to consumers.
As automation changes the balance of capital and labor, many multinationals are considering investing in new production capabilities closer to end consumer markets.
Third, new technologies are speeding up the supply chain and making border crossing easier.
Digital platforms, logistics technologies, and data-processing advances will continue to reduce cross-border transaction costs.
So, while it will take decades or even generations to fully play-out, a shift appears to have begun.
Overall, we estimate that automation, AI, and additive manufacturing could reduce global goods traffic by up to 10 percent by 2030.
And while this report does not use the term regionalization in the broader political context that I do, this economic trend is likely to drive other trends around our world. Change has only just begun.
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