The 1980s marked a break. Until then, the national economy imported and exported raw materials, consumer goods and investment goods. Globalization has increased the exchange of intermediate goods that allows large groups to outsource design and manufacturing tasks to suppliers located abroad.
Thanks to information technology and digitization, the double speed of outsourcing and offshoring of work has enabled the establishment of global value chains (GVCs) characterized by high intensity of coordination and reduction of transaction costs. The liquidation of world space has increased the dynamics of production of goods and services, while the liberalization of financial markets has accelerated capital.
The trade-off between investing abroad and/or establishing contractual relationships with suppliers then depends on decisions made by the group’s steering structure, responsible for integrating tasks and coordinating logistics so that additions can go beyond management. , to increase interdependence in resource management, site by site.
For many products, the added value is located in the components produced by suppliers, the establishment of CVM (automotive, textile, medicine, etc.) played a strong role in French de-industrialization. Faced with this trend, the economic fabric has not moved upmarket to capture the newly added value in the region, and French production is positioned in the lower to mid-range segment at lower costs, as we have shown. The Paradox of the Knowledge Economy (Hermes Lavoisier edition, 2012).
The ban can be read into the deep and continuous deterioration of the trade balance, which again fell from minus 84.7 billion euros in 2021 to 113.9 billion euros in 12 rolling months in May 2022.
Productive de-globalization is linked to several factors. Hyper-globalization has been on the wane since the 2008 financial crisis. China is refocusing on domestic demand and the US trade deficit has increased between 2015 and 2020. Foreign investment stagnated between 2008 and 2014 and then declined sharply until the 2020s. Globalization is changing in nature, influenced as much by geopolitical considerations as by strictly economic ones.
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Moreover, when a GVC multiplies, synergy gains decrease because it becomes more difficult for groups to control the entire production process. Added to this is the pandemic, the shock of which is creating a restructuring of GVCs in new regional bases (a third of them according to a German institute) and the impact of keeping containers in Chinese ports.
A staggering increase in transportation costs is further affecting production constraints affecting a large number of product components. Previous transfers were extended under the pretext of greening national production without forgetting the environmental requirements aimed at reducing imported pollution.
Globalization “Among Friends”
We are witnessing a questioning of globalization that prioritizes a neoliberal world order over national interests. The resulting excesses explain the rise of populism at the political level and the return of the state to the economic level, be it in terms of consolidation of the industrial fabric (re-industrialization, transfer), national sovereignty and/or European (industrial policy). in semiconductors, batteries, pharmaceuticals, etc.), social issues and energy and environmental policy.
Willingness to reorient globalization emerges. Proof of this is the recent speech of US Treasury Secretary Janet Yellen, who said that “from now on, globalization will happen among friends who share the same values”. The increased fragmentation of global space exposes multiple spheres of influence in favor of the shortening and regionalization of supply chains and the need to restructure ecosystems and redefine business competencies.
Furthermore, the trade tensions between China and the United States and the war in Ukraine further intensify the de-westernization that is not only related to the productive sector and money, but also affects their underlying mentality, norms and values. For example, Western diplomacy is often considered a form of interventionism, its power intensifying trade relations, especially with developing countries, subjecting them to US markets and financing and to a lesser extent Europe.
The return of the European “spread”.
For their part, Western democracies create barriers related to culture (cancelled concerts, Dostoevsky censored by the University of Milan-Bicocca), information (Sputnik and RT banned in the EU), digital space (equipment makers Huawei and ZTE excluded from the US and Canada), Sports (exclusion of Russian and Belarusian players from the Wimbledon tournament), etc.
Fragmentation can be observed at a fine level within a large area. Interest rates in the EU are increasingly narrowing the gap between heavily indebted countries. In 2021, the difference between the interest rates offered by Germany and Italy was 0.9 points. It is now 2.5 points, reflecting the increased risk of Italian debt.
The European Central Bank’s tightening of monetary policy, manifested by asset purchases, will increase EU cracking by increasing the risk premium demanded by investors for certain countries. More generally, government and corporate deleveraging becomes an unavoidable constraint in times of rising nominal and real interest rates.
Adapting to this new agreement could widen the gap between EU member states. Costs can be high, warn some economists: the need for conservation, the loss of wealth of asset holders (depreciation of real and financial assets), or the real index of wages until the reduction of purchasing power of employees is not possible inflation.
byProfessor of Economics, SKEMA Business School
The original version of this article was published in The Conversation.