The global trading system is experiencing significant changes, reminiscent of the shifts following the Cold War. For over thirty years, economic globalization has been characterized by the integration of production networks, reduction of trade barriers, and expansion of global value chains (GVCs). Companies increasingly fragmented production across borders to take advantage of labor costs, technological capabilities, and logistics, leading to a high level of economic interdependence. This process allowed many emerging economies to deeply engage with international production systems, enabling multinational corporations to enhance efficiency through diversified manufacturing locations.
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Among emerging economies, China has been the most significant beneficiary of this transformation. Since joining the World Trade Organization (WTO) in 2001, China has transitioned from a low-cost manufacturing base to the largest exporter globally and a pivotal player in global production networks. It now dominates various manufacturing sectors, including electronics, machinery, and pharmaceuticals, playing a crucial role in supplying intermediate goods vital for production worldwide. Consequently, disruptions in Chinese production can quickly affect international supply chains, highlighting the deep interconnectedness of today’s global economy.
However, the conditions that facilitated China’s integration into the global economy have shifted dramatically in the past decade. Rising geopolitical tensions, a resurgence of industrial policies, increased economic security concerns, and frequent disruptions to international supply chains challenge the foundational assumptions of globalization that prevailed for three decades. The COVID-19 pandemic highlighted the risks of depending heavily on geographically concentrated production, especially for essential goods like pharmaceuticals and medical equipment. The ongoing strategic competition between the United States and China, alongside technological restrictions and trade politicization, has intensified what many scholars refer to as an era of geoeconomic fragmentation.