In a world torn apart by geopolitical tensions, policymakers are facing multiple crises, leading to what economists have labelled as a new “global dis-order.” Simultaneously, the resurgence of industrial policy signals a return to state intervention in the economy. Although the emphasis has shifted to de-risking rather than decoupling, the United States and the European Union are actively seeking to reduce their dependencies on China in key sectors. This approach will have economic and geopolitical implications, potentially fostering increased trade among politically aligned trading blocs.
Understanding this new landscape is imperative as economic, geopolitical, and climate challenges converge, leading to unprecedented tensions. By examining the impact of neo-protectionist policies on global trade, the objective of this policy brief is to design ad-hoc recommendations for navigating the current challenges in Global Value Chains (GVCs). The policy brief presents the tools used by governments to implement industrial policies, highlighting how “economic security” sometimes can provide cover for protectionist policies. The brief discusses the interplay between trade and industrial investments, focusing on the chips and clean tech industry. It also offers actionable recommendations for calibrating economic security tools to prevent the race into economic weapons that could undermine the GVCs efficiency.
Given the redistribution of global economic power, the G20 is in a unique position to take a proactive role in shaping the outcome so as to safeguard global stability, development, and environmental goals. This brief envisions a future marked by increasing trade, technology and industrial exchanges among like-minded countries, with the Global South that is set to play a key role. Notwithstanding, an agreed agreement on a set of agreed rules for international trade and economic relations is pressing to de-escalate tensions and ensure the smooth functioning of international markets.