The world economy is at a crossroads. International trade is slowing, economic uncertainty is growing, and trade between the US and China – the world’s two largest economies – risks splitting. And it’s not just trade: the two countries are also investing less in each other than they did just a few years ago.
What drives this reconfiguration of trade? For some major economies, including the US under President Donald Trump, a desire for greater self-reliance it is central. Between 2017 and 2023, US imports fell harder precisely in the products where the US had been most dependent on China – including industrial machinery, computers and computer parts, and other electronic equipment such as monitors.
This has important implications for global value chains. GVCs are the backbone of international trade. Manufacturing activities from research and product design to assembly are spread across different locations, with “value” being added at each stage. This redistribution it can be developed in several countries, coordinated by multinational firms.
The reconfiguration of GVCs is accelerating, and thus industrialized economies now have two main options.
They can renew production, bringing production back to their countries (a declared priority for the current US administration).
Or they can “friendshore”, shifting imports and investments towards economies that are either geographically closer, or with which they have long-standing relationships.
For developing countries, the balance between these two strategies is crucial. If advanced economies restore a substantial production partdeveloping countries may suffer as investment and jobs are lost.
And automation and digitization now make it more convenient for advanced countries to produce goods at home, making this a bigger risk for these poorer countries than it was a decade ago.
However, for consumers, this revaluation could mean higher prices for everyday goods, at least in the short term, due to higher production costs in more advanced economies. However, it must be said that the empirical evidence for this remains limited.
Risks and opportunities
But friendship offers an alternative. Early signals from places like Mexico and Vietnam – which have recently seen a surge in investment and factory expansions by multinational firms – suggest that friendship can create opportunity. When combined with supportive government policies, such as investment incentives or aid to upgrade technology, these shifts can ensure that more manufacturing takes place domestically. This can lead to greater diffusion and learning of the technology.
To understand the risks and opportunities, we have examined the specific products where the US-China disconnect is most pronounced (that is, where trade is shrinking). From this analysis, two broad clusters emerged, each with different implications for developing economies.
Group One: The US has it both ways
The first group includes mostly relatively complex goods – things like consumer electronics, auto components, chemicals and machinery. Here, the US is diversifying its imports rapidly – and at the same time it is already producing these goods competitively.
These products can be easily renewed, especially if automation lowers costs. For example, semiconductors are already the focus of major US renewal efforts. However, the risk of a US rebound for current producers appears limited for now. While the US has reduced imports of these products from China, other developing regions have not experienced a similar trend.
Group 2d: US not competitive enough to rebuild
In terms of the second set of products, the US is diversifying but is not competitive enough to bring production home. This group accounted for just over 6% of the finished products the US imported in 2023 – roughly 181 billion dollars. This is a small percentage overall, but economically significant.
Within this group, two types of opportunities appear.
Technologically complex goods, such as electrical equipment, computers and car parts, offer the greatest potential for middle-income economies with strong manufacturing experience to win contracts and investment.
Low-tech goods such as textiles and furniture are more suitable for lower-income countries. In both cases, governments must negotiate carefully to ensure that investments add value locally, support skills development and avoid social or environmental harm.
For consumers around the world, friendship offers a better perspective than reuse or tariffs. Goods may simply be produced in different countries, where prices remain generally stable.
Who could win?
So far, East and Southeast Asia – including Vietnam, Thailand, Malaysia and Indonesia – have captured most of these friendship opportunities, particularly in high-tech sectors such as computers. Their exports to China have also increased, reinforcing their central role in Asian production networks.
But whether this momentum will continue will depend on tariffs, production costs and the pace of automation.
Other beneficiaries could include Latin America and Caribbean nations, led by Mexico. Here the automotive sector dominates export growth. South Asia could also benefit, with India expanding into both high- and low-tech products, and Bangladesh at the lower-tech end. In contrast, Africa and West Asia remain largely absent from the friend-making landscape.
The risk to these countries of large-scale renewal remains limited for now, but cannot be ignored amid changing global trade and investment patterns. Friendshoring can compensate or even overcome potential losses, providing new paths for industrialization.
As economic uncertainty and technology reshape global value chains, developing economies that invest in manufacturing capabilities—and implement smart industrial policies—will be best placed to seize the opportunities. In some cases, friendship may allow them to jump into more sophisticated activities sooner than traditional developmental paths would allow.
For consumers, there are also benefits. The tag on our next laptop, charger or t-shirt may change, but prices will remain broadly stable – at least before the fees kick in. In this sense, globalization will not disappear. But it will take a different geographical form.
Carlo Pietrobelli is a professor of economics and chairman of UNESCO, United Nations University. Michele Delera is an affiliated researcher, Maastricht Economic and Social Research Institute for Innovation and Technology (UNU-MERIT), United Nations University. Nicolò Geri is a PhD candidate in economics, Sapienza University of Rome.
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