The New Trade Order

For thirty years the rule of global trade was simple: make each part wherever it was cheapest, and ship it. That rule clearly built the supply chains behind almost everything you own. Most big manufacturers now keep a second supplier outside China.

A second supplier costs money, and someone always pays for it: shoppers through higher prices, or taxpayers through subsidies. Neither shows up on a customs form. The IMF estimates that in its most severe scenario a deep split into rival trading blocs could cost the world economy up to 7% of output in the long run. That bill lands on someone.

Insurance is worth buying. The question is who picks the policy, and who pays the premium.

Chips and medicines are the clearest cases. A shortage of either stops whole industries, not just one shelf. Most goods are not like that, and paying twice for them buys little.

The old rule is now being rewritten. Governments are paying firms to move factories home or to friendly countries, and adding checks on what can be sold to whom. The clearest example is the race to build chip factories at home.

Chipmakers are building new plants in Arizona and elsewhere, often with public money. Others are friend-shoring: moving supply to allies rather than all the way home.

Pressure on global supply chains peaked in late 2021 and has since eased. The rules written during that scare have stayed.

The bill grows with every border a product crosses. Global value chains, where parts cross borders several times before a product is finished, account for almost half of world trade. Each crossing is a place where a new rule can bite.

The better test is narrower: which goods truly can’t be bought elsewhere in a crisis, and which are simply cheaper from a rival? Most things you buy are the second kind.

That test won’t settle every case. But it moves the argument from slogans about “bringing jobs home” to a list you can check, one product at a time.