Box B: Global Trade Fragmentation and the Rise of Connector Countries

Lea de Greef () and Antonio Haro-Banon ()
Authors registered in the RePEc Author Service: Antonio Haro Banon

National Institute Global Economic Outlook, 2025, issue 17, 34-38

Abstract: Geopolitical tensions have flared up in recent years. The US-China trade war, Russia's invasion of Ukraine, and the recent turmoil in the Middle East have impacted economic relationships between countries by straining and testing the resilience of the global value chains that sustain international trade. For instance, US imports of commodities from China have decreased significantly in recent years. In 2018, 21 per cent of US imports came from China, but by 2023 that number had fallen to 14 per cent. In contrast, China's imports have increased in 2024, particularly those of high technology components. This pattern is an outcome of recent shifting alliances, national industrial policies and rising strategic tariffs, leading to an increased regionalisation that alters trade and financial flows in the orbit of China and the United States. These changing flows have contributed to lengthening global value chains (GVC), from which a set of 'connector' countries have benefited by increasing their import share in the United States, while also increasing their inflow of Chinese exports (Alfaro and Chor, 2023). While these 'connector' or non-aligned countries may bring wider stability to global trade, they do not necessarily lead to more robust supply chains, reduced strategic dependence, or higher product diversification. Their strategic position and competitive production costs are factors that attract financial flows from foreign firms, leading to the processes of reshoring, nearshoring and friend-shoring. As a result, Mexico overtook China in 2023 as the United States’ largest trading partner, contributing to the diversification of supply chains by directing investment towards countries other than China. In this box, we aim to examine how these connector countries (Vietnam, Mexico, Poland, Indonesia, and Morocco) have progressed within the global value chain in response to these geopolitical trends.

Date: 2025
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