Year in a word: Decoupling
(verb) the disentangling of supply chains and investment flows
For the past half century, the underlying assumption of economic globalisation has been that capital, goods and people can and should move wherever it is most productive for them to do so. But “productive” often ended up meaning cheap. Multinational businesses could move money, jobs and production lines where it suited them; labour was far less mobile. Much of the industrial base of the US migrated to China, and large swaths of the rustbelt were hollowed out.
Globalisation created lots of economic growth, but also huge inequality in most countries. Consumers may have got cheaper goods but, in rich countries in particular, that didn’t make up for the fact that all the things that make a person middle class — housing, education and healthcare — were rising in price, even as wages stagnated.
That led to calls on both sides of the US political aisle for economic “decoupling” from China, meaning the disentangling of supply chains and investment flows. While Donald Trump put tariffs on hundreds of billions of dollars’ worth of Chinese goods, decoupling really sped up under the Biden administration, which has prioritised reshoring manufacturing jobs, and, in 2022, instituted new export controls on things like high-end semiconductors and capital flows between the two nations.
The shortage of crucial goods such as PPE and basic pharmaceuticals during Covid convinced many policymakers that some decoupling was not only necessary, but welcome. Russia’s war in Ukraine has made it even clearer that the model of cheap capital, cheap energy and cheap labour in global markets is over, and that countries need to do more to produce strategic goods at home, or in partnership with allies.
Now, each week brings a new twist in the decoupling story, as the global economy becomes a bit more local.