Rewiring global value chains in a changing global environment

Global value chains are the backbone of the world economy, even at a time when they are undergoing structural and policy-driven changes in the face of a rapidly changing global environment.

Over the past two decades, international production networks have been tested in various ways - by the COVID-19 pandemic, by intensifying geopolitical frictions, by financial shocks and by accelerating climate challenges. These overlapping crises have sparked debates about deglobalization - reducing dependence on trading partners - and reshoring - returning production processes to the home economy.

Yet the evidence presented in the recently released Global Value Chain Development Report 2025 is clear: global value chains (GVCs) have remained resilient and indispensable to the functioning of the world economy.

The latest data show that, although GVCs are under strain, they still account for 46.3 per cent of global trade, not far off their 2022 peak of 48 per cent (see Figure 1). Rather than unravelling, GVCs are adapting by becoming more digital and more regional. They are also increasingly shaped by security concerns, with potentially important implications for sustainability and inclusiveness.

The report finds evidence that re-globalization - extending trade integration to more people, economies and issues - is taking place across several dimensions, as GVCs have become less concentrated, and as digitalization, the green transition and geopolitics increasingly shape trade flows and their governance. 

These forces are leading to changes in the sectoral composition of GVCs. For example, traditionally, GVCs were mostly based on goods trade, as it was easier to fragment the production of physical products than to coordinate the division of knowledge-based services production. Since 2019, however, GVCs have begun to make up a larger share of services trade because digitalization facilitates pure services value chains, as was highlighted in the Global Value Chain Development Report 2021. This shift helps to explain the resilience of GVCs in recent years. For example, digital services GVCs were much less affected by COVID-19 than goods GVCs (see Figure 2).

Closely linked to the changing sectoral composition of GVCs is the issue of how re-globalization affects who trades through GVCs, that is, the changing geographical composition. This is highlighted in the report through an examination of the electric vehicle value chain, which has seen a transformation in the geography of global motor vehicle trade as electric vehicle sales have grown (see Figure 3). 

More generally, re-globalization can be seen in the declining share in GVC trade of the ten economies most integrated within GVCs, which fell from 76 per cent in 2010 to 64 per cent in 2024 as GVC participation grew rapidly in emerging economies. For example, in Asia, Viet Nam, Chinese Taipei, Singapore, India and Thailand have all benefitted from the reorganization of Chinese-led supply chains. Early trends also indicate an uptick in the trade shares of Africa and Latin America, even as institutional factors, such as the digital divide and capital constraints, continue to limit the participation of these regions in GVCs. 

Africa and Latin America are also playing a growing role in expanding the governance framework of GVCs, another major theme of the report.

The agile responses of governments to recent crises have helped to cushion the impact of these events and have contributed to diversification. The report examines the rise of industrial and environmental policies, which has occurred at an unprecedented scale. Recent mapping exercises show large, targeted interventions, such as subsidies, across more than 70 economies, concentrated in GVC-intensive sectors such as semiconductors, clean energy technologies, digital infrastructure and critical minerals. 

The report presents new empirical work, using input-output tables and firm-level data, which finds that indirect spillovers from such industrial and environmental policies on suppliers, customers and third-country competitors can rival or exceed the direct domestic effects of government support, creating both positive learning spillovers and negative displacement risks for trade partners. 

In addition, while these industrial and environmental policies can contribute positively to critical objectives, such as the green transition, the report argues that more transparency, coordination and evaluation are needed to avoid negative spillovers onto other economies and wasteful subsidy races. 

In this context, the report describes the rapid growth in the use of targeted trade deals (TTDs), a flexible tool for cooperation among governments. Often referred to as "mini deals", TTDs are sectoral, or otherwise limited, trade-related agreements that typically focus on addressing non-tariff barriers through soft law provisions. 

TTDs allow governments to innovatively address newly emerging issues, and can serve as building blocks for subsequent multilateral negotiations. On the basis of an extensive mapping exercise, the report shows that more than 185 TTDs had been signed by the end of 2024 in the areas of digital trade and critical minerals alone, many of them between 2019 and 2024. The number of economy-pairs linked by digital trade TTDs increased more than thirtyfold between 2019 and 2024, while 80 per cent of all mineral-related deals have been concluded since 2022 (see Figure 4).

Initial evidence suggests that TTDs can influence trade flows and investment decisions even when the TTDs are non-binding. Estimates indicate that TTDs related to critical minerals have, on average, raised trade values between partners by an estimated 12 per cent, a similar effect to shallow regional trade agreements. For digital trade frameworks, significant effects are only observed for more comprehensive agreements. 

The flexibility of TTDs brings benefits, but it also comes with challenges. Similar to industrial policies, TTDs can, at times, suffer from a lack transparency. For instance, for the 185 TTDs identified, only 55 official texts were publicly available. 

More broadly, overlapping rules, if left uncoordinated, could fragment the global trading system. On the other hand, if they are embedded within transparent reporting and dialogue mechanisms, they can complement the multilateral framework.

Overall, the Global Value Chain Development Report 2025 offers a positive message about the state of GVCs and global trade, but it also highlights rising tensions that may lead to future volatility. 

The data and evidence collected for the report pre-dates 2025 tariff increases and associated uncertainty. However, the latest available data as of February 2026 appear to confirm the report's key findings that GVCs have continued to be resilient and that trade growth has remained robust, even if tensions and uncertainty are on the rise and the outlook is uncertain. 

Supply chains have continuously shown themselves to be adaptable, thanks to agile and creative policy approaches to managing trade disruptions.