09.02.2023  (De)globalisation and economic policies in the European context Dialogue with the Governor on the Future of Globalisation/Cañada Blanch Centre for Contemporary Spanish Studies and London School of Economics and Political Science London Pablo Hernández de Cos Go verno r  Let me start by thanking Professor Andrés Rodríguez-Pose, the Cañada Blanch Centre for Contemporary Spanish Studies of the London School of Economics (LSE) and the LSE for their kind invitation, and for giving me the opportunity to hold this dialogue with you on a fascinating topic: the future of globalisation. The questions currently surrounding this topic are of the utmost importance for highly open and integrated economies, such as the euro area and the UK. The two extraordinary shocks that have recently hit the global economy, the Covid-19 pandemic and, above all, the Russian invasion of Ukraine, have disrupted global value chains and commodity markets, and generated an environment of heightened uncertainty and geopolitical tensions. Added to the past and present episodes of trade tensions between the US and China, among others, these shocks have prompted renewed questions regarding the future of globalisation and the increasing importance of geopolitical factors in shaping international economic relations. Although the globalisation of goods was slowing down even before the pandemic, concerns about the resilience of global value chains and the supply security of strategic products are now becoming more apparent in decisions made by firms and policy measures considered by governments.

First, it appears that for the time being there is no consistent trend towards “deglobalisation”, but rather a change in the nature of globalisation, leading to a rise in the regionalisation of trade and supply chains, a diversification of sourcing and a certain slowdown in global value chain fragmentation. 22 While the marked slowdown in firms’ decisions to relocate part of their production processes abroad (“offshoring”) or to repatriate previously offshored activities (“reshoring”) is compatible with a deglobalisation phase, other factors qualify this view. The flattening of trade in goods does indeed hint at a trend slowdown, but the continued growth of international trade in services seems to signal a continuation of globalisation trends in these sectors, driven by technological progress, including data trading and the expansion of artificial intelligence. Second, the impact of these new trends – as opposed to purely globalisation or deglobalisation trends – are far from obvious . As an illustration, while offshoring is usually related to job displacement, several recent studies highlight that it is also related to the upgrading of jobs, towards more competitive and innovative varieties, and to changes in employment composition in favour of high-skilled workers. 23 Third, the globalisation process lasted for several decades. The current location decisions and choice of providers are the result of long-run economic forces, which might work differently in a deglobalisation phase, especially if this is more abrupt and takes place in a short period of time, which could lead to non-linear effects on growth, inflation or monetary policy transmission.