The narrative surrounding global value chains (GVCs) and, more generally, the state of globalisation has been shaped by the sequence of extraordinary shocks that have hit the global economy. The initial Covid shock and the economic shutdowns loomed large in the disruption to trade. As economies reopened, bottlenecks appeared at key nodes, rippling through the system so that shortages coexisted with localised gluts. The war in Ukraine and on-going geopolitical tensions have fed the "deglobalisation" narrative.

However, a closer look at the data suggests that peak globalisation, as measured in terms of global trade, was reached just before the Great Financial Crisis (GFC) of 2007–09, and has plateaued thereafter. This stagnation started well before the Covid shock. Indeed, peak globalisation in terms of trade closely tracks peak globalisation in terms of financial flows. And the evidence suggests that financial and real globalisation are two sides of the same coin, reflecting the highly finance-intensive nature of global value chains and the need for large amounts of working capital to bridge the timing lag between incurring costs and receiving cashflows from sales. In this setting, the broad dollar index serves as a proxy for the broad financial conditions that set the terms of the trade-off between more elaborate supply chains and higher financing costs. A stronger dollar tends to go hand in hand with tighter global financial conditions and more subdued supply chain activity. As we look ahead to the future direction of global trade, one important factor to bear in mind is the future evolution of global financial conditions.