WHEN Apple launched the iPhone in 2007, it deployed a state-of-the-art global supply chain. Although the pioneering smartphone was designed in America, and sold first to consumers there, it arrived in stores from Shenzhen, China. It had been assembled there by Foxconn International from parts made by two firms in Singapore, six in Taiwan and two in America. Since then, competition in smartphones has intensified thanks to lower-cost rivals such as China’s Xiaomi. It uses a similar supply chain, but slightly fewer parts are imported: the growing sophistication of Chinese manufacturers means that more components are being made at home.
The rapid spread and subsequent slight retreat of such far-flung supply chains provides one possible explanation to a puzzle that is troubling policymakers: why international trade has been growing no faster than global GDP in the past few years. In the two decades up to the financial crisis, cross-border trade in goods and services grew at a sizzling 7% a year on average, much faster than global GDP. But although trade bounced back fast from its post-crisis plunge, rising by 6.9% in 2011, it has been decidedly sluggish since, growing by only 2.8% in 2012 and 3.2% in 2013 in dollar terms, even as global GDP grew by 3.1% and 3.2%. When measured in terms of volume, trade is still growing faster than the world economy, but by a decreasing margin (see chart). Having soared from 40% of the world’s GDP in 1990 to a peak of 61% in 2011, trade has fallen back slightly to 60%, the same level as in 2008.