Deglobalization is a geopolitical building block with massive implications as it converges with its societal counterparts. In my August 2020 poll on the catalysts that drive change, deglobalization entered the list. It was not surprising, given the supply chain concerns that emerged in the early days of the pandemic. But is deglobalization likely? This recent article explores that question.
The risks of sourcing overseas are a less immediate concern than higher shipping costs, which might tip the balance in favor of sourcing from nearby – and shipping costs are not the only trade costs which are rising. Increasingly, policy is adding to trade costs. The EU’s new Carbon Border Adjustment Mechanism will add the equivalent of a trade tariff to reflect the emissions embodied in imports from outside the EU.Inga Fechner, Joanna Konings, Rico Luman – Deglobalization Ahead? The Pros And Cons Of Reshoring
The article states that despite headlines about an increase in reshoring, evidence does not support the headline of companies bringing production back home. Instead, there is evidence of more diversification. Construction activity for manufacturing facilities is on the rise in the U.S., but mainly in critical areas such as microchips. Trade in intermediate goods continues its upward trend, but the war in Ukraine has introduced uncertainty regarding future direction. The recent announced G7 $600 billion infrastructure investment in response to China’s Belt and Road Initiative will increase trade, and friendshoring seems to have entered our vocabulary.
Public condemnation for doing business in ‘unwarranted’ countries could lead to more trade relationships with ‘friendly’ trade partners sharing similar values and ethicsInga Fechner, Joanna Konings, Rico Luman – Deglobalization Ahead? The Pros And Cons Of Reshoring
The conversation will ultimately be driven by competitive advantage. Lack of skilled workers, rising inflation rates and wage costs may make reshoring less attractive. The article concludes that we are not seeing the end of globalization. This looks at deglobalization as it relates to our current supply chain paradigm. But are there other forces lurking that could indeed lead to relocalization? Might a world where our food, energy, and products are created locally drive deglobalization? An open question with massive implications. Relocalization is a geopolitical building block – one of many that contribute to future thinking exercises.