Are we entering an era of deglobalisation?
References to “deglobalisation” are rife today, in press reports, company earnings calls and even central bank communications. Of course, given the disruptions caused by the COVID-19 crisis and other recent adverse events, it should come as no surprise that businesses and governments are seeking ways to make supply chains more resilient to shocks. But to what extent is active disengagement from international trade and global value chains part of the equation? Should we expect true deglobalisation to become a reality in the near future or is the era of deglobalisation already upon us?
Even before the COVID-19 crisis, globalisation had been levelling off. Several factors driving the spectacular rise of global value chains since the mid-80s had run their course, including the ICT and transportation revolutions, wage gaps between advanced and emerging economies, and the general appetite for trade liberalisation. Somewhat against the odds, global value chains overall demonstrated relative resilience during the pandemic. Supply chain pressures nevertheless surged to record levels, particularly in some industries, and have remained high ever since due to new shocks. To deal with supply chain vulnerabilities, firms have so far resorted primarily to changes in inventory management and to supplier diversification rather than extensive reshoring or nearshoring, i.e. bringing supply chains back or closer to home. In addition, as a result of the war in Ukraine and the associated sanctions, Western firms have scaled back or even completely ceased Russian business dealings.
The future of globalisation will be shaped by at least three key forces: new digital and other technologies, the climate agenda and, arguably most importantly, geopolitics. While the effects of the first two factors may be ambiguous, policymakers’ growing geopolitical considerations − including strategic sectors/products, national security concerns and national competitiveness − will undoubtedly adversely affect trade volumes and value chains going forward. Nonetheless, rapid deglobalisation does not seem to be in the cards for now, barring severe, long-lasting geopolitical shocks. Rather than the end of globalisation we expect to see a reconfiguration of global trade and value chains, definitely involving more careful risk management and perhaps more regionalism and friendshoring.