Is there a big challenge thrown to globalisation ?

Certain events in last 30 years have many people thinking whether there is a big challenge for globalisation ? Or to the extreme, many are even suggesting whether this is the end of globalisation ?

If we look at measurement metrics of globalisation across the world in last 35 years, we see that there had been a steady growth of globalisation across the world till 2008..

The end of the Cold War meant a new wave of optimisim and hope to the extent that there were serious thoughts and even discussions amongst world leaders that time to include the broken USSR (now Russia, Ukraine and many other states) not only within the concept of European Union, but also within the NATO ambit. Words of "one Europe" cutting across the Atlantic Ocean to the Pacific Ocean were reverberating in the power stages, often "supported" by US and it's major allies in the Western World. The power equation / equilibrium was settling down in its new structure.

On the other end of the spectrum, sleeping giants like India were waking up and opening up to embrace globalisation under the mask of "liberalism". Whether it was a matter of choice or a fact that there was no other option (given the situation of foreign reserves at that point of time) is probably a topic of debate, which obviously has political colours and flavours. Further, the other giant, China also embraced a pseudo-globalisation route allowing capital infusion in the manufacturing sector where it was promised that political interference will be a minimum.

Stepping aside the politics about the same, there were hopes for a great win-win situation across the world. Here were the developed countries with lots of wealth behind them looking for expanding their wealth (read profits) beyond their immediate shores; and on the other hand, there were low cost countries standing with their arms open welcoming that thought. It was a win-win situation - I want to increase wealth and profits vs I will help you achieve that (and in that process increase our wealth as well).

The result was simple. A key measure of globalisation (trade's share of global GDP) peaked from those years till 2008.

Then a series of "shocks" came in relatively quick succession:

• 2008 financial crisis - that was probably the first the time the world witnessed a major negative of globalisation. Greed and corruption from one end of the world led to a fall in the other extreme part of the world. The impact of "collateral damage" even when there was no war was felt severely by all - thanks to the connected economies.
• Political conflicts continued in the world in different scales. The concept of "one Europe" failed - not just the idea of "one block between Atlantic and Pacific oceans, but also within the "core" European block. Brexit became a reality. Looking local, becoming more "self-independent" became themes that reverberated in many parts of the world. This was an output from some of the negative impacts of globalisation seen in 20 years. Workers in high-income countries were seeing jobs moving to lower-cost countries, while many multinational corporations were allegedly outsourcing more "dirty production steps" to developing and emerging countries, thus contributing to human and environmental issues there. Wealth was growing, but probably the inequality was growing faster.
• There was an increase in political "mistrust" across the world from 1990s onwards. Not only the issue of NATO's expansionism was an issue in Europe, wars were started on the pretext of "imaginary" weapons of mass destructions. Battle for oil and other key natural resources linked to economic growths were happening in the Middle East. The resulting mistrust was leading to formations of new political equations and dynamics across the world. The so-far powerful West were being challenged by the East (read China) and the negotiation table was not very friendly.
• In 2020, the Covid pandemic hit the world - though in phases. However, when one wave was hitting one part of the world, the impact of the supply chains in that part of the world was felt in areas where covid still did not put its claws in a different part of the world. Such disruption spurred a fundamental change to the design of those supply chains. The pandemic shifted a trend away from just-in-time manufacturing more toward holding inventories - it is now being more of a "global supply chain + backup plans". Countries with vast capacities in one product were holding them back for own consumptions first, resulting in big unfulfilled demands in other parts of the world.
• The world probably were just showing signs of recovering from the covid impact, when Russia invaded Ukraine resulting in geo-political and economic instabilities. Consumers have felt the impacts of Russia's invasion of Ukraine, along with subsequent sanctions, above all in the energy and agricultural product sectors. Further, the use of technologies (or rather using them as weapons) also have started to make an impact. Countries have realised that relying on one technology framework controlled by a few can result in "switching off" parts of the world in just a few hours - the cutting off SWIFT system is a good example

The future of supply chains, future of global interconnected technological platforms, future of the very essence of globalisation is now very much questioned across countries.

Time will tell how this thing will evolve - however, I personally feel that the following trends are likely to grow in near future

Within the "global supply chain plus backup" model, there will be more focus on shortening supply chains wherever possible - probably keep production of key inputs and technologies closer to home, even at the price of higher cost of production in certain cases. If this sounds extreme, keep key inputs closer to the production sites (wherever located) to minimise disruptions.

Technologically, "Big" countries will start exploring to build technological platforms within their own domain, so that systems can still operate to some extent if the plug is pulled on global systems at times of war.

Politically, more polarisation is now expected on similar situations like the Ukraine war. Countries with different "power" levels will have to evolve and find their correct stand on which camp to sign up to, amidst huge political pressures from the "powerful" in the modern world

#globalisation #world #politics #supplychain