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Top 10 2024 Supply Chain Trends: 10. Geopolitics and Deglobalization of Supply Chains

  • Writer: clnworldwide
    clnworldwide
  • Jan 30, 2024
  • 5 min read


Over the past nine weeks, we’ve been covering the top ten 2024 supply chain trends announced by the Association for Supply Chain Management (ASCM) in September.


It’s been great fun to dig into these topics — which, although largely familiar — continue to evolve as advances in technology meet the challenges of a global supply chain that is ever changing and increasingly unpredictable.   


Previous posts in this series include: 


This week, we’re wrapping up our series with the last of the top-ten: Geopolitics and Deglobalization of Supply Chains. 


To do that, we’ll tap into expert analysis of global trends with a specific focus on a recently released report from the McKinsey Global Institute (MGI) — Geopolitics and the geometry of global trade — and a joint project between McKinsey & Company and the World Economic Forum (WEF): the Global Cooperation Barometer 2024. 



A world in turmoil


When supply chain stakeholders emerged from the chaos of the COVID-19 pandemic, there was likely hope for some semblance of stability in the years ahead. But the ongoing global tumult being fueled by geopolitical angst and outright war on multiple fronts portends a near future rife with turmoil and persistent disruptions for the global supply chain. 


Wall Street Journal logistics and supply chain reporter Paul Berger describes related dynamics like this: “Global supply chains are entering 2024 roiled by disruptions at two of the world’s crucial trade corridors—the Panama Canal and the Suez Canal—even as geopolitical tensions appear set to take a more prominent role in sourcing and distribution. That could potentially force countries and companies to redraw trade maps that have been built over decades.”


Noting that the “sudden shocks and shifts” are keeping freight and logistics companies on their toes to adapt, Berger says factors such as the wars in Ukraine and the Middle East, climate change, and mass migration are upending traditional trade routes — and that “growing geopolitical tensions” are creating increasing complexity in global supply chains. 


In a recent article, Indermit Gill and M. Ayhan Kose, both senior fellows at the Brookings Institution, list five “major risks” facing the global economy this year — which include “rising geopolitical tensions” and “trade fragmentation.”


Referring to geopolitical tensions as the “single most important risk confronting the global economy,” Gill and Kose describe the negative impacts of the wars in Eastern Europe and the Middle East and the potential for things to get worse. 


“Geopolitical tensions heighten uncertainty, which hurts investment and economic growth,” they write. “Conflicts and wars also tend to reduce global supply capacity—with potentially inflationary effects. …”


In terms of trade fragmentation, Gill and Kose note the sharp increase in trade-restricting policies last year and movement toward “friend-shoring” and “near-shoring” in response to national security concerns — which they say could put a damper on much-needed growth in global trade. 


“…Global trade growth is expected to rebound this year, but it will be only half the average in the decade before the pandemic,” they explain. “Some businesses in advanced economies are retreating from global value chains and diverting investment instead to domestic or regional supply chains. These trends bode ill for developing economies, for whom trade has been a key force for greater productivity and improved living standards.”



Geopolitics and the geometry of global trade


In its report released January 17, Geopolitics and the geometry of global trade, MGI experts describe the reconfiguration of global trade patterns and predict more to come — underscoring the need for businesses to have a clear understanding of the “potential trade-offs of different paths ahead.”


“We analyze the changing geometry of global goods trade using four measures, each of which has its own limitations: trade intensity, geographic distance, import concentration, and a new measure of ‘geopolitical distance,’” the experts explain. “This new measure is the geopolitical analog of geographic distance. …These measures in combination help us to calibrate the speed and direction of recent shifts.”


In an overview of the report, the experts highlight five key findings:  


  • Trade in concentrated products binds geopolitically distant economies

  • Trade reconfiguration is under way

  • Increased investment into a range of developing economies suggests further trade reconfiguration in coming years

  • The future of global trade will involve trade-offs—reducing geopolitical distance comes with increasing trade concentration, and vice versa

  • Business leaders need to position their organizations for uncertainty


For further details, please see the full report



Global Cooperation Barometer 2024


MGI says that complementary to its work on global interconnections, McKinsey & Company and WEF collaborated on a new initiative: the Global Cooperation Barometer 2024.


“It is no secret that the current global context is concerning, as heightened competition and conflict appear to be replacing cooperation,” WEF explains. “The result is that new power dynamics, changing demographic realities and breakthrough frontier technologies are raising the temperature on long-simmering distrust rather than fueling opportunities for benefit. Businesses are responding to these complicated – and often fraught – geopolitical developments by shifting operations and facilities closer to home. This report, therefore, aims to help business and government stakeholders gain a better understanding of the nature of cooperation to shape a healthier and more prosperous and sustainable world in the year ahead and beyond.”


In an announcement about the new measure, the WEF says the barometer indicates that “global cooperation was resilient in multiple dimensions from 2012 until 2020 but overall cooperation declined by 2% from 2020 to 2022.”


“The Global Cooperation Barometer…uses 42 indicators to measure five pillars of global cooperation between 2012 and 2022: trade and capital; innovation and technology; climate and natural capital; health and wellness; and peace and security,” WEF explains. “The barometer indicates that global cooperation showed signs of strength during the years measured in pillars such as trade and capital, innovation and technology, and climate and natural capital. However, it also reflects the significant challenges the world has faced in the past three years, including reversals in global health cooperation and sharp increases in violent conflict, shown through declines in the barometer’s health and wellness and peace and security pillars.”


“The greatest challenges – and the most promising opportunities – for our planet, societies and economies are not bound by borders, which means the only way to address them is through cooperation,” said Børge Brende, President, World Economic Forum. “What the barometer shows is that cooperation on many issues is possible, even in the midst of competition and confrontation. In other words, leaders can work together despite not seeing eye-to-eye on everything.”


“It’s clear that on some dimensions the world has become increasingly divided, yet the barometer shows that when you look at the full picture, global cooperation has remained surprisingly robust over the last decade,” said Bob Sternfels, Global Managing Partner, McKinsey & Company. “We’ve seen progress in collaboration across multiple areas, with special cause for optimism on climate and nature and breakthroughs in frontier technologies that draw on global contributions to innovation.”


More details — including recommendations for business leaders — are available by viewing the Global Cooperation Barometer 2024

 
 
 

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