After decades of growing globalization, a countermovement is emerging with significant changes in supply chains. The main reasons for this are geopolitical tensions.
WTO chief Ngozi Okonjo-Iweala warns of negative consequences of moving away from free world trade. Initially, with the return of industrial activity in some countries, the consequences might not be so obvious. “But over time you will feel the loss of competition, higher prices and costs,” said the head of the World Trade Organization (WTO) to the German Press Agency.
After decades of growing world trade and globalization, a countermovement is currently emerging. The central factors for this are the geopolitical tensions between the USA and China and the consequences of the Russian war of aggression against Ukraine. The recent decline in Chinese exports and imports to the USA are seen as signs of development.
One example of the rethinking of global supply chains is the attempts to bring more chip manufacturing back to the US and Western Europe to reduce the risk of failure amid tensions with China over Taiwan. A large proportion of the semiconductors and almost all of the most modern chips come from there.
In such situations, it is “inevitable” that some of the supply chains will be relocated, said Okonjo-Iweala. It is not right if 90 percent of a product is produced in one place and everyone depends on it. “We should reduce concentration in some places, but we don’t want to see a change in investment behavior that shows that trade is no longer as closely linked.”
Warning of the consequences
“Once investments have shifted and supply chains have been broken, it is not so easy to repair,” warned Okonjo-Iweala. She hopes that the current geopolitical tensions do not lead to a decline in trade between large countries or blocs of states.
The WTO chief emphasized that this would also make the global economy less resistant to crises. Ethiopia, for example, was dependent on wheat from Ukraine, but quickly got replacements from the USA and Argentina when deliveries stopped last year due to the Russian attack. “We were pleasantly surprised at how resilient trading proved to be.”
The current upheaval in supply chains is also “an opportunity to integrate countries that have previously been left out,” said Okonjo-Iweala. When manufacturing capacities are currently being relocated from China, they usually go to India, Vietnam or Indonesia. But why not also to Bangladesh, Cambodia or Laos – or to Senegal, Rwanda or South Africa, said the WTO chief: “It would be a different type of globalization than we have seen so far.”