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Reversing Globalization will have Implications

Economics 101 taught us the benefits of Free Trade, Theory of comparative advantage, how trade benefits both the exporter and the importer and so on.

Everyone bought into it for much of the last hundred years & the world has flattened over time with components for each manufactured product from Levi jeans to Apple phones to Tesla cars coming from virtually anywhere in the world. To give only one example 92% of the semiconductor manufacturing in the world is in Taiwan.

That trend is reversing thanks to multiple supply chain disruptions, first with COVID and now with the recent conflict. Plus, nationalism & protecting strategic resources/ capabilities is becoming a priority.

Over the last two years, there have been major policy thrusts across the world from the US to Europe to China - all want to be self-sufficient or Atma Nirbhar at least in certain areas.

And that was even before the recent disruptions thanks to the Russia-Ukraine conflict. Hence the trend will only accelerate.

This means that control will become more important than cost. Consequently, competition among suppliers will reduce, costs likely to go up for several products. Government subsidies in several areas mean that the costs are partly shared by the taxpayers of the country - introducing another level of complexity.

Likely to be a mega trend shift that will play out over years and decades with significant long term implications.

From the desk of Devina Mehra

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