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If globalization is really over, what happens to supply chains?

Tariffs, COVID, port pileups, the Ever Given, the Russia-Ukraine war, mounting U.S.-China tensions — it seems like threats to world trade are the rule, not the exception. What does this mean to the future of global supply chains?

The positive view: Importers see the risks ahead and will act. They will preemptively revamp supply chains and become nimbler and more resilient. Economic benefits of globalization are too great to give up. Countries and companies will work around hurdles.

“No one can sit around and do nothing,” Peter Sand, chief analyst of ocean-rate data provider Xeneta, told American Shipper. “After two years-plus of COVID and a souring of the geopolitical environment, you can’t just cross their fingers and hope for things to settle down.”

The negative view: Globalization has peaked and will retreat. Costs will rise, profits will fall. The current war and future wars will constrict trade. U.S. importers will indeed just cross their fingers and hope for things to settle down. Strategic inertia will leave them highly vulnerable to future shocks.

Ominous commentaries abound. In a report released Monday, the World Trade Organization (WTO) warned that “trade could become more fragmented in terms of blocs based on geopolitics” due to spillover from the Russia-Ukraine war. A worst-case scenario involving the “permanent disintegration of the world economy into two blocs” would reduce long-term global GDP by 5%, said the WTO.

Blackrock Chairman Larry Fink told shareholders: “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.” Oaktree co-founder Howard Marks wrote that “the pendulum [has] swung back towards local sourcing” and away from globalization. New York Times columnist David Brooks opined that “globalization is over” and “the world is not converging anymore; it’s diverging.”

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