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Re-globalization with hiccups – The Globalist

Economic

Re-globalization with hiccups – The Globalist

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For those who believe the era of globalization is over, think again. At least in economic terms, we are experiencing a kind of re-globalization with increasing cross-border flows of goods and capital.

The COVID-19 pandemic has certainly caused some setbacks. Indeed, cross-border trade declined more sharply in March and April 2020 than during the Great Depression of 1929. However, the recovery was faster than expected.

This is particularly the case with trade and capital movements between developed economies. China is included in this latter category.

Travel trauma

As for human travel – whether for business or pleasure – recovery is slower. According to DHL’s 2020 Global Connectedness Index, travel has seen an unprecedented decline due to the restrictions of the pandemic. And the reopening of the borders takes a long time.

Hence, the re-globalization that we are experiencing is fragile and the cracks in it are not easy to repair. This process takes time.

From just-in-time to just-in-case

In addition, there may be profound changes in the way some supply chains work. In the age of globalization 101, the predominant model was that of “just-in-time” manufacturing.

But in the new phase after the pandemic, the formula for success is closer to a “just-in-case” model. So this will be a different kind of globalization. And those who don’t get involved are condemned to watch from the sidelines.

We are witnessing a process in which the air is expelled abruptly and intermittently. This is the definition of “hiccups”. The advancing re-globalization that we are experiencing is accompanied by hiccups.

Inhibition of hiccups

First of all, there is an ongoing shortage of containers, although their costs are increasing. The problems this causes for the recovery of world trade were made clear by the incident in the Suez Canal.

In March, the canal was blocked by a ship for several days, bringing billions in sea trade to a standstill.

In addition, some important raw materials are becoming scarce and therefore, if available, more expensive. There is a shortage of wood as well as some petroleum-based products such as plastics, PVC resins and dyes.

At the same time, oil prices and other commodities such as copper rose. The bottlenecks that are slowing down re-globalization are revealed.

New pandemic-related bottlenecks

During the first phase of the pandemic, countries affected the greatest shortages of medical equipment such as masks, gloves, ventilators, etc.

These could be ironed out relatively quickly, although the supply dependency on Asia, especially China and India, is still very pronounced.

But now other bottlenecks have emerged, such as the lipids used in the messenger RNA-based vaccines used in COVID-19. Plastic tubes and bags are also in short supply.

According to the International Federation of Pharmaceutical Manufacturers, the U.S. Defense Manufacturing Act to protect U.S. shipments has exacerbated the situation.

Digital area

The digital world is also plagued by bottlenecks. A shortage of semiconductors has slowed the assembly lines of various vehicle manufacturers around the world. This is of great importance not least because cars today are computers on wheels.

The pandemic has further highlighted the over-reliance – one that shares China – on Taiwanese chipmakers. TSMC (Taiwan Semiconductor Manufacturing Company) is particularly dominant.

This is a geopolitically sensitive dependency. Trying to diversify away from it requires large investments.

Difficulties in diversification

An advanced chip manufacturing facility known as a foundry costs around $ 20 billion. The new globalization will bring about the shortening of strategic supply chains for semiconductors as well.

But this process will take years to materialize. China, which imports more microchips than oil in terms of value, has made foundries a top priority.

The greatest challenge is for Europe. Once a serious advanced chip player, it has lost its lead.

Human talent needed

Another crucial bottleneck is the serious shortage of skilled workers in terms of human skills. According to Deloitte, 40% of companies in Europe have difficulty filling their vacancies due to a lack of people with the necessary training or experience.

30% of the graduates now work in professions and roles in which the skills acquired at the university are not relevant.

At the global level, there is a large mismatch between the demand and supply of talent. Re-globalization therefore urgently requires national public-private investments in promoting these sought-after talents.

Conclusion

We are heading towards a more protectionist, nationalist and regionalized form of re-globalization.

The exact contours of this new globalization remain unclear, but what is certain is that it will not be a simple return to the status quo. Rather, it will bring changes that will require new ways of thinking and new guidelines to better relieve the hiccups.

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