Trent Cotney, Partner, Adams and Reese, LLP
If you have purchased materials or done any consumer shopping lately, you know the supply chain is being strained. The COVID-19 pandemic hit the supply chain hard, as manufacturing slowed and transportation suffered interruptions. And now, the Russia-Ukraine conflict has made matters worse. Some of these changes may never be undone. Globalization has been altered.
For many years, globalization grew. In fact, between 1970 and 2008, it seemed unstoppable. As a share of GDP, worldwide exports increased from 13 to 31 percent. But that trend began to skid. Those exports as a share of GDP began to level out and then fall. Global bank loans decreased, as did foreign investments.
The global economy began to decentralize, and that occurrence became part of a trend called “slowbalization.” This term refers to a phenomenon involving a slower global integration rate.
It seems as though a far less global model is coming into view, it will be less interconnected and, instead, it will focus on more regional trade. Reliance on a few worldwide economic players will shift toward multiple economic and political centers. It may be years before dramatic effects will be seen, but the process has begun.
Although slowbalization is a reality, it is fair to say that we are still in a globalized world. Based on international phone and internet usage, globalization is still strong. But regarding trade, it may have already peaked.
Many factors impact globalization. For example, in the mid-20th century transportation costs were reasonably low. But in recent years, those costs have soared due to increased fossil fuel prices. Also, with improved technology, manufacturing processes are becoming more automated. That means a smaller labor force, so the need to move factories offshore will be reduced. Therefore, transporting goods for such long distances may no longer be necessary.
Another factor is consumer preference. Today, consumers like variety and choice, so there are more and more variations in available goods. That incentivizes companies to move manufacturing closer to where their customers live rather than asking them to wait weeks for a custom order from halfway across the world. In addition, for those with higher incomes, services have become as important as material items. Many are spending their disposable income on delicious meals and spa treatments. And such services do not have to be transported from anywhere.
Globalization has also been affected by higher tariffs, increasing environmental concerns and carbon taxes. All these factors make it less attractive to rely on shipments from thousands of miles away.
In the coming years, certain industries – such as cybersecurity, pharmaceuticals and defense – will benefit from this slowbalization trend. So will companies that capitalize on “just in time” inventory
In addition, specific countries may do well in this new model. For example, Mexico could benefit, thanks to its low labor costs, its location and its free-trade agreements with the United States and the European Union. India could also benefit because of its proximity to the EU and its large but low-cost labor force, although it lacks a free-trade agreement.
It is important to understand, however, that even as trade shifts, we will remain globally connected. Thanks to technology, we can still share ideas and services with other countries around the world, even if we do not travel to them.
Worldwide trade may have stopped growing, but it is still significant. Auto and steel manufacturing may always require the global supply chains currently in place. But there is definitely a push to rely less on exports from China. So do not be surprised if the next materials you order come from a country closer to home.
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Trent Cotney is a Partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and FRSA General Counsel. For more
information on this subject, please contact the author at trent.cotney@arlaw.com.
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