Problems with global supply chains (GSC) were probably the biggest surprise of the second half of the year. The question is not that no one expected the failures – they were quite predictable, but if they were discovered in the fall of 2020, after the second wave of quarantine restrictions, it would look more natural. In fact, the scale of the problem is less than expected (despite the fact that, as the Central Bank notes in its autumn monetary policy report, most industrial companies note logistics disruptions), it is mainly related to the depletion of stocks (from which it follows, that the strength of the system was much higher than could be expected – but the rational expectation of the pandemic’s length was a year), and the effect would be stretched and not too limiting economic growth.
But there is another dimension to what is happening, which is already being pondered by those who nevertheless recorded disruptions in supply chains in 2021. Last week, an article was published by the former head of the European Economic Association CERP, Richard Baldwin from the Swiss Institute IHEID (this is one of the leading European experts on economic globalization) and Rebecca Freeman from the Bank of England, discussing the same problem as everyone, not excluding state regulators …
There can be two conclusions from the “failure” of the GSC for a particular player.
the second is the diversification of supplies and the acquisition of “reserve” partners.
In theory, the methods can be combined (look for many suppliers in your country, refusing foreign ones), but this is expensive and in practice it is almost impossible. And diversification is, in the current conditions, the opposite of “shortening”: to a supplier from Malaysia or Mexico, you need to add a supplier from Thailand or Canada, and it doesn’t matter if your plant is located in one of these countries or in Russia in general. In the end, what can we expect from the future – isolationism in GSC issues or increased globalization?
Baldwin and Freeman, studying this issue in a rather complex way, come to the following conclusions. There is no single solution, but industry-wide ones are highly probable: “inconsistency” in decisions in a particular industry between different companies is unlikely. For a part of the industries – the semiconductor industry, the military-industrial complex and, possibly, pharmaceuticals – the choice under the pressure of the states will rather be a limitation of globalization. For the rest, the authors suggest, a lot will depend on the post-image policy of specific central banks and on the dynamics of local currency rates: supply chains will be “revalued” in 2022-2024 by everyone, and on the exchange rate of rubles, pesos, rials, baht, kronor and others. the national currency in this period will depend on a lot for a decade to come.