Firms look to shorten supply chains as global protectionism is on the rise.
As discussed in this space before, “reshoring” seems to be picking up steam. We’re seeing a few bumps on the way to a global village where “the world is flat,” in Thomas Friedman’s memorable phrase. Economists and trade experts are beginning to talk about “a new era of deglobalization, in during which countries turn inward,” asserted Rana Foroohar in Time magazine.
If globalization is defined as the free movement of goods, people and money across borders, that movement has become less free, and the increasing tension between NATO and a resurgent Russia that began in Crimea will only exacerbate the trend. Protectionism, trade barriers and increasingly fragmented trading blocs are on the rise, causing producers to rethink their strategies for sourcing their goods.
“Companies are looking at their extended value chains, supply chains, and deciding whether they want to move some production back to their home country,” said U.S. Trade Representative Michael Froman at a recent Washington economic summit. In a study by the Boston Consulting Group, 21 percent of all manufacturing firms in this country with sales of $1 billion or more said they are actively reshoring, and 54 percent said they are considering it.
After nearly five years of recovery, the U.S. Trade deficit isn’t growing but shrinking, down by approximately 12 percent from 2012 to 2013. Over this period, global trade growth was lower than global GDP growth, the first time that has been the case since World War II.
Protectionism is on the rise, said Roberto Azavedo, director general of the World Trade Organization, “becoming more sophisticated, more complex, more difficult to detect.” It’s impossible to know what barriers will be erected in the future, and individual companies can become pawns in this high-stakes international chess game. For those with supply chains spanning international borders, reshoring can be reassuring.