Are supply chain disruptions the beginning of the end of globalization?
At the end of last week, there were 584 container ships idling off the world’s ports, waiting to be loaded or unloaded. Disruptions in the bulk cargo sector look to be even worse.
Experts suggest the problems are temporary. For instance, Bloomberg columnist Brooke Sutherland maintains that three weeks of declines in ocean freight rates tells us “the worst may be over for the supply-chain snarls that have plagued shipments of everything from Coca-Cola Co. ingredients to paint, toys, and industrial fasteners.”
The optimism, however, is premature. The snarls could last years. Moreover, the severe disruptions, however long they persist, will help end the current period of globalization. Interconnectedness, it is now evident, has a steep price.
The backlog is serious. “Companies are waiting for goods they ordered a year ago,” Jonathan Bass, CEO of WhomHome and an onshoring advocate, told me during a recent conversation. “Predictions that we will come out of supply-chain issues in the summer of 2022 are way off base. I think 2024 is more realistic.”
In the meantime, expect empty shelves. Vice President Kamala Harris, while in Singapore in August, suggested Americans do their holiday shopping early. “If you want to have Christmas toys for your children it might now — it might be the time to start buying them because the delay may be many, many months,” she warned. American consumers, living in a land of plenty, will have to get used to scarcity.
These unprecedented problems are the result of a confluence of short-term factors, such as worker shortages, COVID-19 control measures, and an array of misguided government policies on both sides of the Pacific. Bass also pointed out a factor almost never mentioned: “Older ships will soon be heading to the yards to be refitted with cleaner propulsion systems.”
President Joe Biden’s solution is to operate ports 24/7. Yet keeping Long Beach open is only a stopgap measure because the breakdown in logistics also has a fundamental cause: The existence of long supply chains stretching halfway around the world, connecting factories and consumers. These chains are extremely efficient when they work, but they are exceedingly fragile. It did not take much post-epidemic pent-up demand to overwhelm them.
Furthermore, long supply chains are, due to increasing friction with China, bound to become even more fragile. The most recent round of globalization started when countries lowered political barriers to trade after the Cold War. In the euphoria of that period, American and other Western analysts thought that the form of governance no longer mattered, so democracies could, without national-security repercussions, trade with — and thereby strengthen — authoritarian, dictatorial and otherwise hardline states. Now, due to disturbing developments in China, that view is widely discredited.
At the moment, global trade is about 5 percent above pre-COVID levels, but long-term trends will soon pull economies apart.
“The forces driving de-globalization will likely dominate for the foreseeable future, and are hardly confined to the recently exposed national security dangers and political uncertainties stemming from China’s role as the ‘world’s factory,’” Alan Tonelson, a Washington, D.C.-based trade expert, told me.
Tonelson, who blogs at RealityChek, cites the inability of the World Trade Organization to function effectively, high and unstable energy prices resulting from the move away from fossil fuels and Europe’s drive for tech autonomy from both China and the United States. He also notes that the continued spread of automation in manufacturing greatly reduces the cost advantages of low-wage countries and encourages countries like America to make products at home.
Despite the “decoupling,” there will still be a high volume of trade around the world. Many, therefore, say economic and trade ties will continue to serve as “ballast” stabilizing relations.
That view is subject to question. “Does trade increase or decrease the likelihood of conflict?” Samuel Huntington, the late Harvard political scientist, asked in his landmark work, “The Clash of Civilizations and the Remaking of World Order.” “The assumption that it reduces the probability of war between nations is, at a minimum, not proven, and much evidence exists to the contrary.”
As many have now pointed out, high levels of trade did not prevent the First World War. Huntington, building on the work of others, argued that expectation is what’s important. “Economic interdependence fosters peace,” he wrote, “only ‘when states expect that high trade levels will continue into the foreseeable future.’” If, however, trade partners “do not expect high levels of interdependence to continue, war is likely to result.”
Of course, war does not inevitably result when countries de-link economies. Yet the threshold for the use of force will inevitably drop in these circumstances.
De-globalization will occur primarily because of trade and economic factors, but those factors will soon have geopolitical consequences. The world is already tense, and it is bound to become even more so as societies seek economic self-sufficiency.
Gordon G. Chang is the author of “The Coming Collapse of China.” Follow him on Twitter @GordonGChang.