It was once thought that globalisation would integrate everything into complex and varied supply chains, thereby avoiding the need to stockpile parts and materials. It was the age of “just-in-time”, invented by Toyota. But with the pandemic and other catalysing factors, the situation has changed: we are no longer heading towards deglobalisation, a prospect that did in fact loom when cross-border flows fell significantly –more in March and April 2020 than in the Great Depression of 1929–; rather, we have for some months been heading towards re-globalisation, albeit with occasional hiccups.
Cross-border flows –particularly between developed economies, which must of course include China– are recovering faster than expected, especially in terms of trade, capital movements, including cross-border investments (even in China), and in the information/digital realm, despite the unevenness of COVID-19 vaccination campaigns meaning that a significant part of the world will remain unprotected for some time, posing global risks. As far as human travel is concerned –whether for business or pleasure– the recovery is going more slowly; according to the DHL Global Connectedness Index 2020, The State of Globalisation in a Distancing World, it suffered an unprecedented fall with COVID, and the reopening of borders and the reactivation of many travel routes is taking considerable time.
This re-globalisation displays fragilities that are neither easy nor quick to remedy. Time will be required, and it may involve profound changes to some supply chains if the new mantra of ‘just-in-case’ is to be feasible. It will be a different type of globalisation, and whoever fails to engage will be condemned to watching from the side-lines.
We are witnessing a process that involves the abrupt and intermittent expulsion of air, the definition of a ‘hiccup’. The ongoing scarcity and increasing cost of containers, combined with the recovery in global trade flows, was aggravated by the Ever Given accident, blocking the Suez Canal, one of the world’s major arteries, for several days in March. Some raw materials are running out and becoming more expensive. A lack of semiconductors has slowed down various vehicle manufacturers’ assembly lines worldwide, including in Spain. The bottlenecks of globalisation are being laid bare. This, together with an increase in consumption –whether exhibiting new patterns remains to be seen– may contribute to inflation. There is a shortage of wood, of some petroleum-based products, such as plastics, PVC resins, colourings and others, coming on top of the rise in oil prices and other raw materials such as copper.
The bottlenecks that emerged in the first phase of the pandemic (masks, gloves, respirators, etc.) were ironed our relatively quickly, although there is still a high degree of dependence on Asia, especially China and India. But other shortages have arisen involving, for example, the lipids used in the COVID-19 vaccines based on messenger RNA, and plastic tubes and bags. According to the International Federation of Pharmaceutical Manufacturers, the US Defense Production Act, designed to protect US supplies, has aggravated the situation. We are heading towards a more protectionist, more nationalist, more regionalised form of re-globalisation, including in the digital realm.
The bottleneck with perhaps the greatest impact is the one involving semiconductors, because so much –almost everything– depends on them in this age of digitalisation. Cars have become computers on wheels, but chip manufacturers, seeing the drop in car sales, gave priority to other requirements such as electronic devices for remote working and entertainment. The crisis has highlighted the excessive dependence –one that China shares– on Taiwanese chip manufacturers, especially TSMC; this is a geopolitically sensitive dependency, and avoiding it will require major investment. An advanced chip-making plant, known as a ‘foundry’, costs around US$20 billion, and cannot be improvised. TSMC and Samsung are building some in the US and Intel another two in Arizona. The new globalisation involves shortening strategic supply chains, a category semiconductors quintessentially fall into. But they will take years to materialise. China, which imports more microchips than oil in value, has made them a top priority. The greatest challenge is for Europe, once a serious player in the field of advanced chips, but which, as in other areas, let its lead slip. Now it is having second thoughts. An ‘Airbus for semiconductors’?
In this new globalisation –for though its contours are unclear it will not be a simple return to the status quo, but rather a transformation– another crucial bottleneck will involve severe shortages of talent, in terms of human skills, in the new technologies and even in some updated technologies. According to Deloitte, in Europe –although the same thing applies to all the world’s advanced regions– 40% of businesses struggle to fill their vacancies due largely to the lack of people with the necessary training or experience, while 30% of graduates are working in jobs and roles where the skills they acquired at university are not required. There is a mismatch between demand and the supply of talent at a global level. Re-globalisation thus urgently requires national public-private investment in cultivating these in-demand talents. Many governments and companies are addressing the problem. But the time to do so was yesterday, not tomorrow.