The end of World War II marked a new beginning for the global economy; it propelled transnational trade into new heights and paved the path for major global trade agreements leading to the sophisticated globalization we depend on today. It wasn’t until early 2020, during the COVID lockdown, that people across the world started to recognize how interdependent, complex, and fragile the global economy has quietly gotten over the decades.
As countries and companies across the globe scramble to solve the current supply chain crisis, the world is forced to question the delicate subject of globalization. In the early stages of COVID, countries struggled to secure desperately needed essential medical equipment and protective gears to properly handle the pandemic. When economies started to reopen and demand for goods returned, the persisting supply-chain bottlenecks made it impossible for companies to deliver and adequately quench the ever-growing consumer thirst. Most recently, Russia’s invasion of Ukraine and the disruption it had on the international export market, particularly on oil and wheat, has further exposed the current supply-chain problems and the consequence of an unstable globalized system, which doesn’t seem temporary nor is it limited to just the pandemic. The sum of these recent, yet significant events highlight the fragility of globalization and its dangerous implication on those who have total reliance on the interconnectivity of the global market.
This ongoing supply shortage crisis particularly has plagued the semiconductor industry and it has hindered, even crippled production across many different sectors. Even though it was long before the pandemic, the growing geopolitical tension between the US and China had worried many business participants that rely on the industry’s stability and its supply chain’s predictivity. It wasn’t until the recent global crises that the consequence and pain of unchecked globalization was truly felt. In response, industry leaders, such as Intel CEO Pat Gelsinger and CEO Sanjay Mehrota of memory chip maker Micro Technology, have been sounding the alarm louder and urging lawmakers to swiftly fund the CHIPS Act (a law that would provide chipmakers with $52 billion in subsidies to advance semiconductor manufacturing in the United States). Additionally, Intel recently announced a $40 billion project to expand its Arizona campus and build two factories in Ohio. The company sees this as a vital step forward to reverse the outsourcing that has reduced the country’s semiconductor output from 36% in 1990 to a recent figure of just 10% of the global production. Similarly, automakers, battery manufacturers, and several companies in both solar and biotech industries have been reevaluating their dependencies and announcing plans to bring manufacturing and assembly footprints back home.
There is no denying for the last 70+ years the world has soared under the explosion of transnational trade. Economic globalization has increased competition, given enterprises the option to reduce cost, allowed countries to specialize, and ultimately the world to thrive. But COVID-19 and the recent geopolitical crises have shown us in the absence of peace, in the midst of pandemic and uncertainties, globalization is frail and unreliable. Perhaps in the coming months and years we will continue to see more companies make the proper investments to mitigate the reliance on other countries and develop a moderate form of interdependence. Eventually, this could lead to an evolved globalization that values stability and guarantees predictability as much as cost reduction. Such forward thinking and prudent supply-chain diversification will certainly minimize, and perhaps even insulate the impact of global crises on the of US economy.
Thomas Nuzzi
Equity Trader
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