Jobs, National Security, and the Future of Trade
As world commerce adapts to geopolitical disruption, trade flows are shifting and trade blocs are playing a more prominent role. Learn which steps companies should take to adapt.
- Global trade growth is forecast to grow at 2.8% per year through 2032—less than the 3.1% annual increase forecast for global GDP over the same period.
- Intra-regional trade in North America is forecast to grow by $466 billion, due to a combination of the US Mexico Canada Agreement and new US industrial policies.
- Southeast Asia and India stand to benefit from slowing trade between China and the West. ASEAN global trade will grow by $1.2 trillion and India’s will expand by over $390 billion.
- To stay competitive, companies should strengthen their geopolitical decision-making to help withstand supply chain disruptions, enhance their ability to respond to price volatility and inflation, adopt “fractal innovation,” and turbo-charge their risk and cybersecurity capabilities.
Multiple Challenges Are Inhibiting Trade Growth
The cooler trade climate is part of a reordering of the world trade map that is taking shape in the wake of a polycrisis. A variety of factors are contributing to reshoring of manufacturing around the world, with a predictable dampening effect on global trade.
Industrial policy A leading element is the rise of national policies designed to support domestic industry and job creation. Policies such as the United States’ Inflation Reduction Act (IRA), with its “Buy American” incentives, reflect governments prioritizing national interests over multilateral, rules-based organizations, such as the World Trade Organization. Similar policies can be seen in the European Union and other parts of the world.
Labor economics
Companies in some regions are taking advantage of capable, low-cost labor as well as the availability of new technologies that have enabled them to reshore or near-shore manufacturing operations. For example, the cost gap between US and Chinese labor has narrowed as labor costs in China have risen on a relative basis, while locations such as Mexico, Southeast Asia, India, and Latin America have become competitive with China on labor costs.
Supply chain stability
Faced with risks of disruption and overreliance on extended and brittle supply chains, companies are seeking to diversify their global manufacturing and sourcing networks by moving to markets with lower geopolitical risk, reliable infrastructure and, in some cases, proximity to end-markets.
The more cooperative trade environment that enabled companies to build global supply chains in recent decades is quickly being replaced by a more uncertain world characterized by a mix of smaller regional and local supply chains. In the short term, companies should take several steps to adapt.
Companies can improve resilience by investing in digital tools, such as artificial intelligence, to enable agile decision-making and adaptability. Companies can also take steps such as building buffer inventories of essential commodities, prequalifying alternative suppliers, and planning contingencies for at-risk supply inputs.
Strengthen geopolitical decision-making capability to enable supply chains to withstand disruptions.
Enhance ability to respond to price volatility and inflation
Strategies can include building resilient pricing, such as by sensing demand shifts earlier and developing dynamic pricing capabilities, strengthening customer relationships and contracting flexibility, and exploring new monetization models, including “as-a-service” models and outcome-based pricing.
To help meet the challenges of a fragmenting global trading landscape, companies can address differentiated needs of local customers by adopting a “customer-in” approach and embracing a new way of designing products—something we call fractal innovation.
Become more flexible and adaptable by adopting “fractal innovation.”
Turbo-charge risk and cybersecurity capabilities.
Companies should identify security gaps, prioritize security projects and tools, and consider approaches such as a cyber tool health index, zero-based budgeting, and cyber risk quantification to develop a custom cybersecurity roadmap.
