THE 3D RESET: Deglobalization
A new world order will challenge globalization.Deglobalization explained
A decades-long process of globalization is coming to an end as the world becomes more protectionist*, favoring opportunities closer to home.
Covid-19 and the subsequent lockdowns in 2020 exposed the vulnerabilities of global supply chains*, particularly those that were too reliant on China and Chinese imports. Geopolitical tensions between the US and China—which pre-dated the pandemic—have only intensified, re-emphasizing these risks and exacerbating inflation.
In response to the disruption, we are seeing a new international dynamic emerge. Multinational corporations are diversifying where they produce goods and relocating closer to home; this process is known as reshoring*. This trend represents backtracking from the globalized model of extended supply chains* that have defined international trade in the past few decades. The reorganization of the global value chains, energy transition and higher military spending will be expensive. Meanwhile, less efficient supply chains will also raise costs. As a result, inflation and interest rates are likely to be structurally higher, leading to slower growth.
Key Takeaways
Exposed global supply chains
The existing globalized model of extended supply chains is increasingly being questioned. Multinational firms are considering onshoring, nearshoring, and/or friendshoring production, driven by concerns around supply chain resilience and reliability. Therefore the easy gains - the globalization dividend - could be over as security of supply becomes increasingly important.
Long-term inflationary pressures
As companies pay more to secure their supply chains, margins may come under pressure. These costs will get passed on to the consumer in the form of higher prices. As the tailwind of three decades of globalization fades, a key source of lower inflation may be fading with it.
Increased desire for energy security
Recent spikes in geopolitical tensions, such as the Russia-Ukraine conflict, have accelerated the need for countries to end their dependence on traditional energy sources and strengthened their appetite to make real progress on the energy transition.
D-cipher video series: Deglobalization explained
D-cipher is the video series to help you understand the 3D Reset. In this video, we discuss the long-term trend of deglobalization.
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