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Slowbalization: Close-knit economies

Slowbalization steers the world from global village to regional hotspots, reshaping economies, supply chains, and job markets.

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Quantumrun Foresight
September 9, 2024

Insight summary

Slowbalization signals a turning point in global economic dynamics, as countries gradually shift from wide-reaching globalization to a more region-focused model. This change is primarily driven by geopolitical tensions and the need to minimize risks from global dependencies. The transition involves significant adjustments in supply chains and trade policies, potentially reshaping labor markets, environmental strategies, and political alliances for years to come.

Slowbalization context

Slowbalization marks a significant shift from the rapid globalization that characterized much of the 20th and early 21st centuries. This trend suggests a slowing pace of economic integration and global trade stemming from geopolitical tensions and growing nationalist sentiments. According to a 2022 paper published in the Cambridge Journal of Regions Economy and Society Trade, trade openness, a metric measuring the sum of exports and imports relative to global gross domestic product (GDP), has stagnated since the global financial crisis of 2007-2008. This deceleration indicates a move towards a more multipolar economic structure where regional powers and alliances gain prominence over global integration.

The forces driving slowbalization include political fragmentation, trade protectionism, and technological decoupling, which are reshaping international trade and production networks. According to research by financial institution Morgan Stanley, this restructuring of global supply chains is leaning towards "friend-shoring," which prioritizes trade among allies and regional partners. This shift could benefit countries like Mexico, India, Vietnam, and Turkey, which offer low labor costs and proximity to major markets like the US and the European Union (EU).

The reconfiguration of supply chains to more regional and localized models is driven by a need to mitigate risks associated with global interdependencies, as highlighted by recent disruptions like the COVID-19 pandemic and the geopolitical tensions exemplified by Russia's invasion of Ukraine. This realignment requires substantial investment and strategic planning, as industries such as semiconductors and clean tech may need to overhaul their supply chains significantly, which Morgan Stanley analysts predict could take up to a decade or more for a complete transition.

Disruptive impact

As companies shift their supply chains closer to home, jobs in manufacturing and production may become more available in local markets, potentially reducing opportunities in traditionally lower-cost regions. This shift could lead to higher wages and more job security in developed countries while presenting challenges in developing nations that have relied heavily on foreign manufacturing jobs. Moreover, individuals may need to adapt to new economic realities by acquiring skills related to industries experiencing growth due to regional economic shifts.

Companies may need to reevaluate their global footprints, considering more localized or regional supply chain models to reduce dependencies and increase resilience against global disruptions. This shift can lead to increased costs in the short term as firms invest in building local infrastructure and capabilities. However, in the long run, having supply chains closer to key markets can reduce lead times, lower transportation costs, and allow companies to respond more quickly to market changes and consumer preferences.

Governments may face the challenge of reshaping policies to support a more multipolar economic landscape. Trade policies may shift towards facilitating more regional and bilateral agreements rather than focusing solely on global trade liberalization. Infrastructure investments may be crucial to enable efficient local and regional manufacturing and distribution networks. Furthermore, governments may need to develop new frameworks for economic cooperation that strengthen regional alliances while managing the complexities of a less globally integrated economy, ensuring that these policies foster long-term stability and growth within their regions.

Implications of slowbalization

Wider implications of slowbalization may include:

A shift toward local sourcing and production, leading to reduced global transportation needs and lower greenhouse gas emissions.

Consumers gaining a greater appreciation for domestically produced goods, leading to increased support for local businesses and economies.

The government enacting stricter labor laws to ensure fair wages and working conditions as industries repatriate, leading to improved social equity.

Companies investing in automation technologies in local factories, leading to increased manufacturing efficiency and reduced reliance on labor-intensive practices.

The rise of regional economic blocs, leading to increased political stability and cooperation between neighboring countries.

Increased costs of goods where local production is more expensive, leading to higher consumer prices.

Education systems adapting to focus more on skills relevant to industries predominant in the region, leading to a workforce better tailored to local economic needs.

The government establishing new regulations to support small and medium-sized enterprises in transitioning to local supply chains, leading to enhanced economic resilience.