The past 2 years of the covid pandemic, the disruption in supply chain, the Russian invasion of Ukraine have impacted on the globalization as we know it because these factors have strongly contributed to redesigning the map of geopolitical and economic relations at a global level by shifting priorities for international affairs and international trade.
Today globalization is no longer driven only by the economy but a new element showed up: political risk.
"Freedom is more important than free trade", declared Jens Stoltenberg, Secretary General of NATO, and with this principle the new globalization is being reconfigured on the basis of new relations between countries perceived as "friends", safe and secure, and on the basis of new political, economic and military alliances as a consequence of the complex fracture that today opposes the front of the Western countries with the front of the new Russian-Chinese alliance.
Reshoring and nearshoring
A first reaction to the competing rivalry between the 2 main economic powers, USA and China, was that of Reshoring by American companies in China which have progressively limited or suspended expansion and investments in the middle kingdom and transferred their production capacity back to the USA, more than offsetting the initial costs with the projection of long-term benefits such as reduced lead time, reduction of customs tariffs, better quality of the product made in the USA, more effective distribution logistics.
A second reaction was that of Nearshoring, to diversify production as per the former China+1 model, which envisaged not to concentrate investments only in China but to evaluate alternative solutions in markets where, in the face of reduced production costs, one could count also on the local strong domestic consumer market (as in the case of Vietnam and Malaysia), and to consider a similar model called USA+1 where +1 in this case is represented by 3 markets close to the United States such as Mexico (that along with the USA and Canada is part of the USMCA free trade agreement, a new version of the previous NAFTA), the Dominican Republic and Puerto Rico (which is an unincorporated territory of the United States).
New confrontations, new alliances
Globalization therefore remains an essential function of economic growth now being revised according to a new geography and new development methods. Today’s new global scenario, with the new redesigned pro-Western marketplace, sees an Atlantic alliance led by the USA with the UK and the European Union, strengthened under the NATO military alliance and expanded to include countries considered “friends and pro western” and that agreed to inflict economic sanctions to Russia as a result of the war in Ukraine: Australia, New Zealand, Japan, South Korea, Singapore and Taiwan. Russia is no longer a market of interest for Western companies (trade has been eliminated, over 300 foreign companies have suspended all activities in the country, air links with Russia fully suspended) and besides the pending constraint of energy dependence still in place once these will be gradually removed Russia will no longer be a prime economic partner for the West. And new alliances are being forged between blocks of countries united by common, shared and shareable interests and principles.
US President Biden launched IPEF (Indo-Pacific Economic Framework), in Tokyo on May 23rd, 2022, a strategic partnership between the USA and 13 countries that alltogether represent 40% of world’s GDP (7 from the ASEAN marketplace + Australia, New Zealand , India, Japan, South Korea and Fiji).
The first purpose is the diversification of supply sources, reducing dependence from China, and making use of the resources of the 7 ASEAN countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam), the new manufacturing hub developed after reshoring from mainland China and repositioning the supply chain.
This will also allow to restore efficient manufacturing and logistics according to JIT strategy (Just In Time), dramatically penalized by the disruption of the supply chain in the last 2 years and that will lead to the new BDT model (Best Delivery Time).