Balancing US Security and Free Trade to Promote Growth

The tumultuous disruption of global supply chains, first crippled by the pandemic shutdowns and then further disrupted by war in Europe, has accelerated the collapse of the ever-weakening, decades-long consensus for global trade and economic globalization. 

The pandemic and the subsequent lockdowns reduced economic activity around the world, idling parts of supply chains that other parts needed to maintain production, undermining the resiliency of supply chains in an interconnected world. 

The initial impact of the pandemic, the war in Ukraine, extensive economic sanctions, and Russia’s weaponization of supply chains has been compounded by global labor shortages, China’s zero-COVID lockdowns and global trade institutions’ inability to provide a level playing field for competition as China’s economy developed. These crosscurrents have coalesced to further erode the already weakening confidence in global supply chains and a global trading system. 

For many companies, that means a push toward diversification and resilience, even redundance, in their supply chain management practices, including bringing supply chains closer to customers, reversing earlier trends toward globalization. And for major trading countries, and particularly for the US, that means a further intensification of trade policy focusing on regional and bilateral trade and a turn toward more broad consideration of on-shoring manufacturing of critical technologies and components. 

The reversal of globalization, or deglobalization, threatens to increase inflation given major transition costs and movement of factories and supply chains potentially to more expensive markets. Moreover, it may slow global growth due to inflationary pressures but also because of inefficiencies created by destroying comparative advantage of economies in production and trade through suboptimal placement of business assets. 

However, all is not lost. Our public policy experts provide a roadmap for achieving resilient supply chains and free but secure trade, so that the US economy can continue to grow and prosper and provide equal opportunity for all Americans during these very challenging times.  Key tactics include: 

1. Making reshoring feasible by reducing regulatory barriers, offering tax credits, and investing in infrastructure and R&D.
2. Expanding near-shoring opportunities beyond the USMCA through drafting of more free trade agreements in Central and South America.
3. Expanding friend-shoring options through diplomacy and investments in Asian and African economies. 

For a deeper dive on policy options to promote growth through trade and security, see A Road Map to Achieving Free but Secure Trade with Resilient Supply Chains.