Re-imagining global connections to build economic resilience

Europe is facing disruptions to its energy supplies. The Middle East and Africa are grappling with grain shortages. And virtually everyone has been struggling to get their hands on semiconductors. As disruptions to flows of vital products become increasingly common, economies and companies have important choices to make. The most fundamental seems to be whether to retreat from global integration or reimagine it.

For many, the temptation to retreat may be strong. From Russia’s war on Ukraine to the Sino-US rivalry, the world order is increasingly contested, and when value chains are global, a single disruption can reverberate across the planet. But, as we show in a new research paper, withdrawing from these value chains would not be nearly as easy as one might assume.

For decades, the world pursued rapid and comprehensive economic integration — and for good reason. By enabling greater specialization and economies of scale, global value chains have enhanced efficiency, lowered prices, and increased the range and quality of goods and services available. By supporting economic growth, this boosted incomes and employment, albeit not for all, helping to lift people out of poverty.

With integration came interdependence. As we show, no region today is even close to being self-sufficient. Every major world region imports more than 25 percent of at least one important resource or manufactured good. In many cases, the figures are much higher. Latin America, sub-Saharan Africa, Eastern Europe and Central Asia import more than 50 percent of the electronics they need. The EU imports more than 50 percent of its energy resources. The Asia-Pacific region imports over 25 percent of its energy resources. Even North America, which has fewer areas of very high dependency, relies on imports of resources and manufactured goods.

This undoubtedly generates risks, especially when it comes to goods for which production is highly concentrated. For example, most of the world’s lithium and graphite, both of which are used in electric vehicle batteries, are extracted largely from three or fewer countries. Natural graphite is highly concentrated not because of reserves, but because more than 80 percent is refined in China. Likewise, the Democratic Republic of the Congo extracts 69 percent of the world’s cobalt, Indonesia accounts for 32 percent of the world’s nickel, and Chile produces 28 percent of the world’s copper. A disruption of supplies from any of these sources would have far-reaching consequences.

One way to boost resilience may be to change our approach to sourcing. Companies can work with one another and with governments, through public-private partnerships, to leverage their pooled purchasing power, strengthen their supplies of vital goods, and help build more sustainable economies. Models of such cooperation are already emerging. The Canada Growth Fund aims to use public funds to attract private capital to accelerate the deployment of technologies needed to decarbonize the economy, including by increasing the domestic production of critical materials such as zinc, cobalt and rare-earth elements. And the First Movers Coalition, comprising more than 50 private companies globally, has pledged to use its collective purchasing power to create markets for innovative clean technologies across eight difficult-to-abate sectors.

Such strategies show that we can mitigate risks and build economic resilience without abandoning the interconnectedness that has enabled more than a billion people to escape poverty in recent decades. Rather than attempt to retreat from the global economy, we must re-imagine it.