Protectionism and macroeconomic uncertainty have increased the risks to the world’s supply chains to the highest level in 24 years, according to an index tracking world trade.
The index grew to a record high as Western Europe saw risks to the world economy’s globalised structure increase markedly, according to economists at Dun & Bradstreet.
Companies now rely on globally integrated supply chains for products, but restrictions to trade have accelerated, with the World Trade Organisation reporting a rate of 22 measures per month for regulations impeding free trade.
The fall in the value of sterling after the EU referendum in the UK has added to supply chain risk in Europe, according to the report, with major implications for trade across the Channel. The report also highlights the risks of the UK leaving the Single EU’s Market, although the government has insisted it will be able to secure wide-ranging trade deal after Brexit.
While globalisation has led to millions of people being lifted out of poverty along with much cheaper goods for richer nations, politicians across the developed nations have ridden a wave of anti-globalisation sentiment in the years since the financial crisis.
The election of Donald Trump as US President promises to accelerate this movement. Trump campaigned on a promise to “bring back” millions of jobs supposedly lost to China, and has promised heavy barriers to trade with Mexico.
Firms looking to mitigate the risk of disruptions supply could look to bring operations back to their primary country, avoiding tariffs and other economically nationalist measures.
John Glen, an economist at Chartered Institute of Procurement & Supply (CIPS), which commissioned the survey, said: “Re-shoring supply chains will be an increasingly attractive prospect in the months to come. But these are uncertain times for supply chain managers and there is no quick fix for the months ahead.”
Companies such as air conditioning manufacturer Carrier have already committed to keeping jobs in the US rather than outsourcing in exchange for tax subsidies.
Bodhi Ganguli, lead economist at Dun & Bradstreet, said: “Uncertainty stemming from significant trade and foreign policy changes implemented by the new US government will be one of the main drivers of supply chain risk over the next few quarters. The process of Brexit is also set to start in the first quarter, and will roil the current supply chain environment in Europe.”