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Globalization may be decreasing—not increasing—security of global supply chains

December 1, 2020 | By Anthony Capkun

December 1, 2020 – Globalization may be decreasing, rather than increasing, the security of global supply chains, according to a large-scale study of the risks countries face from dependence on water, energy and land resources.

This research recently caught my attention because, at the start of the pandemic, we were made painfully aware of how dependent we were on the global supply chain for all kinds of things, including face masks.

Researchers from the University of Cambridge used macroeconomic data to quantify the pressures that countries place on natural resources—both within and beyond their borders—through domestic production and international trade.

“This type of analysis hasn’t been carried out for a large number of countries before,” said Dr. Oliver Taherzadeh, who led the research while a PhD student in Cambridge’s Department of Geography. “By quantifying the pressures that our consumption places on water, energy and land resources in far-off corners of the world, we can also determine how much risk is built into our interconnected world.”

They found that the vast majority of countries and industrial sectors are highly exposed—both directly, via domestic production, and indirectly, via imports—to over-exploited and insecure water, energy and land resources. However, the researchers also found that the greatest resource risk is due to international trade—mainly from remote countries.

Their study, published in the journal Global Environmental Change, invites “critical reflection on whether globalization is compatible with achieving sustainable and resilient supply chains”.

Over the past several decades, the worldwide economy has become highly interconnected through globalization; it is not uncommon for each component of a particular product to originate from a different country. Globalization allows companies to make their products almost anywhere in the world, and keep costs down.

While some may argue this offers countries a source of competitive advantage and growth potential, the researchers believe many nations impose demands on already-stressed resources in other countries to satisfy their own high levels of consumption.

This interconnectedness also increases the amount of risk at each step of a global supply chain, they conclude. For example, the U.K. imports 50% of its food; a drought, flood or other severe weather event in another country puts these food imports at risk.

The researchers have quantified the global water, land and energy use of 189 countries, and shown that countries which are highly dependent on trade are potentially more at risk from resource insecurity.

“There has been plenty of research comparing countries in terms of their water, energy and land footprints, but what hasn’t been studied is the scale and source of their risks,” said Taherzadeh. “We found that the role of trade has been massively underplayed as a source of resource insecurity; it’s actually a bigger source of risk than domestic production.”

Countries with large economies, such as the U.S., China and Japan, are highly exposed to water shortages outside their borders due to their volume of international trade, say the researchers.

However, many countries in sub-Saharan Africa, such as Kenya, actually face far less risk as they are not as heavily networked in the global economy, and are relatively self-sufficient in food production.

“Covid-19 has shown just how poorly-prepared governments and businesses are for a global crisis,” said Taherzadeh. If the ‘green economic recovery’ is to respond to these challenges, we need radically rethink the scale and source of consumption.”

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