Fragmented global supply chains coming?

From the March-April 2025 edition of Supply Chain Management Review.

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Fareed Zakaria conducted an interesting January interview with World Trade Organization (WTO) Director General Ngozi Okonjo-Iweala during an episode of his GPS (Global Public Square) CNN show from Davos 2025. The annual meeting of the World Economic Forum is where leaders from over 130 countries discuss the global economic challenges and opportunities that might lie ahead. Since the majority of the discussions dealt with the so-called Trump Tariffs, Zakaria focused the conversation with Okonjo-Iweala on their impact on global trade. Here are the major points I took away.

• The WTO’s “Most-Favored-Nation” (MFN) principle requires member countries to generally treat all trading partners equally, per a free-trade approach. About 80% of today’s trade among members is conducted in this way. She stated that global free trade has been very resilient over the past several decades. From 1995 to 2023, total trade in goods & commercial services grew to $30.4 trillion (growing an average of almost 6% annually). However, for the past five years protectionism among several members has started to rear its ugly head.
• Many members are currently worried about trade wars. She noted we saw this “movie” before the Great Depression. So, the WTO has been advocating greater transparency among members to foster a mature dialogue than what took place then—essentially tit-for-tat tariffs. 
• In 1929, the U.S. Congress passed the Smoot-Hawley Tariff Bill that “aimed to protect U.S. industries by raising tariffs on thousands of goods.” It had a negative outcome, worsening the effects of the
• Great Depression.
• Right now, it appears global trade is moving toward two geographically divided trading blocs. The director general estimated that if this happened, it would result in a loss of 6.4% in global GDP.

The interview reminded me that I needed to update the Insights column titled: “Flat Future? Don’t Bet on It” (September 2008). It was inspired by American political commentator Thomas L. Friedman’s book, “The World Is Flat: A Brief History of the Twenty-First Century.” Through interviews with technology and supply chain professionals, it painted quite a rosy picture of seamless global supply chains. However, these experts generally loved solving problems in logistics; and are especially bullish in the knocking down of borders to get products to customers faster and more efficiently.

Per the column’s title, I did not believe we would see a perfectly “flat” world. I pointed out that my (now deceased) predecessor for the Insights column, Professor Emeritus Bernard “Bud” La Londe, cautioned readers in his SCMR Insights column dated July/August 2005 that technology alone could not make the flat world a reality and discussed “surface bumps” along the road. I recommended that supply chain managers needed to hedge their long-term bets on some “non-flat” possibilities, e.g., “protectionism” happening as well.

In 2004 I began working at MIT’s Center for Transportation & Logistics to help launch the Supply Chain 2020 (SC2020) Project. The project was tasked with assessing future supply chains in the year 2020. The project used a scenario planning approach in which the flat world was just one of three possible future scenarios. I then followed up the September column with a column titled, “Scenario Planning for a Successful Future” (October 2008).

In this column, I will summarize recent news over the past several years that is leading to worries about a trend away from free trade, and toward protectionism. This will be followed by reintroducing the three future scenarios developed during the SC2020 Project—and what you might need to do with them.  

Globalization is in the news

The following six publications and quotes paint a free-trade picture that many are concerned about.

1. “How the Coronavirus Will Reshape World Trade” (Wall Street Journal, June 19, 2020). “In the post-pandemic world, more economic activity will be designated vital to national security, accelerating pressures on globalization,” it said.
2. “The Messy Unwinding of the New World Order” (WSJ, Nov. 4, 2022). “The post-Cold War promised a globe stitched together by markets and cooperation among nations. That system has fallen into disorder, and left the world with rising inflation, trade conflict, military confrontation, and gnarled supply chains,” it said.
3. “Supply Chains Ready for New Global Era” (WSJ, April 25, 2023). “Companies adapt their operations to changing market pressures, geopolitics,” it said.
4. “Companies Try to Navigate Woes In Supply Chains” (WSJ, Oct. 31, 2024). “A new generation of strategies and technologies to manage risk is growing as the strains in supply chains persist following the upheaval during the COVID-19 pandemic that left many companies scrambling to plug gaps simply to remain in business,” it said.
5. “The Waning Power of Globalization” (Bloomberg Businessweek, November 2024). “Manufacturing, long the world’s economic engine, is no longer driving miracle growth,” it said.
6. “Is Deglobalization Even Possible?” (Bloomberg Businessweek, February 2025). “That prevailing metaphor that the world is getting smaller and flatter, that borders will open and free trade will grow—has been under assault for the past decade. Over the last few months, it may have collapsed for good,” it said.

Frankly, the supply chain failures during the COVID-19 pandemic had cast a long, dark shadow with the too-lean just-in-time (JIT) global chains that my generation developed. During the pandemic, countries found themselves lacking in the basic supplies of everyday living: food, clothing, shelter and health services. See Maslow’s Hierarchy of Needs in Insights titled: “Supply chain heroes and lessons from COVID-19” (September/October 2020).

Prior to the pandemic, globalization since 1980 was touted as raising the economic plight of extremely poor people (those living on less than $1 a day). This population declined by 375 million people—for the first time in history (several 100 million in China alone). Thus, efficient supply chains before the pandemic were viewed positively. Certainly, shortages were largely responsible for the current negative view. Also exposed was the risk to national security. 

Global trading blocs

The WTO’s director general mentioned that it appears that global trade is moving toward two geographically divided trading blocs: How about more? For example, in the “Flat World” column, I posited three or four trading blocs centered on economic powerhouses such as the U.S., the European Union, China and Japan. During an APEC CEO Conference USA 2023 event, President Joe Biden “made America’s case to national leaders and CEOs attending … that the United States is committed to high standards in trade and to partnerships that will benefit economies across the Pacific.” “We’re not going anywhere,” he declared. So, my educated guess is that Asia/Pacific might have one for powerhouse China affiliates as well as for U.S. and Japan partners.

I’m hoping that the world blocs form around the concept of goods flowing primarily North-South and not East-West. That is: Africa as part of an EU-centered bloc; South America as part of the U.S.-centered bloc, and Asia-Pacific as part of the China and or U.S. & Japan-centered blocs. Today’s East /West global supply chains have too many long-supply routes due to outsourcing. North-South chains would have shorter domestic and near-shoring supply routes. This would be good for sustainability and climate change and foster greater real-time collaboration among trading partners in adjacent time zones.

Each bloc would have its own rules and regulations regarding free trade vis a vis protectionism. For example, inside a bloc, free trade might exist for basic human needs. Countries outside the bloc would be subject to substantial tariffs on these and other goods and services. I suspect oil, natural gas, coal, and other commodities, such as copper and steel, would be closer to freely traded. In addition, rare earth elements used in high tech would garner stiffer tariffs, especially for non-member countries.

Should the world wind up with multiple trading blocs, companies will need fragmented global supply chains comprised of several supply chains, each one tailored to serve each bloc. This may force companies to start strategy projects envisioning these segmented chains.

The SC2020 scenarios

This can be done using the scenario planning approach espoused by the MIT SC2020 project, including the three scenarios developed by it: Synchronicity, Spin City, and Alien Nation (see Figure 1).

Synchronicity is a world that very much resembles the flat world. It is a world in which globalization and democratization are the norms, as are trustworthiness and integrity. In essence, it’s the future world everyone hopes to be living in. Alien Nation is the opposite. It’s one in which people think and act locally with a high level of mistrust and security concerns. Global trade is restrained by nationalistic pride, protectionism, and limited immigration. Europeans often said it was  “old Europe.”

 

Lastly, “Spin City” lies between these two worlds. It is one in which governments intervene on a selective basis, through a web of conflicting regulations designed to protect some industries, while leaving others open to free trade. Globalization exists, but it is highly regulated. This resembles, for example, times in which governments intervene during economic hard times and when unemployment issues arise. These are what the WTO is concerned about. Additionally, the future might be a composite of the three worlds—with blocs following different trading scenarios.

Applying scenario planning

As I wrote in the October 2008 Insights column, scenario planning involves two major steps. The first step involves assessing how to be successful while living in each of the future scenarios. What achieves success in one future world, such as Synchronicity, may not turn out to be successful should another unfold, such as Alien Nation. It is important to understand when successful strategies for one scenario might turn out to be detrimental in another.

This step involves thinking about winning supply chain strategies for each future scenario for four important aspects. Start off with the demand side by thinking about implications for future products and services. This entails assessing what products will be successful, how to foster future innovation, and the extent to which intellectual property (IP) can be protected. For example, protecting IP might be harder under Alien Nation and easier under Synchronicity. Also consider to what extent global (versus regional) brands will be successful, and what types of product customization and services will be needed to be competitive.

From the demand-side strategies, one moves on to assess the implications for the supply network needed to support and enhance these winning products and services. An assessment might include successful deployment of vertical versus outsourcing strategies, which place greater reliance on suppliers. Coupled with this is the extent to which international suppliers can be counted on in a future world where global trade might be somewhat constrained.

Next, think about the investments that are needed to develop the capabilities required to achieve success. Investments in training, technology, and infrastructure will differ depending upon winning products and services and the supply network. Lastly, this is followed by assessing the implications for the organization and culture. For example, the extent to which a scenario limits open global trade will affect the type of organization, culture, and capabilities needed.

Once winning supply chain strategies have been developed for each scenario, the second step in planning for an uncertain future involves assessing how each winning strategy will fare in the other scenarios. For example, how successful will a strategy developed for Synchronicity be in the Alien Nation scenario?

Recommendations

Deciding on what supply chain strategies to deploy for each trading bloc is considered long-term decision-making under uncertainty. (See Insights column “Decision-making under uncertainty: A primer,” May/June 2022). Thus, a payoff matrix needs to be established for each trading bloc, which shows the payoffs (e.g., revenues, market shares, or profitability) for each alternate strategy to be deployed when each of the three future scenarios occurs. These type of strategy projects will take a long time to do and involve a lot of resources.

Will it be worth the effort? Probably, because as posited by the WTO director general, two global trading blocs are estimated to result in a loss of 6.4% in global GDP. Three or four blocs would likely result in significantly more GDP losses. If your company does nothing about it competitively, it stands to lose a significant amount of global business. I recommend supply chain managers start helping it cut its losses, while there is still time to do so.

About the author

Dr. Lapide is a lecturer at the University of Massachusetts: Lowell and formerly an MIT Research Affiliate. He has extensive experience in industry, consulting, business research, and academia as well as a broad range of forecasting, planning, and supply chain experiences. He was an industry forecaster for many years, led supply chain consulting projects for clients across a variety of industries, and has researched supply chain and forecasting software as an analyst. He is the recipient of the inaugural Lifetime Achievement in Business Forecasting & Planning Award from the IBF. He welcomes comments on his columns at Lawrence_Lapide @uml.edu.

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