The topic of making supply chains robust has been a hotly debated issue among protectionists and industrial policy supporters, especially in light of the perceived fragility exposed by the COVID-19 pandemic. While some argue that protectionism can strengthen supply chains by minimizing external risks, a closer examination reveals the flaws in this argument both theoretically and empirically.
On the surface, the idea of diversifying supply chains to reduce vulnerability to external shocks seems logical. Just like not putting all your eggs in one basket, spreading out supply chains across different regions can mitigate the impact of disruptions in any single location. However, the reality is more complex. Dependence on a single supplier can leave firms susceptible to production shocks that can have cascading effects throughout the economy, affecting even those far removed from the initial shock.
In theory, protectionism may actually make supply chains more fragile than under free trade. Empirical evidence supports this notion, as seen in a recent study from Japan during the COVID-19 pandemic. The study found that firms with stronger ties to the global economy had more resilient supply chains and outperformed those with weaker ties. Globalized firms were able to leverage their diverse network of partners to offset supply shocks, while less globally connected firms struggled to adapt.
Ultimately, the argument for protectionism as a means to strengthen supply chains falls short. Instead of imposing trade barriers, allowing firms to freely build and diversify their network of partners in the global economy is more effective in ensuring supply chain resilience. By imposing protectionist measures, policymakers inadvertently hinder firms’ ability to create robust supply networks, weakening the very foundation they seek to strengthen.
In conclusion, the theoretical and empirical evidence suggests that protectionism is not the solution to making supply chains more robust. By understanding the complexities of global trade and fostering an environment that encourages firms to build resilient supply networks, policymakers can better safeguard supply chains against unforeseen disruptions.
Jon Murphy, an assistant professor of economics at Nicholls State University, provides valuable insights into the intricacies of supply chain resilience and the implications of protectionist policies on global trade dynamics.
