Globalisation is fragile, but it can defend itself. A study on the lessons from Hormuz against autarky

For years, we have described globalisation using a simple metaphor: a chain. And in a chain, it was said, all it takes is one broken link for the whole thing to collapse. The pandemic, Suez, the war in Ukraine, the Red Sea, Hormuz: every new crisis has fuelled the idea that global value chains are highly efficient in times of peace but irreparably fragile when the world becomes more complicated. A new study by the Bank for International Settlements (BIS) suggests a less intuitive conclusion. Global value chains are vulnerable, but not static. When a major trade route is blocked, businesses react: they draw down stocks, seek new suppliers, change routes, or substitute one input for another. They pay more – sometimes much more – but they carry on producing. A shock at a chokepoint can trigger a sharp spike in prices without an equally sharp fall in output. Globalisation has a capacity to adapt that is often underestimated. The case of the Strait of Hormuz is a perfect example. A huge proportion of the world’s energy passes through a stretch of water just a few tens of kilometres wide. If traffic slows down, oil and gas become more expensive, the prices of many industrial inputs rise, fertiliser costs increase, and shipping routes are lengthened. But the system does not grind to a halt: reserves are drawn upon, production increases elsewhere, and trade flows change. Of course, there is no such thing as a free lunch. Resilience comes at a cost: businesses pay more for inputs, consumers see prices rise, and some sectors suffer more than others. And the more central a route is and the fewer alternatives there are, the greater the damage will be. But therein lies the lesson. The intelligent response to the fragility of global supply chains is not to dismantle them, but to make them less dependent on a single point of failure.

Autarky promises security by doing something that appears simple: bringing everything back home. But for a modern economy, this often means producing less efficiently, spending more and replacing foreign dependence with an equally dangerous domestic dependence. Resilience works differently. It means having more suppliers, more ports, more gas pipelines, more terminals, more electricity connections, more storage options, and more countries from which to purchase what is needed. Economic security does not lie in having fewer ties with the world, but in having enough so as not to be held captive by any one of them. For Italy, this distinction should be almost a matter of industrial policy. We are a country that imports energy and raw materials, processes them, and sells high value-added products worldwide. To think we can protect ourselves from geopolitics through self-sufficiency would be an illusion. Instead, we can protect ourselves through diversification: the Mediterranean, North Africa, the United States, Northern Europe, eastern corridors, regasification terminals, electricity grids, strategic reserves and efficient ports. It is a different kind of globalisation from that of the 1990s. Less naïve, certainly. More costly in some cases. Less obsessed with ‘just-in-time’ and more attentive to ‘just-in-case’. But it remains globalisation. And perhaps the most interesting finding in the BIS paper is precisely this: global supply chains are not strong because they are immune to shocks. They are strong when they have enough alternatives to survive shocks. The open world does not need to become a closed world to be safer. If anything, it needs to become broader.