Redundancy in International Trade
The global pandemic has brought issues in international trade to the fore with many labeling this the beginning of the end of globalization, at least with regards to essential goods like healthcare equipment. But is going alone really a smart thing to do? Before that a quick detour.
Have you ever wondered how your favorite digital services always seem to stay online with minimal downtown? OK, if you are a computer networking person then you probably already know this. The way your favorite digital services ensure they stay up is NOT by having a giant supercomputer somewhere running all the programs. That is actually a very unreliable way to keep things running smoothly. Everything breaks down occasionally, even giant supercomputers. The way your services ensure they are always online is by distributing the same load across many smaller computers. So, if one breaks down then the others pick up the slack.
Back to international trade. Can we apply the same kind of thinking? Obviously trying to become more isolationist and going it alone is not a very smart strategy. It is akin to building a single supercomputer to run your services. What happens when it breaks? Or when locusts eat up your raw materials? Or when terrorists hijack your only PPE producing plant?
Depending on a single major trading partner is probably also as problematic. If you depend on random country C for a fundamental portion of your supplies then you have the same single point of failure problem. What do you do if country C becomes unavailable for some reason?
The smart thing to do, is to be like your favorite digital services. Build redundancy by having lots of different partners and of course building some capacity yourself. That way you minimize the risk of a complete collapse and increase resilience. In essence, the answer to the question “What should we do to build resilience after corona?” is not to become more protectionist but to have more international trade with more partners.
Listen to more thoughts about this on one of my favorite podcasts.