International supply chains should be better diversified and should better serve the people

Many want to reduce international supply chains. Indeed, the rules of international trade must be improved and the gains from trade must be more widely distributed among the population. In some cases, local production is preferable. But international trade is still a very important means of promoting prosperity for many people, and foster international cooperation and peace.

It is currently repeatedly argued that international supply chains should be reduced and that a larger part of the value added should be generated in the home country. This is intended to reduce dependence on trade with other countries. In fact, the Covid-19 pandemic in particular has shown that the manufacture of some products is concentrated in a few countries, which quickly leads to supply bottlenecks if there are problems with the supply chains – whether due to a pandemic or other reasons. For example, the production of masks or some important medicines is concentrated in a few countries. But it would now be wrong to shift the concentration of production from other countries to the home countries. For example, in an urgent case it could happen that not a sufficient number of a product – for example masks – are produced in one country. What is most important is to diversify the production of important goods and services so that other countries can step in when problems arise in one part of the world. At present, for example, not all countries are affected by Covid-19 to the same extent at the same time.

Distributing the production of important goods over a larger number of countries would be associated with higher costs. But this can be interpreted as a kind of insurance. Normally a little bit more is paid to be covered in case of an emergency. Until now, much of international trade has been geared – to put it briefly – towards efficiency. In the future, a little bit of efficiency should be dispensed with in order to improve resilience – in other words, resistance to all kinds of risks und deep uncertainties.

Efforts should therefore be made to diversify trade and cross-border investment more widely across the world. In some cases, higher local production is preferable. But it would be wrong to build up additional trade barriers. International trade can bring great prosperity to many people, but the problem is that, in various countries, international trade has probably brought too few visible gains for too many people, or even resulted in job and income losses. A greater diversification of the production of important goods and better rules for international trade could possibly distribute these trade gains better than has been the case in recent years, thereby promoting prosperity, international cooperation and also peace.

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