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The Impact of Global Trade Policies on the Supply Chain Featured

The Impact of Global Trade Policies on the Supply Chain "Support my work via Paypal | https:\/\/bit.ly\/donatemedearferdo"

Trade policies set by governments and other relevant bodies globally significantly impact the supply chain. They affect the movement of goods and services across borders while influencing the economic performance of businesses and different industries. Therefore, the development of policies needs to be done with the potential impacts in mind. With global trade being a critical component of the global economy that allows countries to access goods and services that they may not be able to produce domestically, the policies need to be developed with this in mind because it drives economic growth and development. However, recent trends in global trade have favoured a narrow range of suppliers, with a heavy reliance on a small number of countries, as the pandemic exposed the weaknesses of the current supply chains. This concentration of suppliers poses significant risks to the global supply chain, and there is a growing need for greater supply diversity. This article assesses the impact of global trade policies on supply chains by first looking into the background of global trade policies.

Impact of Global Trade Policies on the Supply Chain

Global trade policies significantly impact the supply chain, affecting the movement of goods and services across borders. For example, free trade agreements like NAFTA and TPP have led to an increase in trade between participating countries, resulting in a more efficient and streamlined supply chain. However, these policies can also negatively affect certain businesses and industries. For example, some domestic industries may struggle to compete with cheaper imports, leading to job losses and reduced wages.

The Risks of Relying on a Small Number of Suppliers

As the pandemic has shown, relying on a small number of suppliers is not only counterproductive but risky to operational efficiency as well. The first challenge we witnessed is that it can make the global supply chain vulnerable to disruptions. Some of these include natural disasters, pandemics like the COVID-19, political instability, or economic downturns. Additionally, a concentration of suppliers in one location can result in a lack of competition, which leads to higher prices and reduced innovation. It can also pose a risk to national security.

The Importance of Supply Diversity

To mitigate these risks, it is important to promote greater supply diversity. This can be achieved by encouraging the development of domestic or local industries, as well as by diversifying the countries from which goods and services are sourced. Additionally, governments can take steps to reduce the dependence on a small number of suppliers by supporting small and medium-sized enterprises and promoting the development of new technologies.

Boosting trade resilience through supply diversification

The disruptions occasioned by the pandemic have shown that relying on a single source of supply is risky. However, diversifying significantly reduces the losses in response to the disruptions. According to IMF, higher diversification reduces volatility when various nations are affected by supply shocks. The IMF simulation indicates that diversification offers protection when there is a major disruption in all economies, such as during the COVID-19 pandemic.

Generally, supply diversification is an important step in boosting trade resilience and mitigating the risks in the global economy. The COVID-19 pandemic has shown the importance of having a diverse and resilient supply chain that has the potential to withstand any form of disruption and shock. Through this approach, nations can minimize their dependence on a few suppliers and ensure a more stable and resilient global economy. On the other hand, governments, businesses and international organizations need to work together to promote supply diversification, develop friendly policy frameworks and build a more robust global trade system.

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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

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