In recent years, the rise in protectionism has become a growing concern as more countries adopt strategies to prioritize their domestic needs by limiting exports. This shift in trade policies has significant implications for international trade and global supply chains. The outbreak of the Russia-Ukraine conflict prompted firms worldwide to reconsider their supply chains, and governments took measures to secure essential resources. However, the temporary nature of protectionism measures and their increasing adoption without a defined end point can disrupt trade flows and isolate major suppliers from global supply chains.

Protectionism and Global Food Poverty

Protectionist policies have had a profound impact on the world’s food supply chains, potentially exacerbating global poverty. Following the Russia-Ukraine conflict, 24 countries implemented export bans on essential food items, including wheat, sugar, and oils. These policies affected over 17% of globally traded calories. For instance, Indonesia, the world’s largest palm oil producer, temporarily banned all exports of palm oil to mitigate domestic prices, raising concerns about supply shocks. Malaysia’s ban on chicken exports similarly disrupted Singapore, which heavily relies on imports for its poultry needs.

The adverse effects of protectionism on the world’s poorest countries are particularly pronounced. These nations depend heavily on imports for food security and are more vulnerable to the targeted products. The United Nations has warned that up to 345 million people face acute food insecurity due to the impact of the Russia-Ukraine war on food supply chains. This crisis surpasses the disruptions witnessed during the early stages of the COVID-19 pandemic or the 2008 financial crash, indicating the severity of the situation.

Protectionism and Geopolitical Relationships

Protectionism extends beyond food supply chains and has contributed to the redefinition of global procurement and geopolitical relationships. Initially, protectionist policies were most prominent in specific supply chains, including the food industry, medicines & vaccines where they risked exacerbating global poverty. In 2022, the government of the USA introduced the Inflation Reduction Act, which aims to curb inflation through two main strategies: reducing the deficit and boosting domestic manufacturing, particularly in the clean energy sector. Additionally, the act provides tax incentives for purchasing electric cars that are manufactured in North America and meet specific criteria, such as having a certain percentage of components sourced from the US or its allies. However, this has posed challenges for upstream suppliers and prompted global electric vehicle manufacturers to establish production facilities in the US in order to preserve their market presence. Consequently, countries like Germany, Japan, and Korea from Europe and Asia have raised concerns about the potential for a trade war arising from these policies. Very similar to this is the European Union’s International Procurement Instrument (IPI) which aims to act as a deterrent to protectionism. However, some critics argue that the IPI, which limits non-EU companies’ access to the bloc’s public procurement market, merely perpetuates protectionism under a different guise. In Asia, Indonesia had unveiled its intention to halt exports from December 2022 and December 2023. This move is part of the government’s strategy to prioritize the development of the downstream sector and concentrate on exporting semi-finished or finished products with higher value. By taking these steps, Indonesia aims to boost investments in industries that add more value to its resources and enhance its export capabilities in sectors that offer greater economic benefits. This shift in focus signals the country’s desire to move up the value chain and increase its competitiveness in global markets

The COVID-19 pandemic also witnessed countries resorting to short-term protectionism to secure medical and vaccine supplies. The United States, for example, invoked wartime powers using the Defense Production Act (DPA) to prioritize domestic access to medical supplies for vaccine production.

Although not an official embargo on exports, this approach raised concerns about other countries’ access to essential supplies.

The rise of protectionism reflects broader trends that emerged after the 2008 financial crash and gained momentum during Donald Trump’s presidency with his “America first” agenda. The pandemic further exposed the fragility of global supply chains, amplifying the need for strategic considerations in procurement decisions. This insular approach to global trade, supply chains, and procurement policies directly threatens future geopolitical equilibrium and democracy, challenging the long-held belief that economic ties foster peace. However, it has the potential to encourage innovation in capital-intensive industries where private investment heavily relies on supportive public policies to thrive.

Priorities and Deglobalization

Protectionism has prompted a reconfiguration of familiar supply chain structures, resulting in fewer connections within the global network. While some may label this shift as deglobalization, it is important to recognize that world trade is entering a new phase of trading and supply relationships, rather than simply undoing existing partnerships. Research by the Conference Board indicates that four out of five CEOs anticipate an acceleration in the division of the world into competing economic blocs over the next five years.

This scenario could lead to greater friendshoring, where entities form trade relationships with politically aligned countries, as well as nearshoring and localization efforts to avoid concentration of supply in politically unstable regions. However, an increasingly deglobalized world may have negative implications for procurement and costs. A less-integrated global economy reduces resilience to shocks in individual countries and may contribute to stronger inflationary pressures in the medium to long term.

Road Ahead The rise of protectionism poses significant challenges to international trade and global supply chains. As governments prioritize their domestic needs, it becomes crucial for category managers to proactively address these challenges. By identifying alternative suppliers and conducting early risk assessments, they can mitigate the potential negative impacts of protectionist measures. Staying vigilant and informed about protectionism policies implemented by sourcing countries is essential for reshaping category strategies. Moreover, ensuring business continuity requires considering supplier base diversification and regularly assessing supply chain risks.

In this changing landscape, embracing technologies like blockchain can contribute to building transparency in the supply chain, enabling better identification and management of potential risks. By taking these proactive measures, category managers play a vital role in navigating the uncertainties associated with protectionism and maintaining resilient supply chains.

While the world experiences a shift towards a less globalized economy, it is important to recognize the nuanced nature of these changes. The impact of protectionism extends beyond supply chains, affecting geopolitical relationships and redefining procurement practices. Striking a balance between domestic self-sufficiency and the benefits of international trade is crucial. Procurement professionals are at the forefront of this task, adapting to evolving trade relationships and ensuring the resilience of supply chains in this era of change.