Economic nationalism puts global supply chain at risk

Economic nationalism, populist movements and the increased purchasing power of China’s middle class put international supply chains at risk in 2016. According to the Chartered Institute of Procurement and Supply (CIPS) index, a composite indicator of the pressures acting on supply chains worldwide, global supply chain risk has reached its highest level in 24 years.

The CIPS index quantifies assessments from 132 countries across nine different categories to determine global supply chain risk. This year, the index reveals that global supply chain risk rose from 79.14 at the end of 2015 to 82.64 by the close of 2016.

Brexit fallout

In terms of regional results, western Europe witnessed the largest increase in supply chain risk due to the UK’s vote to leave the EU. As a result of Brexit, there were frequent conflicts between retailers and suppliers over the increased cost of imports at the start of the third quarter.

In addition, the popularity of Eurosceptic movements in countries with upcoming presidential elections – France, Germany, and Italy – have contributed to supply chain uncertainty. These movements call for the implementation of restrictive trade measurements, which will likely lead to protectionist trade policies and threaten existing European supply chains.

Likewise, the election of US president Donald Trump, who favours restrictive trade agreements, has contributed to the rise of global supply chain risk. Mr Trump’s protectionist trade proposals and uncertain economic platform have produced a riskier environment for leading manufacturers.

China down

Meanwhile, Asia-Pacific was the highest contributor to global supply chain risk in 2016, fluctuating between 33.566 in the first quarter to 33.168 in the fourth quarter. China’s expanding middle class has reduced the competitiveness of Chinese exports and caused suppliers to move their supply chains to neighbouring countries in south-east Asia with intentions of backshoring.

This year, the CIPS index indicates that the global supply chain risk will continue to rise. “The UK’s decision to leave the European Union and the election of Donald Trump reflect a growing trend of protectionism in the global economy,” says ICIPS economist John Glen. “For this reason alone, supply chain risk is set to increase further in 2017.”

The CIPS Risk Index is operated by commercial data provider Dun & Bradstreet and analyses the socio-economic, physical trade and business continuity factors contributing to supply chain risk across the world. Scores are weighted according to that country’s contribution to global exports.