Following COVID and the crisis in Ukraine, free-trade supporters in Davos were concerned about a fresh round of disruption in global supply chains due to rising geopolitical tensions.
The Israel-Hamas conflict, Yemeni rebels targeting ships in the Red Sea, and tensions over Taiwan weighed on political and business leaders during the World Economic Forum’s five-day summit, which ended on Friday.
“There are geopolitical dynamics that are on our minds with respect to obviously the potential disruption of supply chains,” Francesco Ceccato, CEO of Barclays Europe, told AFP on the sidelines of the WEF.
“We thought we had normalised those after Covid. Clearly, that’s a little bit more precarious after … what is happening every day in the Red Sea,” he said.
Before Hamas’ attack on Israel in October, the World Trade Organization predicted world trade growth of 3.3%, up from 0.8% in 2023.
However, WTO chief Ngozi Okonjo-Iweala told the summit this week that she was now “less optimistic” about global commerce in 2024 due to “worsening geopolitical tensions”.
She did, however, say it would be “much better than what we saw in 2023.” “Unless a major war breaks out, all bets are off.”
Disruptions for ‘few months’
The Red Sea waterway accounts for approximately 12% of global maritime traffic, but the attacks have forced many corporations to make a vast and costly detour around Africa’s southern edge.
Iran-backed Huthi rebels in Yemen said they are targeting Israeli-linked ships in protest at the Gaza war.
US and UK military troops have conducted a series of strikes against rebel targets in Yemen.
The Huthis have “changed global trade and global shipping costs,” according to Karen Harris, an economist at the consultancy firm Bain & Co.
According to Vincent Clerc, CEO of Danish shipping giant Maersk, the battle will most likely affect supply networks for at least a few months. Hopefully less, but it could be longer due to the uncertain nature of the situation.”
Tesla and Volvo were forced to temporarily halt certain production in Europe due to a lack of parts.
Sheikh Mohammed bin Abdulrahman Al Thani, Qatar’s prime minister, stated at the Davos conference that liquefied natural gas supplies “will be affected” by the Red Sea conflict.
Taiwan tensions
There are concerns along other major trade routes.
Taiwan’s presidential election last weekend heightened tensions between the United States and China over the democratic island, which China deems to be part of its territory and must be returned to its control, even if by force.
Speaking in Davos, US Secretary of State Antony Blinken emphasized the importance of the Taiwan Strait in international trade.
“If that were to be disrupted, it would affect the entire planet. And it’s about the last thing we need, especially coming back from Covid,” Blinken said.
Taiwan itself is a major producer of semiconductors, the microchips that are vital for a range of products from smartphones to cars.
“Any disruption in the flow of that product is going to be, again, a watch item or a concern,” Ceccato said.
Green and tech trade spats
Microchips are already at the center of a trade spat between Washington and Beijing, with the United States tightening export controls on the technology due to national security concerns.
China is also at odds with the European Union over the latter’s investigation into Chinese electric vehicle subsidies.
On Wednesday, Chinese Premier Li Qiang spoke out against “discriminatory” trade restrictions affecting green and technology industries.
Europe is particularly concerned about the massive subsidies for clean technologies provided by the United States under the Inflation Reduction Act.
However, German Finance Minister Christian Lindner advised the EU against following in the Americans’ footsteps.
“We have to avoid a subsidy race,” Lindner told Friday’s panel.
Panama drought
On top of geopolitical tensions, climate change has also played tricks on global trade.
A drought and water shortages linked to the El Nino weather phenomenon reduced ship traffic through the Panama Canal.
“We have more sources of disruptions,” said Tobias Meyer, CEO of German logistics group DHL.
“It’s more likely that two, three, four of these events somehow accumulate. And that leads then in the system of transport to certain bottlenecks,” he said.
Harris said each disruption “simply reinforces the return on investment for near-shoring, re-shoring” — the act of bringing production home or closer instead of relying on factories across the world.