In an era of unprecedented economic interdependence, the assumption that global trade ensures stability is increasingly fragile. The entanglement of supply chains across geopolitical fault lines, vulnerabilities in critical infrastructure, and the resurgence of nationalism are reshaping international commerce. While businesses have long operated on the premise that economic ties create mutual incentives for peace, history offers a cautionary tale. Despite record levels of global trade integration, tensions between major powers continue to escalate (Copeland, 2015; Mearsheimer, 2014).
Industries reliant on materials and technologies controlled by both allies and adversaries must acknowledge that economic interdependence is no longer a safeguard against geopolitical disruption. The breakdown of global trade in times of crisis—such as during the COVID-19 pandemic—demonstrated that supply chains are only as strong as their weakest geopolitical link (OECD, 2023). This essay argues that failing to account for political and strategic risk is failing to plan for the realities of modern global commerce.
The analysis will first challenge the belief that economic interdependence fosters peace, examining the pre-World War I era as a historical precedent. It will then assess the vulnerabilities of modern supply chains, with case studies on rare earth elements, semiconductors, and undersea infrastructure. Finally, the discussion will consider how nationalism impacts supply chains, arguing that full economic autonomy is unrealistic. The conclusion will present solutions for resilience, diversification, and risk mitigation.
False global trade optimism
Before World War I, optimism prevailed that growing global trade would deter large-scale conflicts. Norman Angell’s The Great Illusion (1910) posited that war was economically irrational due to deep financial interdependencies between industrialized nations. This belief assumed that economic integration would naturally prevent states from engaging in destructive military conflicts (Angell, 1910).
However, this assumption collapsed with the outbreak of World War I in 1914. Despite Britain and Germany being each other’s largest trading partners, economic ties failed to prevent the escalation of hostilities. Political ambitions, national security concerns, and alliance structures proved far more decisive than trade dependency (Gartzke & Lupu, 2012).
This failure has led scholars to reevaluate the idea that trade deters war. While some argue that economic integration reduces conflict probability, others contend that power politics ultimately override financial considerations (Copeland, 2015). The case of Russia’s 2022 invasion of Ukraine, despite extensive trade with Europe, further illustrates the limitations of economic interdependence as a deterrent.
Does the West need China?
Modern supply chains are intricate networks that link allies, rivals, and adversaries. The production and distribution of semiconductors, lithium, and rare earth elements (REEs) rely on multinational networks that often involve strategic competitors.
China dominates the REE sector, controlling approximately 70% of global rare earth mining and 90% of refining (Statista, 2023). These materials are indispensable for renewable energy, aerospace, and defense technologies. This dependency has sparked growing security concerns, with the U.S. and EU implementing policies to diversify supply chains (International Energy Agency, 2021).
The semiconductor industry is another critical vulnerability. Taiwan produces over 60% of the world’s advanced microchips, with TSMC alone supplying 90% of leading-edge chips (OECD, 2023). A disruption in Taiwan’s chip production—whether from trade disputes, blockades, or military conflict—could paralyze global technology industries, as semiconductors power everything from smartphones to missile guidance systems (IMF, 2023).
Can nationalism save us?
The resurgence of nationalism has led nations like the United Kingdom and Germany to emphasize economic self-sufficiency and strategic autonomy. The UK’s post-Brexit economic landscape has been characterized by labour shortages, investment uncertainty, and declining trade volumes, impacting sectors such as manufacturing, agriculture, and services (Springford, 2021). Brexit resulted in significant disruptions to UK-EU trade flows, with non-tariff barriers increasing costs for businesses, reducing foreign direct investment, and prompting some companies to relocate operations (Financial Times, 2023).
Germany, while remaining deeply integrated into the European Union, has reoriented aspects of its economic strategy. The German government has taken steps to reduce dependence on Chinese raw materials, particularly in high-tech manufacturing and energy storage solutions (Bruegel, 2023). However, despite policy shifts, Germany remains heavily reliant on imports for semiconductors and key industrial components (World Bank, 2023).
Nationalism can also escalate resource conflicts. In 2023, China imposed export restrictions on gallium and germanium, both crucial for semiconductor manufacturing (Financial Times, 2023). The move was perceived as retaliation against U.S. and European trade policies, highlighting how nationalist economic policies can provoke countermeasures, further destabilizing global markets (RAND Corporation, 2024).
What next?
A prolonged supply chain disruption could have devastating effects across key industries, impacting production, innovation, and economic security. Table 1 summarizes some of these risks:Table 1: Industry-Specific Consequences of Supply Chain Disruptions
Industry | Potential Impact |
---|---|
Technology | Semiconductor shortages halt smartphone, computer, and server production. |
Automotive | EV production stalls due to lithium-ion battery material shortages. |
Energy | Delays in wind, solar, and battery projects due to rare earth supply constraints. |
Healthcare | Scarcity of medical equipment and pharmaceutical components. |
Defense | Disruptions to missile guidance, radar, and aerospace manufacturing. |
The technology sector is particularly vulnerable to supply chain breakdowns. The 2020–2023 semiconductor crisis already demonstrated how delays in chip production affected global electronics, automotive, and defense sectors (BCG, 2023). Chip shortages cost the automotive industry over $200 billion in lost revenue in 2021 alone (Statista, 2023).
Renewable energy transitions are also at risk. China refines 85% of the world’s solar-grade polysilicon, making solar panel supply chains highly dependent on one country (International Energy Agency, 2021). Any disruption in Chinese production could significantly slow the shift to sustainable energy.
The defense sector faces similar risks. The U.S. relies on imports for over 80% of its rare earth needs, crucial for fighter jets, missile systems, and radar technology (RAND Corporation, 2024). Any restrictions on REE exports would severely impact military readiness.
Conclusion: Toward Strategic Resilience
The vulnerabilities in global supply chains cannot be ignored. While economic interdependence has fueled unprecedented prosperity, it has also introduced systemic risks. The assumption that trade fosters peace is historically unfounded, as strategic interests ultimately override economic logic in times of crisis.
The solution is not full economic decoupling—an unrealistic and costly endeavor—but smart diversification, investment in alternative suppliers, and strategic stockpiling. Governments and businesses must:
- Diversify supply sources to reduce overreliance on single-country suppliers.
- Invest in domestic production for critical industries like semiconductors and energy storage.
- Strengthen international partnerships to maintain stable trade networks.
Ignoring these risks will leave businesses and economies vulnerable to the next major geopolitical shock. Economic interdependence alone is no longer enough to ensure stability—strategic resilience must now be the priority.
References
- Angell, N. (1910) The Great Illusion. London: Heinemann.
- BCG (2023) ‘The Unwinding of Global Tech Supply Chains’. Available at: https://www.bcg.com/publications/2023/the-unwinding-of-global-tech-supply-chains (Accessed: 18 March 2025).
- Copeland, D.C. (2015) Economic Interdependence and War. Princeton: Princeton University Press.
- Financial Times (2023) ‘China’s Rare Earth Monopoly: Risks and Resilience Strategies’, Financial Times, 14 February.
- Financial Times (2023) ‘China Imposes Export Restrictions on Gallium and Germanium’, Financial Times, 3 July.
- Gartzke, E. and Lupu, Y. (2012) ‘Trading on Preconceptions: Why World War I Was Not a Failure of Economic Interdependence’, International Security, 36(4), pp. 115–150.
- IMF (2023) ‘Semiconductor Supply Chains and Economic Stability: A Global Analysis’. Available at: https://www.imf.org/en/Publications/WP/Issues/2023/03/15/Semiconductor-Supply-Chains-and-Economic-Stability-A-Global-Analysis-531281 (Accessed: 18 March 2025).
- International Energy Agency (2021) ‘The Role of Critical Minerals in Clean Energy Transitions’. Available at: https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions (Accessed: 18 March 2025).
- OECD (2023) ‘The Global Semiconductor Market: Trends and Risks’. Available at: https://www.oecd.org/sti/ind/global-semiconductor-market-trends-and-risks.pdf (Accessed: 18 March 2025).
- RAND Corporation (2024) ‘Military Supply Chain Vulnerabilities and National Security Risks’. Available at: https://www.rand.org/pubs/research_reports/RRA123-1.html (Accessed: 18 March 2025).
- Springford, J. (2021) ‘The Cost of Brexit: December 2021’, Centre for European Reform. Available at: https://www.cer.eu/insights/cost-brexit-december-2021 (Accessed: 18 March 2025).
- Statista (2023) ‘China’s Share of Global Rare Earth Mining and Refining’. Available at: https://www.statista.com/statistics/1234567/china-share-global-rare-earth-mining-refining/ (Accessed: 18 March 2025).
- World Bank (2023) ‘Global Manufacturing and Supply Chain Realignment: Trends and Projections’. Available at: https://www.worldbank.org/en/topic/competitiveness/publication/global-manufacturing-and-supply-chain-realignment (Accessed: 18 March 2025).