Sat, May 02, 2026 page7

• The hidden chokepoints threatening the global economy

  The closure of the Strait of Hormuz offers another stark reminder of the potential for concentrated supply chains to trigger cascading global crises

  • By Diane Coyle
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  The closure of the Strait of Hormuz is just the latest in a series of major supply shocks the global economy has experienced since 2020. Yet each time, the resulting shortages appear to catch policymakers off- guard. From personal protective equipment at the start of the COVID-19 pandemic to fertilizer and sulfur today, the key chokepoints and complex supply-chain interdependencies that cause these shortages remain poorly understood, often becoming visible only once crises are already under way.

  The downstream consequences of the current crisis have yet to materialize and might take months to be fully felt. No sulfur means no sulfuric acid, which in turn threatens copper production in Chile. Meanwhile, surging fertilizer prices are likely to hit food supplies and drive up consumer prices later this year, disproportionately affecting import-dependent economies.

  This raises a critical question: What other bottlenecks and shortages would emerge in the years ahead? One might have expected governments to improve their monitoring of supply-chain vulnerabilities, yet despite repeated disruptions, progress in mapping these networks and building resilience has been limited. As a result, the global economy is bound to be caught unprepared once again.

  

  Illustration: Kevin Sheu

  To be sure, there has been some progress since the pandemic. The Organisation for Economic Co-operation and Development’s value-added trade database, for example, provides useful insights into flows of components, goods and services, shedding light on the hidden structure of global production networks.

  However, it remains a supplement to traditional trade statistics, offering aggregated data that extend only to 2022, and therefore, capture only a small part of a rapidly evolving landscape. Real-time visibility thus remains out of reach for most governments.

  Other initiatives, such as the Observatory of Economic Complexity, offer more granular data, including on individual firms. Some vulnerabilities are now well-known. Most notably, Taiwan dominates advanced semiconductor production through Taiwan Semiconductor Manufacturing Co which accounts for more than 90 percent of the global supply of advance chips.

  Even so, governments must do far more to identify their economies’ weak points and confront those vulnerabilities head-on. Many essential inputs are produced in highly concentrated markets, often in just a handful of countries. And given that even simple or cheap components can be indispensable further up the supply chain, a seemingly minor disruption can quickly cascade into a major supply crisis that reverberates through the global economy.

  Consider, for example, the bicycle industry: Most bikes rely on components made by Japanese manufacturer Shimano, which has struggled in recent years to keep up with demand. Similarly, automotive supply chains are dominated by specialist suppliers, with one or two firms often accounting for most of the sector’s output.

  While such dependencies are well-known within these industries, policymakers rarely follow the trade press, where problems tend to surface first.

  With roughly two-thirds of global trade in manufactured goods consisting of intermediate components rather than finished products, this is far from a niche concern. Globalization has created vast and intricate supply chains that turbocharged economic growth while deepening interdependence. As Adam Smith observed in The Wealth of Nations 250 years ago, specialization drives prosperity, but it also depends on the size of the market: There is little point in producing 1,000 pins a day instead of 100 if demand for pins does not grow.

  While globalization has expanded markets beyond national borders, many specialized components have no alternative producers. Their market is ultimately capped by global demand for the final product, leaving little room for diversification on the supply side and making sudden shocks harder to absorb or offset.

  The stakes are enormous. A delay in receiving a new bicycle is inconvenient, but disruptions to food and water systems or medical supplies would have far more serious consequences.

  Encouragingly, some policymakers have begun to identify strategically important sectors. Heightened geopolitical uncertainty has spurred investment in domestic manufacturing capacity, most notably in semiconductor production in the US. However, the persistence of supply-chain chokepoints underscores the need to rethink industrial policy. In particular, policymakers should think more broadly, including seeking to reinforce existing strengths, rather than focusing narrowly on emerging technologies such as clean energy and artificial intelligence.

  However, supply-chain vulnerabilities remain largely overlooked in policy debates in most countries. That could be a costly mistake. With further disruption all but certain, governments must be able to move fast to secure vital inputs and contain emerging risks. Economic resilience is now inseparable from national security. Countries that fail to build a flexible, robust production base will learn that the hard way.

  Diane Coyle, professor of public policy at the University of Cambridge, is the author of Cogs and Monsters: What Economics Is, and What It Should Be and The Measure of Progress: Counting What Really Matters.

  Copyright: Project Syndicate
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