Macroeconomic Outlook Through a Geopolitical Prism

Last month, Gartner held an event for our COO and CSCO communities that included a talk by Harry G. Broadman, Ph.D., a former PwC chief economist, Harvard and John Hopkins professor, chief of staff, Presidents Council of Economic Advisors and U.S. Assistant Trade Representative. We specifically invited Broadman, because, in today’s world, it is impossible to discuss macroeconomic trends in the absence of geopolitical considerations, such as trade, regulation and international conflict.

In the context of supply chain, present and future risks weigh heavily on our business decisions. Tensions in the U.S.-China relationship and reaction to pandemic-era supply shortages have led many in the CSCO community to pursue geographic diversification in their supply networks.

A resurgent focus on cost optimization has joined mitigating geopolitical risk as a key reason for shifting the network. More recently, we have seen a tilt eastward in the building of new supply capacity. In our 2024 CSCO Community Survey, Southeast Asia, India and Eastern Europe represented three of the top four locations cited as recipients of network moves.

The session with Broadman spanned key economic and geopolitical trends in Asia, Europe and North America, as well as the interplay between regions. He also shared perspectives on how supply chain leaders can incorporate these trends into their strategic plans.

Here are some key takeaways from the discussions at this event.

• Regarding China, Broadman noted that the fundamental contradictions of the “socialist market economy” are surfacing more than any time since Deng Xiaoping’s launch in 1978. Prevailing conditions include overbuilt housing and infrastructure, upside-down demographics, eroding domestic confidence, deflation and a 6% year-over-year decline in consummated foreign direct investments. 
• India shows great promise as a place for business and supply chains but is still “punching below its weight” due to internal political economy and bureaucratic challenges. Economic reforms have been slow and there are areas such as port and logistics management that have not had sufficient investment and oversight, leading to inefficient transshipments, particularly in the East.
• Southeast Asia, which includes Indonesia, Thailand and Vietnam, among others, has an opportunity to be China 2.0 with an educated and increasingly skilled workforce, growing reliance on market-driven incentives and robust trade agreements.
• European economic growth is expected to be nearly flat year-over-year, in part due to weak export performance. In the United Kingdom, it is estimated that Brexit policy shaved 2% to 3% off GDP versus a hypothetical “remain” scenario.
• Broadman described the U.S. political environment as “acidic” and saw it as unlikely to improve post-elections. He saw President Biden’s Supply Chain Resilience Initiative as myopic, by only focusing on supply-side issues. U.S. trade policy, even on existing agreements, is the most dormant it has been in decades. One bright spot has been an adept monetary performance by the Federal Reserve.

• Outside of a 2021 spike in Regional Trade Agreements (RTAs) yielded by the Regional Comprehensive Economic Partnership (RCEP), the free-trade agreement among Asia/Pacific countries, the number of new RTAs has been on the decline since the late 2000s.
• That said, new RTAs do not always mean opportunities for new or more efficient supply chains due to factors such as “rules of origin” and whether the location of “final product transformation prior to sale” is inside or outside of a free trade agreement.
• Broadman spent a considerable amount of time in China as part of trade delegations and as a senior executive for the World Bank. One flaw he sees in Western business leaders’ approach toward China is treating the country as monolithic. For instance, understanding the provincial and city-level political economy gameboard can unlock opportunities from localities that are more open to dealmaking.

• Based on his time spent advising corporate boards, Broadman sees many supply network shifts pitched solely as risk mitigation plays, which excludes a new opportunity for innovation and growth.
• He also believes that businesses, investors and policymakers are not distinguishing enough between one-time economic shocks, cyclical movements in markets and secular changes in the economy. While it is a complex exercise to discern these individual patterns, doing so as part of strategic scenario planning can be a source of competitive advantage.

Stan Aronow
VP Distinguished Advisor
Gartner Supply Chain
Stan.Aronow@gartner.com