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Political Dimension

// RESULTS OF THE ANALYSIS OF the Political Dimension

MEGATREND: PROTECTIONISM

TRENDS FOR PROTECTIONISM*

01

Currently, 43 World Trade Organization members have a total of 1425 tariff quotas in their commitments. Most impacted industries are food and agriculture and steel. The evolution of tariffs and quotas depends mainly on political and economic factors. Decisions regarding international trade are subject to Trade Agreements between countries or supranational groups. Geopolitical tension has been a major factor driving the use of higher import and export tariffs (e.g., USA-China trade tensions, Rusian-Ukranian war, etc.)

01

Import tariffs
and quotas

Import tariffs <br>and quotas
02

Average corporate tax revenues as a share of total tax revenues increased from 12.6% in 2000 to 15.0% in 2019, and average Corporate Income Tax (CIT) revenues as a percentage of GDP increased from 2.6% in 2000 to 3.1% in 2019. The averages mask considerable differences across jurisdictions. In 2019, jurisdictions differed considerably in the portion of total tax revenues raised by the CIT. Financial engineering for multinational enterprises can be limited through international tax agreement harmonisation. The World Economic Forum identifies 12 measures that can promote sustainable and inclusive Global Value chains [1].

02

Different tax
structures

Different tax<br> structures
03

The subsidies have been used as a defensive measure to the increase of exportation tariffs. Despite international agreements, subsidies are common in all sectors, used by countries at all stages of development, take many forms, and affect all countries. National and sub-national entities provide subsidies through—to name a few forms—direct grants, tax incentives, and favourable terms for financing, energy, land, or other inputs [2]. Some governments look for social advantages and decides subsidies for the green items and taxes for non-green items.

03

Subsidies

Subsidies

*Each trend is represented by some of the statistics that have been collected during the first part of the project.

RISKS FOR SUPPLY CHAINS FROM PROTECTIONISM

The probability (P) and impact (I) of the different risks identified are categorized according to 5 degrees (very low🔵, low🟢 , medium🟡, high🟠 and very high🔴). The risks have been assessed during the project based on literature analysis and validated with support of experts.

// RESULTS OF THE ANALYSIS OF THE POLITICAL DIMENSION

MEGATREND: POLITICAL INSTABILITY

TRENDS RELATED TO POLITICAL INSTABILITY*

04

It is estimated that up to 26% of global exports could potentially be relocated in the next five years, amounting to up to US$4.6 trillion [3]. The latest Global Terrorism Index 2023 report [4] shows that although the number of terrorist acts has decreased, the number of victims has increased overall. According to Statista's Cybersecurity Outlook, the global cost of cybercrime is expected to grow in the coming years, rising from $8 trillion in 2022 to more than $23 trillion in 2027 [5].

04

Terrorism / Conflict / Corruption

Terrorism / Conflict / Corruption
05

Social unrest is rising in both advanced and emerging and developing economies, adding risks to the global economy. There are 37 countries with high pre-existing levels of unrest and poor recovery capacity that face a ‘perfect storm’ of instability over the next 2-3 years [6]. These countries are mostly located in Africa and Latin America. Despite all, social unrest is lower than pre-pandemic levels.

05

Social unrest

Social unrest
06

Democracy is characterized by political stability, law and protection of rights, transparency and governance, participation and dialogue, and respect for labour and social rights. During the last decade, democracy is falling in favour of autocratic regimes [7]. The level of democracy enjoyed by the average global citizen in 2021 was down to 1989 levels [8]. The number of democracies in the world reached an all-time high in 2016, with 96 electoral democracies. In 2022, their number has fallen to 90 countries.

06

Decline
in democracy

Decline<br> in democracy

*Each trend is represented by some of the statistics that have been collected during the first part of the project.

RISKS FOR SUPPLY CHAINS FROM POLITICAL INSTABILITY

The probability (P) and impact (I) of the different risks identified are categorized according to 5 degrees (very low🔵, low🟢 , medium🟡, high🟠 and very high🔴). The risks have been assessed during the project based on literature analysis and validated with support of experts.

// RESULTS OF THE ANALYSIS OF THE POLITICAL DIMENSION

MEGATREND: SUPRANATIONALISM

TRENDS RELATED TO SUPRANATIONALISM*

07

There has been a noticeable shift in the approach to trade agreements from a multilateral to more bilateral and regional perspectives. Bilateral agreements involve negotiations between two countries, while regional agreements involve multiple countries within a specific geographic area. The turn towards Regionalism may foster Regional Free Trade Agreements (FTAs). An example of this shift is the US stance of placing less emphasis on the pursuit of multilateral agreements than on bilateral or regional agreements [9].

07

Trade Agreements

Trade Agreements
08

In September 2022, the European Commission proposed introducing a Single Market Emergency Instrument (SMEI) to secure critical supply chains in times of crisis. The idea behind this proposal is to understand the supply chains as public infrastructure. Covid-19 has shown the dependence on international supply chains. The pandemic provoked panic reactions, and internal border restrictions for the movement of persons and goods [10].

08

Free movement

Free movement

*Each trend is represented by some of the statistics that have been collected during the first part of the project.

RISKS FOR SUPPLY CHAINS FROM SUPRANATIONALISM

The probability (P) and impact (I) of the different risks identified are categorized according to 5 degrees (very low🔵, low🟢 , medium🟡, high🟠 and very high🔴). The risks have been assessed during the project based on literature analysis and validated with support of experts.

Suggested References:

[1] P. Fajgelbaum, P. Goldberg, P. Kennedy, A. Khandelwal, and D. Taglioni, “The US-China Trade War and Global Reallocations,” Cambridge, MA, Dec. 2021. doi: 10.3386/w29562.

[2] R. Piazza, J. Eugster, M. MacDonald, and F. Jaumotte, “The Effect of Tariffs in Global Value Chains,” IMF Working Papers, vol. 2022, no. 040, pp. 1–33, 2022, doi: 10.5089/9798400201158.001

[3] J. Manyika, S. Smit, and J. Woetzel, “Risk, resilience, and rebalancing in global value chains,” Aug. 2020.

[4] Institute for Economics and Peace, “Global Terrorism Index 2023,” https://www.economicsandpeace.org/wp-content/uploads/2023/03/GTI-2023-web-170423.pdf, 2023.

[5] A. Fleck, “Cybercrime Expected To Skyrocket in Coming Years,” https://www.statista.com/chart/28878/expected-cost-of-cybercrime-until-2027/, Dec. 02, 2022.

[6] M. Hribernik and T. Campbell, “Emerging markets face unparalleled civil unrest,” Jul. 2020.

[7] Institute for Democracy and Electoral Assistance, “Global Democracy Weakens in 2022,” https://www.idea.int/news-media/news/global-democracy-weakens-2022, Nov. 30, 2022.

[8] V. A. Boese, M. Lundstedt, K. Morrison, Y. Sato, and S. I. Lindberg, “State of the world 2021: autocratization changing its nature?,” Democratization, vol. 29, no. 6, pp. 983–1013, Aug. 2022, doi: 10.1080/13510347.2022.2069751.

[9] K. Hopewell, “Trump &amp; Trade: The Crisis in the Multilateral Trading System,” New Political Economy, vol. 26, no. 2, pp. 271–282, Mar. 2021, doi: 10.1080/13563467.2020.1841135

[10] European Commission, “Towards a green, digital and resilient economy: our European Growth Model”, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_1467, Mar. 02, 2022.