Recent missile attacks on ships travelling through the Red Sea have put supply chains back in the headlines. It is the latest in a line of recent trade disruptions that started with the dislocation of supply chains during the COVID-19 pandemic. These problems were exacerbated in 2021 when the Suez Canal was blocked for six days by a container ship, the Ever Given, which ran aground. In February 2022 Russia’s invasion of Ukraine caused severe disruption to shipping in the Black Sea, and Ukrainian grain exports, causing grain prices to soar.

Now Houthi rebels in Yemen are attacking ships in the Red Sea as part of an escalation in regional tensions over the conflict in Gaza. The Red Sea route via the Suez Canal is an artery of global trade, accounting for about 15% of seaborne freight. The attacks have halved container traffic through the Red Sea forcing some freight to re-route via the Cape of Good Hope, adding 20 days to journey time, and some high-value goods to be shipped by air. Container freight rates have more than doubled since 1 January prompting fears that the disruption will give a fresh impetus to inflation.

For now the risks to the global economy seem contained. The disruption to trade comes at a time of weakening growth in Europe that limits the ability of companies to pass on higher costs to consumers. Freight rates have risen but are at a fraction of the peak levels seen in 2021-22. Shipping costs are a relatively small proportion of overall consumer costs. The fact that the oil price has not reacted, and is lower than on the eve of the Israel-Gaza conflict, suggests that the effects of the attacks in the Red Sea have so far been relatively limited.

This would change if the conflict were to widen, or drag on. At a time of elevated economic uncertainty, the Red Sea attacks represent a new and unwelcome risk to growth.

The Red Sea attacks, like US-China tensions and Russia’s war in Ukraine, are straining the old economic order. Western policymakers have responded by seeking to build national resilience, for instance, by reducing trade dependence on potentially hostile states and diversifying supply chains.

In the golden era of globalisation of the early 2000s ‘offshoring’ production to take advantage of cheaper labour was all the rage. Now, with the global international order fraying, the talk is of reshoring, near-shoring or friend-shoring. Western governments want shorter, more diverse and more resilient supply chains.

Change is indeed happening. But a recent study by the Bank for International Settlements (BIS) suggests that the new supply chains that are emerging are just as vulnerable, and even longer, than the ones they replace.

Direct trade between the US and China has indeed weakened in recent years, pointing to a reorientation of American trade away from its principal rival. Yet, instead of sourcing products from other countries, the BIS finds that US companies are continuing to buy Chinese products through other Asian economies. There are simply more links, or countries, in the supply chain. The counterpart to the decline in the share of direct trade between the US and China has been an increase in trade between China and other Asian economies, notably India and Vietnam, and, in turn, a rise in trade between those countries and the US. Courtesy of lengthening supply chains, US-China trade links remain strong and, increasingly opaque.

The BIS study suggests that an age of geopolitical tension has given rise to greater complexity, not to an unwinding, of supply chains. Not only does the US remain dependent on China, longer supply chains spell greater cost and reduced transparency in product sourcing.

We seem to be a long way from diversified and resilient supply chains sought by Western governments. On the contrary, dependence persists, but with greater complexity and cost. Unwinding globalisation is proving difficult, and costly.