Text and photos: Juan David Latorre
The current complex geopolitics is exponentially complicating global trade and supply. The Diplomat spoke with Eva Ballesté Morillas (adviser to the Spanish Club of Exporters and Investors) to give us her opinion on the topic.
International trade has been and continues to be essential for the prosperity of nations. This was envisioned by the fathers of economics, Adam Smith and David Ricardo. Empirical evidence has also demonstrated this. Since the middle of the 20th century, global trade has enabled unprecedented growth in global prosperity, both in developed countries and in developing and emerging economies.
Globalization and the efficiency brought about by global value chains would not have been possible without the adoption of internationally accepted rules of the game and the free trade policies adopted by countries regarding international trade and investment. These two factors are being undermined as a result of the 2008 financial crisis, the US-China rivalry, COVID-19, the invasion of Ukraine and Gaza, and Trump’s policies, among other factors. This is causing international trade to gain prominence as a source of conflict between countries.
Economic security and the protection of trade routes are vital to ensuring stability in a country. The main risks revolve around supply chains (including energy), the physical and cybersecurity of infrastructure, technology and its preservation (preventing leaks), and commercial or investment assets.
Currently, the strong growth of emerging economies such as China, India, and Brazil, along with the deterioration of multilateralism, are shifting economic power, creating new dynamics that are posing a real challenge globally. While these countries have contributed to the increase in international trade, their dynamism and strong specialization have positioned them as a critical part of global supply chains. As is well known, specialization leads to the integration of processes, which in turn leads to significant economies of scale, so competition in international markets has substantially tightened.
At the same time, the geopolitical context in which we find ourselves—one with growing rivalry between the US and China, tariffs on Europe, armed conflicts, and military tensions in a hyperconnected world—is leading countries to less collaboration and to redesign their supply chains so that, although somewhat more costly, they are, above all, resilient. The current “world order” is strongly conditioning the development of trade, which affects the stability of countries and encourages decisions aimed at protecting their national industries.
In the case of Spain, it is important to provide incentives for companies to expand their size and have resources “for the trade war” because these are the current international markets, markets of economic warfare that require resources, planning, capacity, and synergies to win. It is advisable to encourage business clusters or strategic alliances to compete abroad and to try to strengthen foreign technological cooperation because it would enhance the innovative capacity of our products and services. As a country, we have high value-added products and services, and now is the time to position them in global value chains, thus creating and consolidating a more robust national reputation as a collective brand. In this way, we can also attract high value-added foreign investment and foster national strategic interests by supporting Spanish direct investment abroad. In line with the above, it is important to continue investing in training human capital for internationalization and economic, competitive, and geopolitical intelligence, while also establishing policies to attract talent to this activity.
.- What role do embassies and consulates play in gathering strategic economic information?
Embassies and consulates, especially trade offices abroad, have always played an important role in promoting bilateral economic relations between countries. To this end, they have employed trade promotion tools (e.g., ferias, trade missions, etc.) for the collection and analysis of information (market studies, analysis of legal and tax barriers, identification of potential buyers, etc.) and for the resolution of conflicts between exporters and investors and national authorities.
Currently, due to the rise in geopolitical tensions, uncertainty regarding economic and supply issues has increased substantially. Therefore, it is necessary for embassies and consulates to make an additional effort to collect and analyze information. While previously the relevant information was primarily commercial in nature (demand, supply, competitors, distribution channels, tariffs and local regulations, etc.), today this information must be supplemented by issues such as sanctions and retaliation, trade negotiations with third parties, local impediments to supply, climate risks, regional armed conflicts, etc.
Their role is vital in gathering strategic information of national interest. They also contribute as prospectors of investment opportunities for their country, as well as in anticipating potential risks. Embassies and consulates support international trade in multiple ways, such as providing reliable access to local networks. Organizing trade missions and meetings with potential partners are key assets when working in foreign markets. For example, diplomatic representations work closely with exporting companies so that they have preliminary advice and guidance to avoid unnecessary risks. They also provide support in crisis situations, such as conflicts or natural disasters that may occur during international operations.
Monitoring the economic situation of the country where the Spanish Diplomatic Corps is stationed is a highly relevant strategic asset for Spanish companies, as they have reliable contacts who can connect them with the business community and local authorities, as well as anticipate risks that are not easily intercepted with commercial experience.
The role of commercial diplomacy as a channel for implementing internationalization policies to promote business both in Spain and abroad is highlighted. It is also worth highlighting the crucial role that diplomats play in the geopolitical framework and in conflict resolution, which favors and stimulates the investment climate and the competitiveness of Spanish companies when entering international markets.
– Based on your experience in sectors as strategic for a country as transportation, energy, and infrastructure, what would you say are the main challenges facing international trade in these sectors today?
Globally, there is a significant reorganization of the global supply chain. This is particularly noticeable in strategic sectors and components at the production level, such as microchips, telecommunications, textiles, renewable energy, and the pharmaceutical industry. In the short to medium term, supply chains are focused on resilience and less prioritize cost efficiency, in an environment characterized by geopolitical fragmentation, less collaboration between countries, and inflationary tensions.
There is a growing search to bring key parts of production closer together and gain greater control over processes in a contingent and adaptive business environment where operational risks arising from potential unexpected events that cause disruptions, shortages, or drastic cost changes in the supply chain of key goods must be reduced. Other challenges include labor shortages, decarbonization and the inclusion of renewable fuels, as well as continued virtualization of certain supply chain processes and reducing dependence on external components and attempting to relocate production closer to consumer markets. In production, equipment manufacturers face the following challenges that will impact the supply chain: sharply increased competition, increased regulation, massive product customization, demand for connected products, and the need to introduce recycling costs, which is introducing significant operational risks into businesses, reducing margins, and impacting cash flow.
.- What challenges do digitalization, artificial intelligence, and the data economy pose for economic diplomacy, and how can they impact the competitiveness of Spanish companies?
At the dawn of the 21st century, international trade and investment have undergone a radical transformation due to globalization, technological advances, and the opening of cyberspace and the cognitive environment. In a new environment, with very poorly defined borders, where organizations and companies face greater and more intense competition and increased uncertainty caused by international geostrategic tensions.
Navigating international trade in the current geopolitical environment demands greater strategic flexibility from organizations and companies. Accurate and qualified information is needed on the complex and variable set of opportunities, risks, and threats that affect their success and survival. Public administration, especially those related to international economic diplomacy, should help companies, especially SMEs, use new technologies effectively.
Artificial intelligence offers real possibilities for generating added value in knowledge generation. For example, generative AI makes it possible to process enormous and growing amounts of data, which can lead to an understanding of today’s complex geopolitical dynamics. It can help identify the best opportunities for strategic collaboration between countries and avoid conflicts by anticipating cause-and-effect relationships that are not as predictable as they seem. AI can also contribute to strengthening governance in cyberspace, or the intangible space where data is shared, business is conducted, social interaction takes place, and where more and more public and private actors operate.
Everything will depend on the ability of states to create a solid, well-regulated governance structure around defense, intelligence, truthfulness, and privacy, among other variables, establishing clear strategies regarding the model to follow and maintaining traceability at all times. It is a reality that emerging technologies are contributing to changing the distribution of power in the world. Fortunately, and as always, the diplomatic corps will be closely monitoring the situation.
.- What is the School of Economic Intelligence and International Relations of the UAM?
The School of Economic Intelligence and International Relations of the UAM (La-SEI-UAM) is a university center within the Autonomous University of Madrid. It specializes in teaching undergraduate and graduate courses on economic intelligence, competitive intelligence, and geopolitical intelligence: concepts, analysis methodologies, and more.
The SEI is a clear commitment to public-private collaboration between the State, universities, and companies for a common cause: defending Spain’s interests both within and outside our borders.
The Spanish economy is one of the most open in the world (the value of foreign trade in goods and services accounts for almost 100% of GDP). In a world of growing geostrategic tensions, it is essential to train people capable of identifying and analyzing economic and political risks that affect our companies and the country in general.
At its inception, the School was supported by the UAM’s Institute of Forensic and Security Sciences (ICFS), which paved the way for it to attract and retain outstanding teachers and researchers in intelligence in general and economic intelligence in particular, whether academics or practicing professionals. The ICFS is supported by the CNEC (National Center of Excellence in Cybersecurity) and the European Network of National Centers of Excellence (European Commission).
An Advisory Council was subsequently established to oversee the strategy to be followed with a clear objective: to defend the economic interests of our country by promoting public-private collaboration and high-quality intelligence training and information.
