Resilience isn't costless but even the private sector is in need of it

The mitigation of disruption risks will impose costs that governments and private companies alike may find unavoidable

- NIRANJAN RAJADHYAKSHA

The global economy is dominated by an intricate web of supply chains that move products almost seamlessly across national boundaries. This system has served the world well for more than three decades, but is now under attack. The disruptions during the pandemic were an advance warning. The escalating tariffs imposed by US President Donald Trump on his country's important trade partners is now upending that system.

Much of the attention right now is focused on the macroeconomic effects of the trade shock, or what the higher tariffs could do to the world trading system, economic growth, job creation and inflation. However, if the world economy eventually settles into a new equilibrium with more protectionism—as it likely will—then it would also be useful to figure out what the impact will be at the microeconomic level on the factory floor, company balance sheets and production costs.

We may be in the early stages of a profound move from efficiency to insurance, from planning for a predictable world to planning for a world of disruptions. Much of this is captured in a single word—resilience. The essence of resilience is a focus on stocks rather than flows.