the return of protectionism policymakers in many countries are increasingly concerned at the smooth functioning and security of global supply chains. the covid - 19 pandemic and heightened geopolitical tensions following russia's war on ukraine and its people have exacerbated these issues. the imposition of sanctions on russia by a number of countries suggests that a more fragmented international system could replace previous norms of ever more open markets and increasing interconnectedness. in particular, strategic geopolitical rivalries may decrease the weight that policymakers place on economic gains from global integration. this dynamic, along with factors such as natural disasters, climate change - induced volatility and terrorism mean that supply chain disruptions could be a new normal. such disruptions have fostered a narrative that countries and regions could be better off by reducing their exposure to foreign shocks, which propagate into their economies through integration into global value chains. there is a renewed focus on the efficiency - resilience trade - offs inherent in international trade. that is, whether the gains from lower - cost imports adequately compensate for greater susceptibility to shocks transmitted across borders. i have previously highlighted that resilient systems are in the interest of the community as a whole, and particularly during a time of disruptive change. our ability to respond to the pandemic was a clear illustration of the benefits of building - up stocks of resilience. in order to increase security of supply and reduce “ excessive dependencies ”, the eu has recently enacted legislation to spur the local production of key manufacturing inputs. these initiatives seek to help europe achieve open strategic autonomy, or the ability to protect its interests and adopt its preferred economic, defence and foreign policy without depending heavily on other foreign states. this is a stated policy objective of the european commission. similar legislation is being enacted around the world, such as the inflation reduction act in the us. these legislative initiatives underscore the shift towards an emphasis to reduce exposure to global supply chains including through the greater use of domestic inputs, the shortening of value chains and through the further diversification of input sources. the potential effects of global fragmentation the imf and other international institutions are warning that there are potentially considerable negative effects from a fragmentation of global trade along geopolitical lines. in an early study, the oecd estimate that greater localisation increases vulnerability to both external and domestic shocks. this is contrary to proponents of localisation, who believe that any increase in suscept

could help reduce the depth of fragmentation. we should avoid excessively weakening europe ’ s long - established state aid rules, as reduced foreign competition will ultimately undermine reshoring policies by giving local firms greater market power. it could also lead to demands for support in other industries, which are not the focus of reshoring initiatives. our analysis also indicates that if locally produced inputs are inferior to their imported counterparts, the economic costs of reshoring could be substantial. as such, policymakers should focus localisation policies on goods where there is already an existing comparative advantage in production. or, at least, where the distance from the technological frontier is not too large. and, with regards to friend - shoring, policymakers should seek greater ties with regions that are not potential competitors for goods. for example, many countries have similar aims to europe for increased production of semi - conductors. this competition may induce trade tensions in future. finally, perhaps the most important issue for policymakers is to understand the trade - offs and to be able to articulate them clearly when explaining their choices to the wider community. resilience, of course, matters but ultimately, interconnectedness has given the world prosperity, opportunity and stability, notwithstanding its challenges. so we all have to be vigilant and avoid turning the reasonable quest for greater autonomy into an excuse to retreat behind borders. all of us need to understand, be aware of and manage the risks posed by the quest for autonomy and having greater – or indeed taking back – control. a focus on building resilience while maintaining vigilance, understanding and awareness will help us avoid the risk of sleepwalking into a world of diminished expectations and the relative impoverishment of future generations. thank you for your attention and i look forward to an engaging discussion. [ 1 ] i would like to thank daragh clancy and robert kelly for their contribution to my remarks. [ 2 ] makhlouf, g. ( 2021 ), “ birth, growth and towards maturity : macroprudential policy in ireland ”, remarks at the esri, 8 november 2021. [ 3 ] antras, p. ( 2020 ), “ de - globalisation? global value chains in the post - covid - 19 age ”, nber working paper no. 28115. [ 4 ] cigna, s. et al. ( 2022 ), “ global value chains : measurement, trends and drivers ”, ecb occasional paper no. 289