Circular Economy and Deglobalization
Enterprise Strategy for a Changing World
Introduction
As companies grapple with the pressing need for decarbonization to address climate change, they must simultaneously confront the emerging reality of deglobalization. Deglobalization is the process of reducing interdependence and integration between countries, often involving the imposition of tariffs and a decline in international trade, investment, and cooperation, as nations prioritize domestic industries and local economies over global engagement.1 The circular economy is an economic model that emphasizes the continual use of resources by designing products for longevity, repairability, and recyclability, thereby minimizing waste and reducing environmental impact throughout the lifecycle of goods.2 As deglobalization gains momentum, circular economy principles are providing an unexpected opportunity for forward-thinking businesses to reduce carbon emissions and to adjust to the greater uncertainty regarding the durability of integrated global value chains.
While many businesses initially embraced circular practices to enhance sustainability and reduce their environmental impact, they are now discovering an unforeseen benefit: increased resilience in a world trending towards deglobalization. As global trade faces mounting pressures from rising tariffs, geopolitical tensions, and waning support, companies that have invested in circular strategies are finding themselves better prepared for this shifting landscape. The circular economy, once primarily viewed as a tool for environmental stewardship, is emerging as a powerful approach to navigating the complexities of a deglobalizing world.
This surprising outcome is rewarding companies that put circular principles into practice. Companies that began their circular journey with a focus on sustainability are now realizing that these same practices provide a competitive edge in an era where open and free trade is losing support and the interdependence between countries that characterized the post-Cold War world is going into reverse. By emphasizing resource efficiency, local production cycles, and closed-loop supply chains, circular business models are proving to be remarkably adaptable to the challenges posed by the new reality of fragmentation.
Circularity Leaders
Several major companies have embraced corporate circularity strategies. Take, for example, Philips, a leader in health technology. The company set ambitious circular revenue goals, aiming to generate 25% of its revenue from circular products, services, and solutions by 2025.3 Initially driven by sustainability concerns, this strategy is positioning Philips advantageously in a changing global economic landscape. By emphasizing repair, refurbishment, and recycling, Philips is not only reducing its carbon footprint but also creating more localized, resilient supply chains that are less vulnerable to global trade disruptions.
Leaders in circularity can be found in other sectors as well. Renault's RE-Factory in Flins, France, Europe's first factory dedicated to the circular economy in the automotive sector, initially focused on sustainability but now helps the company reduce dependence on global supply chains by refurbishing vehicles and remanufacturing parts locally.4 Stellantis set up a dedicated Circular Economy Business Unit in 2022, which, while originally aimed at reducing environmental impact, now helps the company decrease reliance on raw material imports by reusing and recycling materials. They are also creating a 'Circular Economy Hub' at their Mirafiori complex in Italy to centralize these activities.5 BMW Group has defined circularity as a strategic focus area, with efforts to increase use of secondary materials and improve recycling not only reducing their carbon footprint but also decreasing dependence on critical primary raw materials, many of which are sourced globally.6
The imposition of higher tariffs could cause auto parts to become more expensive, potentially making used and refurbished parts more attractive alternatives. This scenario aligns well with the unexpected benefits of circular economy practices in a deglobalizing world. As new parts become more costly, there will likely be more demand for more affordable options like used and refurbished parts, driving growth in the used auto parts market. Importantly, used and refurbished parts are often sourced locally from salvage yards and auto recyclers, creating a localized supply chain that is less vulnerable to global trade disruptions and tariff impacts. This makes it more resilient in a deglobalizing world. The cost savings associated with used auto parts, which are typically 40% to 60% cheaper than new ones, could become even more significant if tariffs drive up the cost of new parts further.
As global trade faces increasing pressures, these circular economy initiatives are positioning leaders in circularity to better navigate the challenges of deglobalization. This dual benefit of circular practices – addressing both decarbonization and deglobalization challenges – is becoming increasingly apparent across various sectors. Companies are finding that their efforts to close material loops and extend product lifecycles are simultaneously reducing their dependence on global supply chains and mitigating risks associated with trade barriers and resource scarcity.
Bringing Offense and Defense Strategy Together
Interesting, circularity can play both offensive and defensive strategic roles as companies navigate the dual challenges of decarbonization and deglobalization. On the offensive front, circular practices directly contribute to meeting carbon reduction goals by extending product lifecycles, reusing materials, and minimizing waste, thus significantly lowering a company's carbon footprint.7 This aligns with growing pressure from stakeholders and regulators to address climate change. Circularity also drives innovation in product design, manufacturing processes, and business models, leading to new revenue streams and market opportunities, such as product-as-a-service models or refurbishment services. Moreover, these practices often result in more efficient resource use, reducing costs associated with raw material procurement and waste management. Companies with strong circular initiatives can also enhance their brand image, appealing to increasingly environmentally conscious consumers and investors.
On the defensive side, circular practices help manage deglobalization risks by enabling companies to become more self-sufficient and less reliant on global supply chains.8 This is particularly relevant in light of potential policies that could significantly impact global trade. By focusing on reuse and recycling, companies can enhance their resource security, reducing dependence on raw materials that may become scarce or expensive due to trade restrictions or geopolitical tensions. Circular models often involve more localized operations, which can buffer against global supply chain disruptions.
As governments implement stricter environmental regulations, including the right to repair and extended producer responsibility, companies with established circular practices will be better positioned to comply and avoid penalties.9 Ultimately, in a deglobalizing world, companies with circular models may be better equipped to adapt to rapidly changing market conditions and trade policies, providing them with greater economic resilience. This dual strategy of offense and defense through circularity positions companies to not only meet sustainability goals but also build resilience against the uncertainties of a changing global economic landscape.
Conclusion
As support for globalization retreats and the risks of tariffs and trade restrictions increase, embracing circular strategies is emerging as a winning approach on multiple fronts. It's not only better positioning companies for the realities of advancing climate change and the need to reduce carbon emissions, but it's also fortifying them against the uncertainties of a world where open and free trade can no longer be taken for granted.
This unexpected alignment between circular economy principles and the needs of a deglobalizing world is prompting a reevaluation of business models and supply chain strategies. Circular logistics is now a capability that must be mastered.10 Companies that may have initially viewed circularity primarily through an environmental lens now recognize its broader strategic value in building resilience and adaptability in an increasingly fragmented global economy.
See: Rich Bulger, Going Circular: The Evolution of Reverse Logistics into a Competitive Weapon, Brown Books, 2024: https://www.amazon.com/Going-Circular-Evolution-Logistics-Competitive-ebook/dp/B0CY2XBBCB