Can They Continue to Serve as 'Global Connectors' in an Increasingly Fragmented Global Landscape?

# Can They Continue to Serve as "Global Connectors" in an Increasingly Fragmented Global Landscape?

## Introduction
Amidst challenges to the current globalization process—including geopolitical conflicts, trade barriers, and supply chain disruptions—Japan's five major trading houses (Mitsubishi Corporation, Mitsui & Co., Itochu Corporation, Sumitomo Corporation, and Marubeni Corporation), favored investment targets of Warren Buffett, are regarded as "connectors" in global trade. Leveraging their vast international networks, resource integration capabilities, and cross-industry influence, these *sōgō shōsha* have bridged global markets for decades. However, with US-China trade friction, the Russia-Ukraine conflict, and the rise of regional protectionism, the global landscape is becoming increasingly fragmented. Whether these trading houses can maintain their role as "global connectors" has become a critical issue in international relations and global governance.

## Background of Global Fragmentation
- **Geopolitical Tensions**: The intensifying US-China decoupling trend, coupled with the EU and US push for "friend-shoring," is shifting supply chains from globalization to regionalization. This undermines the role of traditional trade intermediaries.
- **Increasing Trade Barriers**: Tariff barriers, technology export controls (e.g., in semiconductors), and energy security concerns (e.g., disruptions in Russian gas supplies) are fragmenting global trade.
- **Global Governance Challenges**: The declining influence of the WTO and the stalling of multilateral mechanisms increase uncertainty. These factors test the adaptability of the trading houses.

Buffett began investing in these firms in 2020, acquiring stakes of 8-9%, drawn by their stable cash flows and diversified businesses. Yet, their role faces challenges in this fragmented landscape.

## Strengths of the Trading Houses: Why They Can Continue as Connectors
Japan's five major *sōgō shōsha* possess a unique model enabling survival amidst fragmentation:
- **Global Network and Diversification**: They operate across energy, metals, food, chemicals, and more, with businesses spanning over 100 countries. Through subsidiaries and joint ventures, they build resilient supply chains. For example, Mitsubishi Corporation acts as a bridge in African mining and Asian energy projects.
- **Risk Management Capabilities**: The trading houses excel at hedging geopolitical risks, using futures trading and long-term contracts to stabilize supply chains. During the Russia-Ukraine conflict, they swiftly shifted energy procurement to sources in Australia and the Middle East.
- **Innovation and Transformation**: Facing digitalization and green transitions, they invest in new energy (e.g., hydrogen) and digital platforms to enhance connectivity efficiency. Buffett praised their status as "hidden champions"—low-profile yet highly effective global integrators.
- **Neutral Positioning**: As Japanese entities, they maintain relative neutrality between the US and China, enabling them to act as "third-party connectors," such as collaborating with Chinese firms on Belt and Road projects.

These strengths allow them not just to react passively to fragmentation, but to actively reshape connection pathways.

## Challenges and Uncertainties
Despite their strengths, fragmentation brings risks:
- **Supply Chain Disruptions**: Regionalization trends may diminish their global intermediary role. For instance, US "Chip Act" restrictions on exports to China impact their electronics business.
- **Geopolitical Pressure**: Japan's alliance with the US could lead to trade friction with China, forcing the trading houses to balance relationships. In 2023, Japanese exports to China declined, but the firms maintained connections via workarounds in Southeast Asia.
- **Intensifying Competition**: Emerging players like Chinese state-owned enterprises and tech giants (e.g., Alibaba’s global logistics) challenge the traditional *sōgō shōsha* model.
- **Global Governance Vacuum**: Weakened multilateral mechanisms make it harder for the trading houses to rely on international rules, forcing greater dependence on bilateral negotiations.

If fragmentation deepens, these challenges could erode their connector role, leading to business contraction or failed transformations.

## Outlook: Can They Endure?
Overall, Japan's five major trading houses are likely to continue as "global connectors," but strategic adjustments are needed:
- **Optimistic Scenario**: Through digitalization and sustainability initiatives (e.g., carbon neutrality projects), they strengthen their bridging role. Buffett’s investment reflects long-term confidence; their global revenue share is projected to exceed 70% by 2030.
- **Pessimistic Scenario**: If globalization fragments completely, they may devolve into regional players, losing global influence.
- **Policy Recommendations**: Enhance international cooperation, such as participation in CPTPP and RCEP, and promote global governance reform. The trading houses could partner with governments to advocate for "inclusive globalization."

Amidst fragmentation, the resilience of these trading houses will test the future of globalization. Buffett-style long-term investment may well affirm their enduring potential as connectors.