The hidden water debt in every import

Nearly four billion people face water scarcity, yet the global economy continues to move vast quantities of water across borders through trade in food, textiles, and manufactured goods. According to UNESCO’s 2025 United Nations World Water Development Report, global freshwater demand could increase by up to 30% by 2050, even as severe water shortages already affect nearly half the world’s population for at least one month each year. Yet despite those pressures, international supply chains remain heavily dependent on water-intensive agriculture, mining, manufacturing, and semiconductor production concentrated in some of the world’s most water-stressed regions.

The result is an increasingly fragile global economy in which water scarcity is becoming intertwined with industrial policy, migration pressures, and geopolitical competition. New research from Chatham House argues that international trade still treats water as an undervalued input despite its growing role in economic security. As governments attempt to reduce dependence on geopolitical rivals and secure domestic production capacity, water availability is emerging as a factor that may increasingly influence where industries operate, what countries export, and how supply chains are organized.

The global trade in “virtual water”

One of the central ideas driving the debate is “virtual water,” the hidden volume of freshwater required to produce goods that are then traded internationally. UNESCO estimates that agriculture accounts for approximately 70% of global freshwater withdrawals, meaning that when countries export products such as wheat, beef, rice, or almonds, they are also effectively exporting the water used to grow and process them.

A December 2025 analysis from Chatham House found that many major agricultural exporters are simultaneously among the countries facing rising groundwater depletion and severe climate-related water stress. In practice, this means water-scarce regions are often exporting highly water-intensive products to wealthier economies with greater purchasing power.

The imbalance is particularly visible in global food systems. According to the Water Footprint Network, producing one kilogram of beef requires an average of roughly 15,000 liters of water, while a kilogram of rice can require more than 2,500 liters depending on irrigation methods and local climate conditions. California’s almond industry, which supplies roughly 80% of the global almond market based on data from the California Department of Food and Agriculture, has faced mounting scrutiny during recurring drought periods because almond cultivation can require approximately 12 liters of water per nut. Similar concerns have emerged around cotton production in Central Asia and irrigation-intensive farming in northern India, where export-oriented agriculture has contributed to groundwater depletion in already water-stressed regions.

The issue increasingly extends beyond agriculture. Semiconductor manufacturing, artificial intelligence infrastructure, and hydrogen production all depend heavily on reliable freshwater access. Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, reported consuming more than 63 million metric tons of water in 2024, according to the company’s sustainability disclosures. The figure illustrates the extent to which advanced industrial production, often discussed primarily through the lens of technological competition, also depends on increasingly constrained environmental resources.

Water stress and industrial competition

Water scarcity is becoming more closely tied to broader economic fragmentation and industrial policy. The World Economic Forum’s Global Risks Report 2026 identified pollution and environmental degradation among the most severe long-term global risks, while water shortages and ecosystem stress were highlighted as growing drivers of economic instability, displacement, and social tension.

At the same time, governments across the United States, Europe, China, and the Gulf are investing heavily in strategic industries including semiconductors, batteries, clean energy manufacturing, and large-scale data infrastructure. Many of these sectors require substantial water inputs throughout both construction and production processes.

According to the World Bank’s Global Water Security and Sanitation Partnership 2025 Annual Report, global water demand is expected to increase by approximately 20% to 25% by 2050 due to industrial expansion, urbanization, and rising consumption levels. The report also estimates that water-related losses already cost some countries as much as 6% of GDP through impacts on agriculture, health outcomes, and reduced productivity.

This creates a growing tension between industrial expansion and environmental capacity. Efforts to localize production for geopolitical or economic security reasons may collide with water limitations that constrain where large-scale manufacturing can realistically be sustained. In parts of the southwestern United States, concerns over groundwater depletion have already complicated debates surrounding semiconductor fabrication plants and battery manufacturing facilities. Similar pressures are emerging across northern China, India, and sections of the Middle East, where industrial ambitions increasingly compete with agricultural and urban water demand.

Water, migration, and instability

Water insecurity is also becoming more closely connected to migration and political instability. UNESCO reports that droughts have increased by nearly 30% since 2000, while climate-related disruptions continue to intensify pressure on food systems and rural livelihoods.

In regions where agriculture remains a major source of employment, prolonged water shortages can contribute to rising food prices, declining incomes, and population displacement that strain already fragile governments. The World Economic Forum warned in its 2026 report that environmental pressures increasingly act as “risk multipliers,” intensifying existing economic and political vulnerabilities rather than operating in isolation.

Water infrastructure itself is becoming more strategically significant as reservoirs, irrigation systems, desalination plants, and hydroelectric dams underpin both economic activity and social stability. The UNESCO report also warned that rising water stress is increasing competition over shared freshwater resources, particularly in transboundary river basins that support hundreds of millions of people. Disputes surrounding the Grand Ethiopian Renaissance Dam, along with recurring tensions over river access in Central Asia and South Asia, reflect how freshwater access is becoming more deeply linked to regional power dynamics and national security calculations.

The search for water resilience

Governments and corporations are increasingly treating water security as an economic priority rather than solely an environmental concern. Chatham House researchers argue that future trade systems may place greater emphasis on water-efficiency standards, sustainability requirements, and supply-chain transparency tied to water use.

Investment in desalination, wastewater recycling, precision irrigation, and drought-resistant crops is accelerating. Singapore now meets up to 40% of its water demand through its NEWater recycling program, while Israel obtains roughly 90% of its domestic water supply from desalination and treated wastewater combined, according to national water authorities.

Yet adaptation remains uneven. The World Bank report also noted that many lower-income countries facing severe water stress still lack the financing and infrastructure needed to improve water efficiency at scale. That imbalance risks creating a future in which water-rich or technologically advanced economies gain increasing leverage over industrial production and trade flows.

Globalization was built on assumptions of abundant and accessible resources. Water scarcity is beginning to challenge those assumptions directly. As climate pressures intensify and economic competition becomes more fragmented, freshwater availability may increasingly shape industrial strategy, economic resilience, and geopolitical influence in the decades ahead.