May: The bull race with face masks
Global Trade: Will everything be “made in Poland” in the future?
Global trade volumes plunged in the first quarter, a preview of what may be the biggest fall in international trade in decades. The Corona pandemic and its economic hardships are causing decision makers and multinational companies to reconsider the cross-country supply chains, which have become an important feature of the global economy in recent decades.
A Dutch body that is considered a global trade authority, CPB Netherlands Bureau for Economic Policy Analysis, said that trade between world countries fell by 2.5% in the first quarter, the largest decline since the global financial crisis; CPB expects the April and May declines to be even greater. Analysts and economists from many international financial organizations do not expect a rapid recovery in global trade movements after the gradual removal of the closure provisions and economic restrictions. According to the World Trade Organization, the volume of goods through the border crossings will drop by 13% to 32% during 2020.
International trade movements will rebound next year if countries are able to stem the epidemic and economic activity returns to its pre-pandemic state worldwide. But the sudden halt in trade revealed the magnitude of interdependence among world countries in the production of everything from textiles through phones to cars. Individual states have become nodes in long, complicated supply chains whose vulnerability was exposed to the public when the pandemic cut them to pieces. The Corona crisis actually accelerated the process of reviewing the value chains, which began with the outbreak of the US-China trade war.
Now, policymakers and multinational companies are evaluating how to bring production closer to home, protect the production of essential products and reduce dependence on China. Closing factories (and economies in general) and border closures have heightened doubts about the credibility of long supply chains, especially those relying on China, at a time when there has been an increase in tariffs, duties and political tensions between world countries. The change already began when it became clear that the China-US trade war would not go away, and many companies began moving production to countries such as Vietnam to avoid import tariffs from China.
Although now everyone is mainly talking about tensions with China, the Asian power is not the only problem of global supply chains. What worries corporations and politicians is the vulnerability of those chains from any event that could disrupt production and supply processes; In some areas, these disruptions can cost lives. Since the beginning of the year, 85 countries worldwide have imposed heavy restrictions on the export of medical devices and medicines, and 27 countries have restricted food exports. Globalization is a good and important thing, but when there’s a war, everyone cares for himself. That’s why a number of governments in the West, including the US and the UK, are looking for ways to boost domestic production of essential products and reduce dependence on imports in general, not just from China.
Not everything can be produced locally, especially in smaller economies and those with very high labor costs. That is why many countries outside of China see opportunities to leverage themselves as new “global production lines”. For example, the European Bank for Reconstruction and Development is helping Eastern European countries to promote themselves as stable and reliable production bases, whose proximity to Western Europe eliminates the risks associated with the supply chain length. There is a fair chance that more and more products for European companies will be manufactured in Poland, Slovakia and Bulgaria in the coming years; while the US will see more stickers declaring “Made in Mexico”.
Also in the report (Hebrew):
- Stock Markets: Caution, Bump Ahead
- US Corporate Bonds: Hotter than Average for the Season
- Gold: Inflation and Evil Eye Protection