Hello from Brussels, where a demonstration yesterday against Covid-19 restrictions got a bit nasty and kicked off some actual rioting, or at least a bit of looting, part of a wave of protests in Europe opposing renewed constraints. Given Belgium has actually dealt with the pandemic reasonably well and has relatively high vaccination rates, this is a bit of a worry.
Today’s main piece is on how world trade in goods and supply chains are performing, taking the analysis of two of the big institutions in the area, the World Trade Organization and the Asian Development Bank. The answer, as we have been banging on about for some time, is better than you might expect given the panicked tone in many quarters.
The trade cataclysm that’s yet to arrive
As we head towards year-end, it already seems pretty certain to us that the summary of 2021 for goods trade will run as follows. Trade recovered very sharply from the pandemic shock, more or less recouping its losses from last year, and then appeared to slow towards trend growth. The speed of the recovery put intense strain on supply chains and created bottlenecks in certain goods and certain ports. Trade tensions between the US and China remained elevated. But — and here’s the interesting bit — the idea that companies were going to undertake radical restructuring of value chains in response to the transport crunch or geopolitical risk remained theoretical.
We’ve always been sceptical that Covid would cause a big shift in the post-cold war pattern of globalisation. Obviously, as we’ve said more recently, the bottlenecks and shortages of the past few quarters have given us pause for thought. There’s certainly been an uncomfortable degree of turbulence. But, call us reckless if you like, today’s Trade Secrets author’s view remains that there’s been nothing to justify engineering a major government-led restructuring of globalisation.
So, let’s look at the numbers. The WTO’s annual World Trade Report points out that merchandise (goods) trade is back to its pre-pandemic trend, with a notably smaller shock than that caused by the financial crisis. It also notes that trade recovered faster than gross domestic product, and that economies which suffered a lot from Covid benefited from exporting to countries that were relatively unscathed. You can play around with reverse causation a bit here if you feel like it (perhaps economies traded more because they were growing for other reasons) but it’s emphatically not the case that countries that turned inwards did better.
Taking a look specifically at supply chains, the ADB is good on the historical context. The growth of global value chains slowed after 2008 and has remained anaemic since, the “slowbalisation” after the early 2000s “hyperglobalisation”. (Don’t blame us for the neologisms.) While the events of last year did put severe strain on value chains, the Asian bank concludes that the 2020 number was largely in line with the post-2010 trend. This is in line with other data on trade and investment intentions cited by the Harvard Kennedy School’s Megan Greene, in a Financial Times op-ed last week. There just isn’t a lot of evidence that supply chains are being shortened, or even radically restructured. Maybe there will be: these things take time. But it’s not happening yet.
Back to the WTO report. There’s an interesting cameo by the Peterson Institute’s Chad Bown, who has emerged as the trade world’s oracle about global commerce in chips, the sage of semiconductors if you will. Bown points out (page 93 of the report) that, contrary to the general sense that the world economy has had to navigate perilously narrow and treacherous mountain passes controlled by semiconductor bandits, chip production has held up pretty well during the coronavirus crisis.
It’s now facing a lot of strain, mainly in the technologically less sophisticated chips that go into cars and so on, but that’s because of a massive and probably unsustainable surge in demand. Things look nasty right now, but in the longer term a more serious risk than the world economy hitting a brick wall because of a generalised chip shortage is governments’ possible reaction to it. A subsidy spiral, together with trade restrictions, could lead to a glut-ridden global semiconductor industry inefficiently segmented by country and indefinitely dependent on state handouts.
As Bown says: “Governments have been known to show chips too much love . . . Interdependence may in fact have helped keep the peace during a period of escalating geopolitical tension. Changing supply chain geography to reduce that interdependence could provoke new vulnerabilities.”
At this point — and here they are obviously talking their book — the WTO wants a big festival of global co-operation on maintaining open trade in strategic products. Without that, of course there are risks to individual countries, particularly small ones, in assuming that trade will always deliver. There’s a co-ordination problem if you’re the mug who opens up their market in medical goods and promptly ends up with domestic shortages because everyone else is importing and hoarding. We get that. The point is just that there’s not much in the performance of trade and supply chains as a result of the pandemic to justify calling the free-trade model for globalisation broken.
Perhaps because of the WTO ministerial meeting coming up next week, the decade before the global financial crisis is on our minds at the moment. There was endless hand-wringing about the failures of trade policy, rending of garments over the collapse of the WTO Doha round of negotiations in 2008 and all that. But trade itself? Trade itself was just fine. As we said back in September, the saviours right now are business folk, not bureaucrats. A lot of things have disappointed over the past year, but given what it’s been faced with, the actually buying and selling of stuff across borders itself isn’t high among them.
Trade links
The “big box” US retailers are coping with the supply chain crunch better than their smaller rivals, according to earnings announcements and survey data.
The head of one of the UK’s biggest logistics companies says a combination of Brexit and Covid will create driver shortages well into next year.
The New York Times explores ($) how global demand for cobalt to feed the global electric vehicle revolution has fed exploitation and US-China rivalry in Congo.
Apple will not be able to (Nikkei, $) deliver new iPads to consumers in key Asian markets in time for Christmas, according to delivery estimates, as the supply crunch hits holiday sales.
Japanese apparel suppliers are following (Nikkei, $) sportswear maker Mizuno and other international brands in shunning cotton from China’s Xinjiang province “until the human rights issues are resolved.” Alan Beattie and Francesca Regalado
Source: Economy - ft.com
