The current global trade system is experiencing significant changes that will affect supply chains worldwide for many years to come. This shift is mainly attributed to two factors. First, companies are becoming more cautious following pandemic-related supply chain disruptions, rising prices, and shortages, and are therefore seeking to diversify their manufacturing sources and supply chain dependencies.
Secondly, governments, particularly those in the US and Europe, are prioritizing access to crucial resources such as rare-earth minerals and semiconductors, in case of a potential fragmentation of the world trade system into different political blocs.
You can also read: Indian Ocean Conference in Dhaka: What’s on the agenda?
The process of “re-globalization,” which encompasses a reform and revitalization of globalization, is expected to take several years, and it’s still too early to fully grasp the extent of the changes and which parties will be impacted positively or negatively. This transformation has the potential to significantly affect local and regional dynamics. To gain a better understanding of the implications of this new era of geostrategic economics, Bloomberg identified eight key indicators to monitor as trade data begins to offer insights into who will be winners and losers in this evolving landscape.
World trade still relatively steady amid war, famine and disease
Despite discussions about the potential downfall of globalization, the integration of economies through international trade has displayed remarkable durability despite challenges such as war, famine, and the COVID-19 pandemic. While world trade as a proportion of global production has slightly decreased over the last three years, it still largely aligns with past patterns. A recent analysis conducted by ING Groep NV suggests that there has been no significant change in the trend toward increased trade liberalization since at least 2006.
US-China decoupling
Growing political tensions between Washington and Beijing have raised concerns about a possible separation of sectors between the world’s two largest economies. Despite the fact that the value of American imports of Chinese goods and services reached a record high in 2022, it appears that US tariffs are causing a change in the flow of bilateral trade. An analysis by Chad Bown, a senior fellow at the Peterson Institute for International Economics, indicates that last year, US imports of goods from China that were affected by tariffs fell by approximately 14% compared to the levels before the trade war in 2017.
US trade diversification
During the past half-decade, US tariffs, export limitations, and financial assistance have incentivized American businesses to expand their import sources beyond China.
Since 2018, when former President Donald Trump imposed tariffs on numerous Chinese goods, the overall percentage of Chinese imports to the US has declined by approximately 3 points. In response, China has relinquished some of its portion of the total US imports to other Asian exporting countries such as Taiwan, India, Malaysia, Thailand, and Vietnam. Nevertheless, Chinese manufacturers are exploring alternative strategies such as establishing operations in countries like Thailand, Vietnam, and Mexico to evade US tariffs and streamline their supply chains.
Mexico’s near-shoring boom
Mexico is increasingly emerging as a critical alternative to China for sourcing goods by the United States. The highly intertwined supply chains between the US and Mexico, along with the preferential trade benefits of the US-Mexico-Canada Agreement (USMCA), are providing investment prospects on both sides of the border. Importers, including some Chinese exporters, seeking to diversify their supply chains, are rushing to secure Mexican industrial space. In 2022, the occupancy rate of Mexican industrial space reached an impressive 97.5%.
There is a significant demand for warehouses and other industrial properties near Tijuana along the US border, resulting in almost zero industrial vacancy rates. As per the Mexican Association of Private Industrial Parks, approximately 47 new industrial parks are either under construction or planned in this region.
Transatlantic trade shift
President Joe Biden’s attempts to enhance trade relationships with Europe have caused a shift towards higher dependence on imports from Europe than China. This shift occurred after the US and Europe suspended duties on bilateral trade worth $21.5 billion in 2021, resolved a longstanding dispute in aircraft manufacturing dating back to 2004, and initiated talks to decrease steel and aluminium overproduction. In the last year, there has been an almost 13% increase in the value of US imports from Europe, while US imports from China have only grown by 6%.
Global smartphone production
Amidst an escalating trade war between the US and China, smartphone manufacturers such as Apple Inc. are taking steps to reduce their reliance on China. Over the past year, Apple has significantly expanded its production capacity in India to manufacture over $7 billion worth of iPhones, tripling its production footprint. Currently, India accounts for about 7% of Apple’s global iPhone output, and the company’s annual sales in the country have increased to $6 billion.
Vietnam tripled its furniture exports to the US from 2016 to 2021
Vietnam has emerged as another important destination for companies seeking to diversify their supply chains away from China. In the last seven years, US imports of furniture made in Vietnam grew by 186%, a stark contrast to the mere 5% growth in furniture imports from China during the same period.
According to Descartes Systems Group Inc., Vietnam has now taken over from China as the largest source of US-bound furniture products, with Vietnamese furniture accounting for half of China’s total export volume. However, in recent times, demand for Vietnamese furniture has started to decrease due to the overall decline in global demand for consumer goods.
China leads global electric vehicle exports
China has become the world’s largest exporter of electric vehicles after Germany, thanks to Beijing’s industrial policies. This year, around 40% of China’s total vehicle deliveries are expected to be electric vehicles and plug-in hybrids.
Bloomberg Intelligence predicts that the share of global electric vehicle sales in Europe is likely to increase this year as supply-chain issues ease and more models become available.
