(May 15): Most international trade and investment occurs in networks which divide production into discrete steps that can be carried out in different countries. Firms exchange inputs and outputs in cross-border value chains, some of great complexity. These value chains — whether intra-firm or inter-firm, regional or global — accounted for more than two-thirds of world trade in 2017 and an astonishing 80% in some manufacturing industries.
But as a result of Covid-19, global merchandise trade is set to plummet by an estimated 13%–32% in 2020. Worse yet, the pandemic has paralysed manufacturing networks and supply chains — especially in China, which accounts for 28% of global manufacturing output. That has delayed the delivery of essential services and food, pharmaceuticals, basic medical products (including surgical gowns and masks), electronics and automotive components, metals and other manufactured goods.
In the aftermath of the damage and economic disruption wrought by this virus outbreak, business leaders are reassessing the extent of their firms’ dependency on single foreign suppliers and examining how to mitigate strategic vulnerabilities. There are also growing calls from rich-country political leaders for radical shifts in production structures and trade policy.