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Focus: World Trade - despite a sudden interruption, global value chains still have a bright future


In the midst of the COVID-19 pandemic, global trade has been dragged down by numerous factors: a global recession, skyrocketing uncertainty, restriction and rising cost of transport and localized protectionism targeting supply of food and critical medical wares.

On the bright side, tight border controls have had a limited impact on trade and are being eased gradually in Europe, in order to revive the tourism industry and limit labour shortages in the agricultural sector. In the longer-term, multiple calls to relocate production domestically also constitute risks to the future of global trade.

Nevertheless, shielding production from foreign supply shocks seems like an impossible quest: to imagine a full relocation of manufacturing processes at the domestic or regional level highlights issues of rising production costs and lack of domestic skills. Even if these two issues are addressed, this new local production process will still be dependent on raw material supply, which is highly location-dependent.

Mitigating the exposure to one specific country by diversifying suppliers is also a tricky challenge. At first glance, finding alternatives to the top supplier country (i.e. China in most sectors) is possible. However, major input producers are also strongly connected to one another, which means that the exposure will not disappear even when input supply to other major hubs in the sector is diversified.

Overall, the good news is that global value chains still have a bright future.

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