Crédito y Caución does not foresee a significant globalisation setback

Crédito y Caución expects global value chains to remain stable, despite severe disruptions since 2020. Over the past three decades, China has gained increasing weight in these value chains. By 2019 it had replaced Japan as the central node of trade flows in Asia and the United States as the second largest link in the global value chain, behind only Germany. However, the COVID-19 pandemic and the Russian invasion of Ukraine have reopened the debate about its vulnerability and possible reconfiguration.  

The COVID-19 pandemic generated major disruptions in the global value chains that remain. The initial factory closures in China had an immediate effect on global production of manufactured goods in January and February 2020. When Chinese production recovered, factory closures in Europe and the United States caused further disruptions to global production, which did not start to recover until the second half of 2020. It was then that the initial supply shock was followed by a demand shock: excess household savings and fiscal stimulus triggered increased trade in goods, which has disrupted the logistics chain. Shipping costs soared, due to poor distribution of shipping containers, and several ports struggled to process cargo due to a shortage of stevedores and truck drivers. Already in 2022, Ukraine's invasion has exacerbated disruptions, increased commodity prices and distorted the European value chain, especially in the automotive sector.

Crédito y Caución expects a slow and gradual resolution of all logistical disruptions. "We expect that containers will not be allocated to the right locations until 2023, which will keep transport costs high in the short term. We also expect the semiconductor shortage to continue into 2022. Recent data suggests that the chip shortage has passed its peak, as major manufacturers in Asia are ramping up production. It will also help that consumers have started to shift from goods to services. However, the semiconductor shortage is not likely to disappear until 2023," the report explains.

Despite these difficulties, the credit insurer does not expect a significant reversal in the scale of globalisation. The report recalls that the COVID-19 pandemic occurred at a time when the main drivers of international production were already at a tipping point towards greater trade protectionism that has stabilised globalisation. "World exports as a share of GDP have remained more or less constant since 2008," he explains. His forecast is that this situation will continue. "We think companies are more likely to make slight adjustments to their production strategies. For example, by holding larger inventories of critical goods," the report explains. "Limited offshoring may occur as labour costs at some manufacturing sites, particularly in China, rise as you move up the value chain, but this would have occurred regardless of current bottlenecks."

The credit insurer does believe that the war will accelerate Russia's reorientation towards China, India and Central Asia, but considers it unlikely that China will want to create a regional trade structure that could damage its trade relationship with advanced economies: trade with the US and its allies in Europe and Asia still accounts for more than 70% of China's foreign trade, compared with only 4% with Russia and India.