Alive and Kicking
Please consider Globalization is Alive and Kicking in Trade’s Big 2020 Comeback.
The Covid-19 pandemic was supposed to put the final nail in the coffin of globalization and prompt a retreat into a new era of protectionism. Instead, some are now calling the crisis the Great Accelerator.
Companies like Samsonite International SA to Walgreens Boots Alliance Inc. are reinforcing their sources of production abroad instead of retreating from global markets.
“What we have learned is supply chains are flexible and adaptable,” World Trade Organization Chief Economist Robert Koopman said in an interview. “Trade is part of the solution.”
Natalie Blyth, the global head of trade financing at HSBC Holdings Plc, isn’t seeing companies recoil supply chains to their domestic markets to protect against new risks. On the contrary. “I’ve tried to find it -- I can’t find the reshoring. We can find reshaping,” Blyth said. “The super efficient, finely tuned just-in-time inventory model failed in phase one of Covid. But it’s not reshoring that’s the solution to that -- it is diversification.”
Reshoring Efforts Fail
The Bloomberg article above mentioned luggage maker Samsonite, hard hit by Trump's tariffs then Covid.
Samsonite used to get 95% of its product from China. Now it's only 35%.
Samsonite’s supply chain now extends to Thailand, Vietnam and Cambodia. “This team has really done an amazing job of shifting and the quality of what we’re getting outside of China is as good as ever,” CEO Kyle Francis Gendreau said.
Trade Shift to Vietnam
I discussed such shifts just yesterday.
How Trump Improved the Balance of Trade With China
In case you missed it, please consider How Trump Improved the Balance of Trade With China.
2018 to 2019 Synopsis
- The trade deficit in goods with China improved from $418.95 billion to $345.2 billion. That's an improvement of $73.75 billion.
- The trade deficit with Mexico, Taiwan, and Vietnam rose by $47.07 billion.
- The overall trade deficit (17 nation total including China) rose by $15.72 billion.
The data shows that all Trump managed to do is shift the trade deficit from China to other nations led by Mexico, Taiwan, and Vietnam.
Samsonite is an interesting case study.
More Diverse Global Supply Chains
Neither Trump's tariffs nor Covid accelerated reshoring.
Instead, tariffs followed by Covid accelerated trends towards more diverse global supply chains.
Understanding Balance of Trade Issues
Tariffs cannot and will not solve alleged balance of trade issues.
Under a gold standard, countries that ran large fiscal deficits either had to jack up interest rates to attract financing or they lost their gold reserves.
Thus trade imbalances self-corrected.
Gold as an Enforcement Mechanism
Gold acted as an enforcement mechanism. Nixon ended that in 1971 when he closed the gold window.
For discussion, please see