This is the last trade secret before the large ministerial meeting to be held at the World Trade Organization in Geneva next week. Therefore, before we delve into the carnival of civil servants, the festival of women, and the negotiation of writers, today we will bring you the real thing again.Specifically, we will study more carefully how management decisions shape the overall model of the supply chain we are studying Earlier this week.

By the way, interesting news about the policy yesterday.The new german Coalition government Said that the Ministry of Economy, which deals with trade, will go to the Green Party. Before you begin to lament that EU trade policy has fallen into the hands of a group of conservationists, especially before climate will now be placed in the same sector, the Green Party in German domestic politics is actually very pragmatic. Compared with Angela Merkel’s Christian Democrats, their attitude towards China and Russia is also instinctively tougher.We are a little skeptical whether we will take bold steps Crude “Merchantism” This brings us to the China-EU Comprehensive Investment Agreement, but if there is one, we all agree.

Concession waters Focus on the steady decline in labor force participation rates in advanced economies.

Localization is a slogan, not a strategy

Let us review what we know. As far as we know, due to Covid-19, the supply chain has not changed much in terms of shortening, onshore, nearshore, “making friends” (shifting to countries run by political allies). Last year’s shrinking demand led to a sharp drop in trade (excluding the frantic buying of masks and other medical kits). This year’s sharp recovery has caused the global supply chain to be in trouble. Governments are beginning to talk about powerful interventionist games: none of these seem to have much impact.

We have been chatting with a group of supply chain experts, some of whom are from banks, who talk to companies, do a lot of trade financing, and have a good understanding of who is buying and exporting from where. The general feeling is that the long-term changes that existed before the crisis will continue, but the new coronavirus is at best a catalyst for existing trends, not a new starting point.

Last year, companies’ panic about severe supply chain vulnerabilities seemed to quickly dissipated, and they were emerging from the current turmoil. Parvaiz Dalal, Global Head of Supply Chain Finance at Citigroup, told us: “Locality was an important topic discussed last year, but as of today, it has not become a reality as expected.”

one HSBC survey A survey of more than 7,300 business decision makers from 14 markets revealed some considerable impact of the current chaos: 70% of respondents believe that a supply chain disruption will reduce their company’s revenue by an average of 22% next year. But less than a quarter said that the interruption severely restricted business growth.

In fact, as Vinay Mendonca, Interim Global Co-Head of Trade and Receivables Finance at HSBC has pointed out, volatility within and between countries requires more internationalization, not less, in order to diversify procurement and The risk of the destination market. “The economic recovery is not only bumpy, but also uneven and inconsistent,” he said. There may be a sudden spike in Covid cases in one country or another, causing government restrictions to shift demand or shut down factories and interrupt supply.

Assuming the turbulence dissipates, what remains are the problems that existed before the pandemic—in fact, since the 2008 global financial crisis. Labor cost arbitrage (workers in poor countries make things for consumers in rich countries), which is the dominant model from developed countries. In the 1990s, I was getting more and more tired. Today, China is more interested in establishing a domestic market than importing intermediate products and exporting finished products. Emile Naus from BearingPoint, a supply chain consulting firm, said that for high value-added products, at least “we need to consider reversing some of the things we have done in the past 30 years.”

Products become more complex, value chains become more complex, and with it comes the possibility of unexpected single points of failure lurking deep in the supplier’s network. The threat of damage caused by severe weather or natural or man-made disasters (such as the 2011 Fukushima earthquake and nuclear disaster in Japan) existed before Covid.

But blindly following slogan strategies such as “localization” or even “diversification” is not enough. Naus tells of an automaker trying to spread the risk by purchasing gearboxes from multiple suppliers, and found that all gearboxes rely on the same (small and cheap but vital) parts made in Fukushima.

Correctly assessing the costs and risks in the supply chain and making changes is a slow and meticulous task. Most experts believe that even if Covid has focused on the need to increase resilience, it will take at least three years, perhaps five or ten years, for complex products to carry out serious reforms. Although companies are quite confident about the return of business and trade, those companies that hold cash are now more in the game of stock repurchase than expanding their balance sheets and embarking on new ventures. Citi’s Dalal said: “Most of the companies we talk to use a light investment approach instead of investing heavily in new products.”

Now, all of the above is anecdotal or survey information at best-it is difficult to quantify these things with the latest hard numbers. But this is a very consistent story, and it matches the more comprehensive data on what happened before and last year for Covid.

We will continue to return to the supply chain theme from all angles, because it is much more subtle than OH NO (or “HOORAY” au choix). As we know, this is the end of globalization, and you may read about some dormitories. If you think we are missing something, please contact us. We are all ears.

Concession waters

Yesterday we noticed that advanced economies Work hard to attract immigrants To fill the gap left by labor shortage. Recently, many of these shortages have been attributed to the resignation of millions of people in advanced economies during the pandemic.

However, there is a broader trend here. As shown in the chart below, since the millennium, the labor force participation rate of several advanced economies has been declining. Claire Jones

Trade ties

good news shipping company And exporters: Beijing has indicated that it will Foreign ships allowed Transport goods between domestic ports.

Not so good news: a new one China Data Protection Law Blocked Foreign companies and governments obtain information about the location of their ships, thereby reducing the transparency of the supply chain and the ability to monitor trade in goods.

Chad Bowen already Updated his US-China “Phase One” tracker, Indicating that there are still two months left, China It is expected to purchase only 62% of the goods it has promised to buy from the United States.

An amazing new information resource Plurilateral agreement In WTO On the line yesterday.

Japan Beverage Company Do it May find myself Start from Myanmar (Nikkei, $) After a military-owned conglomerate petitioned the court to terminate the brewery they jointly owned.

Prime Minister of Vietnam Try to ease Concerns about the supply chain ($) In Japan this week, but Nikkei reported that factories that provide services for brands such as Intel, Toyota, and Reebok are in trouble because their employees are unwilling to return to work, which worries investors Thailand with Indonesia It may speed up soon. Alan Beatty and Francesca Regalado