Trading

Coronavirus will reverse globalization and create regional supply chains, economists predict – CNBC

Employees work on the production line of a robot vacuum cleaner factory of Matsutek in Shenzhen, China August 9, 2019.

Jason Lee | Reuters

The coronavirus crisis will fundamentally reshape global trade as companies look to reduce their dependence on Chinese manufacturing, economists have predicted.

In a report published on Wednesday, the Economist Intelligence Unit (EIU) said the pandemic will reverse globalization by accelerating a move toward regional supply chains.

China’s dominance in international trade has grown ever since the country was accepted into the WTO in 2001. This event was credited by the EIU as sparking the latest wave of globalization, as multinationals took advantage of production and demand opportunities in the country.

“However, as a result of Covid-19, it is likely that this period of globalization will not only come to a halt, it will reverse,” the report’s authors said, noting that the Sino-U.S. trade war and rising wages in China had already incentivized some corporations to relocate supply chains to other parts of Asia.

“Covid-19 will push more companies in other sectors to relocate parts of their supply chains,” the report predicted. “The outcome of this will be an Asian supply chain network that is both less China-focused and more diverse.”

This shift away from China would be indicative of a wider trend, the report said, as global firms looked for ways to build up their resilience following the supply shock induced by the coronavirus.

“By building quasi-independent regional supply chains in the Americas
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