“Countries with trading partners that have implemented stricter containment measures have seen a steeper decline in imports. Although trade flows have adjusted, more diversified global value chains could help cushion the impact of future shocks.
“Policy proposals to reduce dependence on foreign suppliers, especially in strategic sectors, have gained importance, including in major markets such as Europe and the United States”, underlines the International Monetary Fund (IMF) in a chapter of its World Economic Outlook (WEO). “Such proposals could be premature or even misguided,” say the authors of this report.
More diversification not less
On the other hand, they call on governments to favor “diversification of international supply and a greater capacity for substitution in supply”, that is to say the ease of replacing one product with another. Such an approach limits, according to them, the risks of a slowdown in growth in the event of a major event affecting production.
“It is important to increase the resilience of the supply chain not only to health emergencies such as the pandemic, but also to other types of shocks such as the war in Ukraine, cyberattacks and extreme weather events related to the climate change”, warn these economists.
“Dismantling global production chains is not the solution – more diversification, not less, improves resilience”, underline the three economists behind this report, Davide Malacrino, Adil Mohommad and Andrea Presbitero, in a blog post.
For a reduction in commercial costs
They also argue for the reduction of trade costs and barriers other than tariffs – regulations, for example – to increase this diversification. This “would provide a significant medium-term economic boost, particularly in emerging markets and low-income developing countries,” they say.
US President Joe Biden, for example, intends to repatriate part of the production of semiconductors in particular to the United States. The shortage of these electronic components essential to the manufacture of many products, including cars, has sharply slowed automobile production and contributed to rising inflation.