Home breadcru News breadcru Import/Exports breadcru Diversifying supply chains good for global trade resilience: JPMorgan

Diversifying supply chains good for global trade resilience: JPMorgan

31 Jan '24
2 min read
Pic: Adobe Stock
Pic: Adobe Stock

Insights

  • Diversifying supply chains is positive for economic growth in many nations, and is good for the global trading system's resilience against future economic shocks, JPMorgan Chase has said.
  • Mexico and Vietnam gained the most from the shift away from China. India and Thailand saw notable gains.
  • Trade rerouting has been more pronounced for Vietnam than Mexico.
Diversifying supply chains—a slow-moving maturation away from excessive concentration in China—is positive for economic growth in a variety of countries, and bodes well for the resilience of the global trading system against future economic shocks, according to New York City-headquartered multinational financial services firm JPMorgan Chase & Co.

As of late last year, the world’s economies were not rapidly deglobalising, with economic integration and its benefits to corporate profit margins remaining intact, it noted in an insights piece.

Despite expectations of China’s share of global trade declining, that share is up. The ratio of global trade in goods to global industrial production has also risen, the firm noted.

While China’s share of US imports declined from 2016 to 2023, those declines were offset by gains made by member nations of the Association of Southeast Asian Nations (ASEAN), and by India and countries in Latin America.

Mexico and Vietnam stand out as the two top beneficiaries of the shift away from China. India and Thailand also made notable gains.

US imports of tariffed items from China fell by about $70 billion. As that occurred, JPMorgan Chase analysis showed, Vietnam saw the largest percentage gain in exports of tariffed items: a rise of 170 per cent. But Mexico has seen the largest gains in US dollar terms, at more than $153 billion.

Some migration of trade away from China likely would have occurred even without the trade war, the company said, noting that it cannot precisely say to what degree the trade war, the move offshore of low-end manufacturing from China, or the war in Ukraine accounted for other countries’ export gains to the United States.

But its analysis supports the notion that trade rerouting, i.e, the transshipping of goods through a third country, has been more pronounced for Vietnam than Mexico.

Value-added domestic production has likely driven Mexico’s export gains more materially. Reshoring activity in Mexico, however, is unlikely to be a boon for jobs as the share of employment in manufacturing in the country has fallen in recent years, likely because of industrial automation.

JPMorgan Chase expected trade diversification would have produced strong US export share gains for countries in South America. But reasons behind the region’s lagging performance include low manufacturing complexity, and poor quality and limited trade infrastructure, it added.

ALCHEMPro News Desk (DS)

Get Free Weekly Market Insights Newsletter

Receive daily prices and market insights straight to your inbox. Subscribe to AlchemPro Weekly!