Economic Reconnaissance | The Global Economy and Why This Matters
Over the years I have done quite a few talks for NACM Connect groups and nearly every one of them have questions pertaining to the global economy. The supply chain is truly global – from commodities to the intermediate parts and assemblies needed. The consumer base is international as well – either directly or indirectly. The bottom line is that global matters. This brings some questions to the forefront. Is globalization really dead? Is Europe heading for a long and deep recession? Will China lose influence and if so, which nations will benefit.
Globalization is not dead but it is changing focus. The motivation for the globalization surge was the desire to take advantage of much lower production costs and lower labor costs. Over the last decade these costs have risen in many of the nations the manufacturer moved to (especially in China as they have seen a 6,000% increase in wages in the last ten years. There are always going to be products needed from a global supply chain and there will always be trade rationales. The difference now is that domestic production is far more competitive and businesses no longer have to deal with transportation, communication and management issues as vexing as they have been.
Europe remains a key trading partner for the US. Only the UK and Germany are still in the top ten of trade partners but Germany is number 4 and Britain is number 7. Both of these nations are in recession and still sinking. The German consumer has withdrawn and that has pushed the economy into reverse. Exports account for over 50% of the German GDP and they have been reduced as the EU struggles. They have also seen a decline in demand from China. The UK has not managed to rebalance the economy after the decision to withdraw from the EU. Brexit has not done the UK any favors and the expectation is that recession there will be deep and will likely extend into next year.
China is suffering on a variety of fronts. The expectation had been the Chinese economy would surge as the lockdown ended but this has not been the case. The consumer sector has been slow to recover and the diplomatic tensions between the US and China have affected trade. China has lost its position as exporter to the US to some degree. They used to supply over 50% of total Us imports and that percentage has fallen to slightly more than 40%. The other Asian states have picked up that market share. The fastest growing of those Asian states would include India, Vietnam, Thailand and Taiwan. The “sword of Damocles” that hangs over the region is China’s intentions regarding Taiwan. An actual invasion is not all that likely although the possibility can’t be dismissed. The more likely option will be economically devastating to Taiwan and harder for the US to react to. China may stage an actual blockade or a quasi-blockade created by a series of “military drills” that force the diversion of commercial shipping.