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

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.

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.

Because of the difficulties surrounding the establishing or moving of supply chains – particularly in the automotive sector – it is likely that any major shifts would be permanent. Many sectors, such as pharmaceuticals, agriculture and energy, have come under pressure amid the global health crisis, as their reliance on economies like China and issues with international logistics have weighed on supply chains.

The coronavirus pandemic was not the only issue that would encourage companies to rethink their supply chains, the EIU noted on Wednesday. The analysts also emphasized that climate change would grow in importance for corporates, forecasting that the global economy would shrink by 3% by 2050 as environmental issues like severe natural disasters weighed.

Coronavirus will reverse globalization and create regional supply chains, economists predict, CNBC, May 13