Deteriorating ties - From Our Chief Economist
Simon Baptist Unsubscribe
10:03 AM (2 minutes ago)
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From Our Chief Economist
Deteriorating ties
It is now becoming clear the way to conceive of the impact of the coronavirus (Covid-19) is mostly as an accelerator of existing trends in economics and politics, rather than a creator of new trends (with some notable exceptions, such as in the travel industry). Some examples include automation, greater scrutiny of foreign direct investment, nationalism and supply chains being tweaked in the direction of resilience rather than efficiency. One major, and deleterious, trend that has also been magnified is that of US-China tensions and pressure from both sides for companies to make choices that support the geopolitical agenda of each.
Demand disruption from the coronavirus in China means that it is all but certain not to meet the purchase requirements on US goods specified in the first-phase trade agreement reached with the US in January. This could give the US president, Donald Trump, the excuse to ratchet up tariffs again should he wish to do so, but there are deeper, more troubling risks on the horizon. Tariffs are not the only issue that firms caught in the crossfire are going to have to navigate, with both the US and China increasingly pushing supply chain decoupling, especially in technology. Bifurcating a supply chain is not easy, especially in a sector like information and communications technology where there is complex horizontal and vertical integration, so expect significant fraying rather than a full split, with both sides losing out.
How far do you think supply chains will separate?
Let me know what you think via Twitter on @Baptist_Simon or via LinkedIn.
Best regards,
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Simon Baptist
Global Chief Economist and Editorial Director
The Economist Intelligence Unit
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