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Why untangling global supply chains isn’t good news

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This article is an on-site version of the Trade Secrets Newsletter. Participation over here Get our newsletter sent straight to your inbox every Monday

Hello and welcome to Trade Secrets. Remember the global supply chain crisis? what was who – which all about? Obviously saying this is a hostage to luck, but the disruptions in global shipping and logistics that we’ve all been having since late 2020 are waning pretty quickly. Ever alert to the dark cloud within any silver lining, however, I suggest we be careful what we wish for. hanging water The bleak outlook is seen ahead of the annual meetings of the World Bank and International Monetary Fund this week.

keep in touch. Send me an email to alan.beattie@ft.com

Dark days in the economic ecosystem

First, a slight conversion. We shouldn’t really call them “supply chains”. It is a more accurate reflection of the flexible and plural nature of the global commodity trading system of using less rapid “supply networks” (hence I did not use them in the headline) or even inadequate “supply systems”. The chain becomes useless once its weakest link is broken, but networks and ecosystems find ways to compensate when a single branch or node is torn. A very important context for the logistics crisis is that the extraordinary increase in shipping delays and freight rates since late 2020 has not actually halted a healthy recovery in global trade and economic growth after the initial hit of the pandemic.

This pedant’s exercise in idiomatic accuracy is out of the way, so let’s start the show. It is now clear that the crisis is quickly fading away. Freight rates and port waiting times are dropping rapidly. United State Logistics managers index It shows higher excess capacity and lower prices. Federal Reserve Bank of New York Measures Global supply chain stress, which together weights delivery times, backlog and inventories, has eased back to levels last seen at the end of 2020.

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Inflation remains high, but the Institute of International Finance, whose schedule of delivery times and costs are below, Calculates It is now driven by the energy shock of the Ukraine war rather than the cost of supply disruptions.

With supply ecosystems disrupted last year, explanations have fallen into two main camps. I was in the team Transit Demand Effect, which he argued mainly reflects the massive rebound in consumption and especially consumer durables (e-bikes rather than food delivery) after the lockdown was lifted, putting pressure in particular on inefficient ports on the US West Coast. The other gang was the Deep Supply Problems team, who were all about the crisis of globalization, geopolitics, fragile supply networks, underpricing risks related to outsourcing and what you have. A little simplistic, but that’s how the sides line up.

Well, the final victory is not declared, but the interpretation of the request is certainly the most likely of what is changing now. There is a lot of gloom about a global recession ahead, which if history is the guide will hit commodity trading particularly hard. The supply side, by contrast, has not improved significantly: geopolitics and the certainty about the strength of supply networks are not all rainbows and kittens. And I can’t find anyone who thinks that the Port of Los Angeles and its associated trucking services have suddenly improved.

It’s all about buying behavior, says Jennifer Bisley, CEO of supply chain consulting firm Interos. First, consumers don’t need the same hard goods: they’re back to travel, they’re back to buy services. The second is that there is a lot of uncertainty in the economy and there is inflation. The third is that companies have inventory and so there is not the same productivity.”

As for the idea that reduced congestion reflects an abrupt increase in capacity or efficiency, Besgle says, “If after three years you’re waiting for a significant change in supply chains based on the pandemic, I think it has already happened.”

Not all data points are aligned. Flexport, the shipping company that monitors these things, notes that relative demand for consumer durables remains high.

But these numbers are from past months. Forward-looking indicators, especially in container shipping, look very bleak: orders are dropping and the number of “empty sailings”, as carriers cancel flights, is increasing. The WTO he is anticipation Significant slowdown in trade next year.

Phil Levy, chief economist at Flexport, posits that there is a non-linear relationship: “You are very likely to have some large effects on supply chain congestion with relatively small reductions in volumes, in the same way that you might have a highway 90 percent full. To move well but someone who is 99 percent full is at a standstill.”

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Now, of course I’ve drawn a little caricature and given stark framing to the various interpretations, mainly for illustrative convenience and partly to make myself look smarter. There are clearly some supply-side issues – Covid-related port closures and trucks in China being one of them – which have made demand congestion and freight costs worse and are somewhat resolved. The changes are not the same as levels: if what we see is a serious pullback, there may still be some congestion issues when demand returns to the long-term trend. There may also be some big structural changes taking place in the patterns of sources and supply networks that have not yet worked, especially since the geopolitical situation can always get worse.

However, if you’re looking for an explanation for the past couple of years of rising costs and stifling congestion, it’s likely to be in demand. It’s a shame they need the potential of a major slowdown to prove it – I’d rather have growth with faltering ports than stagnation with simple sailing – but that is the case.

In addition to this newsletter, I write a trade secrets column for FT.com every Wednesday. Click here to read the latest and visit ft.com/trade-secrets To see all my previous columns and newsletters too.

hanging water

To quote the name of another newsletter from the Financial Times, we live in turbulent times. The last confirmation of this is twice a year Brookings-FT Tracking Index of Global Economic Recovery (Tiger), which has shown momentum in the faltering global economy and many countries are either on the brink of recession or have already plunged into one.

Historical strength index line graph of a group of confidence indicators showing that confidence indicators have fallen sharply over the past year

The data was released as global financial officials gather in Washington for the annual meetings of the World Bank and International Monetary Fund this week. Both bodies are expected to publish reports warning that the global economy is on the brink of recession.

Any bright news? Yes, if you are from India. It is the only large economy in the world described as a “bright spot” in Tiger’s research, with strong indicators pointing to strong growth this year and next. (Jonathan Mulls)

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The European Union continues nag About the electric vehicle tax credits in the US Inflation Reduction Act, which favors North American suppliers.

China’s semiconductor industry prepares itself To replicate the pain the US has inflicted on Huawei by imposing far-reaching export controls.

Henry Farrell and Abraham Newman, two great gurus of economic interdependence, say that weak links in finance and supply chains are: Easily arm.

If you’re interested in the politically charged saga of waiving IP protection for Covid vaccines and treatments at the World Trade Organization, the Geneva Health Files news service has put it all together Fantastic in-depth reports.

Zambian sovereign debt crisis Setting international precedents On debt restructuring, as is Sri Lanka.

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Trade secrets from Edit Jonathan Moles


Europe Express Your essential guide to what matters in Europe today. Participation over here

Britain after Brexit Keeping abreast of the latest developments as the UK economy adjusts to life outside the EU. Participation over here


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Georgieva of the International Monetary Fund to discuss the economy and Covid with Chinese authorities via Reuters

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© Reuters. International Monetary Fund Managing Director Kristalina Georgieva attends a press conference following a meeting at the Federal Chancellery in Berlin, Germany on November 29, 2022. REUTERS/Michel Tantosi

NEW YORK (Reuters) – International Monetary Fund Managing Director Kristalina Georgieva said on Thursday that she will travel to Beijing next week with heads of other international institutions to discuss China’s economic outlook and COVID-19 policies with the country’s leadership.

“This is the first time, and we hope we can sit down together and discuss the very pressing issues facing China and the world,” Georgieva told the upcoming Reuters conference.

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Dutch minister defends trade relations with China

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A senior Dutch minister has defended the country’s deepening trade ties with China and vowed not to overreact on high-tech exports as the Biden administration pushes its European partners to harden their stance on Beijing.

The Netherlands remains “very positive” about its relationship with China, Micky Adriansens, the economy minister, said, saying Dutch companies operating there are providing a boost to innovation and trade.

As the United States presses its partners to tighten controls on exports of high-end semiconductor equipment to China, it has insisted that the Netherlands and Europe “must have their own strategy.”

“We have to think about this through – what are the risks of doing business with China in terms of certain products and value chains,” she told the Financial Times. “In general, we in the Netherlands are very positive and always have good relations with China. We do a lot of business with China. There are a lot of Dutch companies operating.”

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China accounts for 11 percent of Dutch imports, second only to Germany, and about 5 percent of exports.

The minister said that the relationship “gives a real boost to innovation and trade which is fundamental for Europe. We must cherish that as well.”

The remarks appear to contradict those of US Secretary of State Antony Blinken this week, who said he has seen “growing rapprochement” between the US and its allies on China. Blinken’s comments follow the US decision in October to impose strict export controls aimed at slowing China’s development capacity and preventing it from obtaining advanced semiconductors that could be used for military purposes.

The Netherlands is home to ASML and ASM International, two world-leading manufacturers of chip equipment.

The United States is now trying to persuade the Netherlands and Japan, another big player in the global chip industry, to strike a three-way deal that would further limit China’s access to chip-making tools.

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US sanctions, which prevent companies from sending many US-made products to China, have already hurt Dutch industry. ASMI He said This week they will affect about 40 percent of sales to China, which accounts for 16 percent of the group’s revenue.

Adriaansens declined to comment on the possible time frame in the semiconductor talks, saying it’s “not a simple yes or no,” but a matter of examining many aspects of a very complex production process. “You have to be very clear about which aspect of the production process is the most important issue for China,” she said.

“The Netherlands and Europe should have their own strategy,” she said, when asked about the US talks. At the same time, they needed to be aware of the risks associated with “specific technologies”. She added, “You don’t want to overdo it, but on the other hand, you don’t want to open your doors where safety is the number one issue — it’s a balancing thing.”

She also warned that it may not be possible to prevent China from acquiring advanced technology. “The development cycle is going very fast in China. We must not be naive.”

Adriaansens said the US’s separate actions to provide massive green technology subsidies to local businesses are troubling The Hague.

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The European Union said that a large part of the $369 billion in tax breaks and tax support in the United States Inflation Reduction Act discriminatory and violates global trade rules, and is in talks with Washington.

“The law to reduce inflation has an impact on industry and the economy in the Netherlands and the EU as a whole,” said Adriaansens. Combined with lower energy prices, it would deter investors and hurt European business competitiveness.

The minister added that the West should have a level playing field and “the same set of rules”. I compared it to the upcoming World Cup match with the United States. “We would like to have the same goal size and the same lines on the field in both halves.”

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Brazil’s Economy Grows Less Than Expected In The Third Quarter, But Still At A Record High By Reuters

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© Reuters. FILE PHOTO: Containers to be loaded at a cargo terminal at the Port of Santos in Santos, Brazil on September 16, 2021. REUTERS/Carla Carnel

BRASILIA (Reuters) – Brazil’s economy slowed in the third quarter, with growth less than expected but still enough to put it at the highest level in the chain since its inception in 1996.

The country’s gross domestic product rose 0.4% in the three months through September, state statistics agency IBGE said on Thursday, less than the 0.7% growth expected by economists polled by Reuters.

It was the fifth consecutive quarter of expansion, again boosted by the services sector, which put Latin America’s largest economy 4.5% above the level recorded before the pandemic, in the last quarter of 2019.

However, the loss of strength highlights the challenges ahead as the central bank’s aggressive monetary tightening to fight inflation began to overshadow activity further, overshadowing government stimulus ahead of the presidential election in October this year that helped boost demand.

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The performance in the third quarter was mainly driven by 1.1% growth in the dominant services sector, while manufacturing grew 0.8% and agriculture fell 0.9%.

On the demand side, investment rose 2.8%, government spending grew 1.3%, and consumer spending increased 1.0%.

Brazil’s GDP expanded by 3.6% compared to the third quarter of 2021, while economists expected an increase of 3.7%.

IBGE also revised its second quarter result to expand 1.0% sequentially from the 1.2% previously reported. But growth in the first quarter has now picked up to 1.3% from 1.1% previously.

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