Over the past several years manufacturing around world has created a complex system of supply chains. The global pandemic created massive issues within this due to higher demand of some products and extreme drop offs for others, which still has made problems for the current day. This has caused countries to try to manufacture more in house so that they're better equip for the future in case another issue occurs. Self sufficiency seems to be the answer for many of these issues, as 60% of the decline in imports in 2020 was due to lockdowns by trade partners.
The research shows that even though countries may be believe self sufficiency is the answer, the real answer is to increase the variety of countries you import from. This way you can have products easily substituted if another supply chain issue arises in a similar way. 69% of the products in Europe and 80% of the products in the Western Hemisphere are produced in house. Being dependent on your own economy decreases the diversification of the global supply chain. If another big disruption were to cause a 25% drop in labor supply, this would decrease the total GDP of a country by more than 1%. It may be difficult to increase diversification but it can be started with FDI in infrastructure and lowering trade barriers.
https://www.economist.com/finance-and-economics/2022/04/23/new-research-spells-out-the-benefits-of-diverse-supply-chains
I think we can all agree that lockdowns have significantly effected supply chain issues across the world. However, I do not know if in house manufacturing is the answer. Doing so could significantly increase effect global trade and could cause higher prices as a result.
ReplyDeleteOne of the problems that I can foresee with countries trying to produce goods in house is of comparative advantage, countries may be able to produce goods that they would usually import but at a significantly higher cost.
ReplyDeleteBoth ideas are fairly interesting ways to solve this issue. I feel like the main issues with trying to focus on self sufficiency would be the drop in efficiency and the fact that there are things we still have to trade for. However, diversifying the number of trade partners we have would be helpful, but another global shutdown would adversely affect supply no matter the number of trade partners we have.
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