How Will the Coronavirus Affect the Global Supply Chain?
The global supply chain has played an increasingly important role in the international division of labor since the current structure was formed in the 1990s. Recently,the supply chain has been hit hard by the unprecedented outbreak of the novel coronavirus,which has had an impact that far exceeds that of the 2008 global financial crisis. After the pandemic is finally brought under control,the global supply chain will exhibit some new characteristics. This is what we can expect and what it means for China.
Long Recovery Phase
The impact of the coronavirus pandemic on the global supply chain is huge. In terms of the international economy and world trade,global GDP will decline by 3% in 2020,much worse than the drop during the 2008 global financial crisis,according to the World Economic Outlook report,issued in April by the International Monetary Fund. This will be the worst global performance since the Great Depression of the 1930s. The World Trade Organization estimates there will be a decline in the global trade in goods ranging from 13% to 32% in 2020,surpassing the setback during the 2008 international financial crisis and comparable to that of the Great Depression. Transport has also been greatly affected. Moreover,it will take years for the global supply chain to recover from this kind of disruption. For example,although the supply chain rebounded quickly in 2010 after the severe jolt in 2009,it still has not fully returned to the pre-2008 levels. As we can see from the gradual pace of recovery after the financial crisis,it is reasonable to assume it could take a decade for the supply chain to recover fully from the pain inflicted by the novel coronavirus. Many enterprises have shut their doors permanently,and there will be a further shakeout within various industries.
Emphasis on Risk Management
Nowadays,the composition of the global supply chain is the dominant form of the international division of labor. Participants,whether enterprises or countries,obtain huge benefits from this extended supply chain. At the same time,there are risks that were not part of the traditional international division of labor. For instance,the shrunken supply of upstream industries will bring production risks to downstream industries. Enterprises have been using supply chain risk management and supply chain coordination as important ways to address these risks. With respect to risks from the novel coronavirus,the supply of components and parts by China was crippled in the early stage of the outbreak. That was because China was most seriously affected country at that time and production was halted. The virus was eventually brought under control in China but it spread around the world. Chinese enterprises were hampered in their planned resumption of production because of disruptions to the supply of parts from abroad. The epidemic has highlighted the importance of supply chain risk management. When business decisions are made,it is necessary to take into consideration economic security,especially the risks from factors such as so-called "black swan" events. Decision-makers also need to prepare countermeasures for these catastrophic events.
Bigger Role for Governments
Multinational companies play a leading role in the global supply chain. They arrange supply chains globally through international direct investment. Meanwhile,small and medium-sized enterprises are proactively integrating into the global supply chain. Though influenced by government policies,the global supply chain is promoted by enterprises on the basis of their own cost-benefit analyses. It is mainly the result of market-oriented behavior extending from one country across the globe. Comparatively speaking,the willingness of the government to guide the global supply chain framework is not strong,and its role is limited. Nevertheless,the coronavirus has made governments realize the strategic importance of the global supply chain to their national interests. They will consider strategies guiding their role in the supply chain to help enterprises reduce related risks. Consequently,governments will become more involved in and show greater influence over the global supply chain. The allocation of resources in the world market will therefore be more directly affected by the government.
Intensifying Regionalization and Localization
The global supply chain is a combination of regional supply chains: mainly the North American,European and East Asian ones. Despite the strong connections among the three regional supply chains,there are much more significant connections within each region. The past three decades have seen a strengthening of these three regional supply chains with the US,Germany and China as the centers. However,transport disruptions from the coronavirus show that in spite of the great reduction in transportation costs due to the progress of science and technology,distance is still an obstacle to supply chain security. The shorter the distance,the less of a threat from transport disruptions. In the future,the three regional supply chains will augment the economic and trade ties within each region,for a better ability to resist external shocks. Simultaneously,there will be changes in the balance of the three chains. The East Asian supply chain will gain importance as it was q