Global Trade in Flux

Manufacturing supply chains are undergoing a worldwide reshaping, through a potent combination of economics, geopolitics, technology, and policy intervention. 

Underpinning this is a growing desire to build resilience to shocks by reducing concentration risk. The backdrop is the inexorable rise of protectionism, and mounting geopolitical risks associated with US-China strategic competition.

All these factors are likely to lead to increased demand to diversify production and import reliance away from China.

While it offers compelling cost effectiveness and a host of other attractions, we think China’s global manufacturing share will gradually recede from here, providing ripe opportunity for some Latam and Asian economies to take market share.

In fact, these two regions – Latam and Asia –are already increasingly inter-linking thanks primarily to the China-Latam bilateral trade that has exploded in recent years.

Based on Citi’s proprietary corporate payments data, payment flows from China to Latam have increased more than 30% over the last three years alone. 

And accelerated supply chain shifts are materializing in parts of the ASEAN region and India.

ASEAN has pursued structural reforms to improve the domestic investor climate and provide various fiscal and tariff reducing policy inducements.

India’s strategy involves improving competitiveness through high quality physical infrastructure, various fiscal support policies and its fast-growing domestic market.

Beyond such broad-based manufacturing relocation, another important shift in global supply chains relates to semiconductors.

This is driven by policy interventions motivated by national security concerns to both reduce the concentration of high-end semiconductor fabrication in Taiwan, and to contain China’s technological ambitions with the West imposing punitive export controls. 

This latest Citi GPS report offers insights from Citi’s experts across the world on how the very nature of global trade is changing, providing clear and present evidence of a rapidly shifting world order.