In the ever-changing landscape of international trade, supply chains are undergoing a significant transformation, reshaping global economic dynamics. The International Centre for Trade Transparency and Monitoring sheds light on the intricate developments that have unfolded since December 2021, as companies navigate through the aftermath of the COVID-19 pandemic and geopolitical events such as Russia’s invasion of Ukraine.
Recent analyses by economists at the Bank of International Settlements (BIS) reveal a noteworthy trend: the realignment of global supply chains towards a phenomenon termed “on-shoring.” This process involves companies bringing production back to their home countries, marking a departure from the unrestrained offshoring practices that characterized the era of globalization.
The BIS economists found that, contrary to expectations, this shift towards on-shoring has not necessarily shortened supply chains. In fact, supply chains are becoming longer and more complex as companies diversify their production locations. The number of direct links between companies and overseas suppliers has decreased, indicating a reduced reliance on cross-border partnerships. Instead, the researchers observed an increase in indirect links between manufacturing firms, introducing new nodes into existing supply chains.
An interesting facet of this transformation is the growing distance between supplier firms in China and customer firms in the United States. The average distance between connected firm pairs increased from 9.18 to 10.11 from December 2021 to September 2023. This suggests that companies from other jurisdictions have strategically positioned themselves within the supply chains originating in China and extending to the United States.
It’s crucial to note that while the overall distances between firms in supply chains have lengthened, the density of the global network of manufacturing companies has not seen a significant increase. This implies that, despite the diversification of intermediate production and processing steps to other parts of Asia, China remains an integral player in the intricate web of global supply chains.
In essence, the evolving landscape of international trade is characterized by a complex interplay of on-shoring, indirect linkages, and the enduring significance of China in global supply chains. As we navigate these shifts, the International Centre for Trade Transparency and Monitoring remains committed to monitoring and analyzing the trends that shape the future of global trade.
