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Coronavirus chaos can prompt a needed rethink on global trade and economic integration
- Confidence in the benefits of trade and integration has suffered as trade wars highlight the risks of interdependence, and tech advances weaken the economic rationale for far-flung supply chains
- The coronavirus and its disruptions might finally push the world to consider a new trading order
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The still-evolving coronavirus outbreak has already disrupted trade and economic performance both regionally and globally. Perhaps the most insidious impact of the virus stems from China’s pre-eminent position as a producer of intermediary products that feed into global supply chains.
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China accounts for almost one-fifth of world manufacturing and Chinese intermediary products are predominant in the electronics, car, machinery and textile sectors. Subtracting Chinese inputs from these supply chains will, in some instances, cause production to grind to a halt, as has been the case for Hyundai Motor in South Korea.
In other instances, alternative or workaround solutions will be found but they will be, by definition, suboptimal and more expensive. This will embed higher costs throughout the supply chains and could ultimately result in higher inflation.
The picture is no less grim for countries which supply intermediary products to China’s shut factories. The two economies most affected are Taiwan and South Korea; their top export to China is the electronic integrated circuit, which accounts for 5 per cent of Taiwan’s gross domestic product and 2 per cent of South Korea’s.
Aside from affecting the flow of goods across borders, the virus has been highly disruptive in less obvious ways. At Australian universities – and in surrounding communities – which are heavily dependent on full-tuition Chinese students, travel restrictions are preventing the return of the students.
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