Tuesday, August 4, 2020

Global Value Chain Responses to Trade Wars and Pandemics

Amni Rusli has a longish piece, "Supply Chain Resilience," dissecting much of what we know about how current global value chains are being affected by the US trade wars and by the Covid-19 pandemic. It deals with relative labor costs, automation, sufficient human capital, risk, and politics. One tidbit:
Resilience is not only about reliability but also about redundancy and the ability to rebalance load away from stressed supply chains. This is too big a task on a local level but it is easier to carry out with large global networks of supply system. Consequently, this will create strong incentives for incumbents to consolidate.

These ideas are only touched on at various places in the text, but are not explicit. Diseconomies of scale and scope often lead to outsourcing some aspects of production. Sourcing it abroad implies some exchange rate risk. Quality assurance from suppliers often requires some relationship specific investments.

HT: Marginal Revolution


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