"It is fashionable to talk of deglobalization again. More likely is a continuing reshuffling of trade flows that creates new geopolitical winners -- if they are savvy enough to take advantage.
Global trade took some big knocks in 2022. Russia's commodity flows to Europe shrunk to a trickle. Lockdowns in China continued to disrupt supply chains. The Biden administration rolled out huge subsidies for making semiconductors and electric-vehicle batteries in the U.S. -- industries now dominated by Asia. At the company level, following unrest in Zhengzhou, China, Apple accelerated plans to diversify iPhone manufacturing away from the country.
Politicians like to trumpet national security and jobs back home, but they aren't easy to achieve. Former President Donald Trump unleashed a previous wave of talk about deglobalization in 2018 with his tariffs on Chinese products. So far, they have had the effect of boosting U.S. imports from Southeast Asian nations such as Vietnam, Indonesia and Thailand at China's expense, rather than reducing imports overall.
Similarly, the Ukraine military operation and sanctions have redrawn the global energy map -- rerouting Russian energy exports to China and India, and European imports from the U.S. and Middle East -- without increasing Europe's self-sufficiency.
The region wants to change this by building up renewables, but this is a long-term plan that ironically is likely to boost imports of nonenergy commodities such as copper. Tellingly, wind-farm projects are currently held up by snarled global supply chains as well as local permitting bottlenecks.
It makes sense that globalization can't easily shift into reverse. The return of inflation has served as a reminder that consumers don't easily accept the cost of greater trade frictions. Subsidies can make a difference in a few politically sensitive sectors such as microchips and batteries. But even there, new trade routes will open or existing ones will swell to replace those under threat. For example, new U.S. battery plants will need vast amounts of inputs from mining hubs such as Australia, Chile and Canada.
Another big winner in the U.S.-China trade war could be Mexico. It has lower wages than China, an established manufacturing sector anchored by the automotive industry and the perfect geographic position for serving the U.S. market -- particularly since the rise of videoconferencing, which has increased the importance of being in the same time zone.
Analysts at Bank of America already see some evidence that this is happening, with U.S. imports of Mexican manufactured goods roughly 60% higher than before the pandemic as of October. Interestingly, Mexico has gained share of U.S. imports in some low-tech industrial sectors such as plastics and textiles, while China has lost share.
The rub is that countries looking to replace China in supplying the U.S. may need to invest a lot. China's rise wasn't all about cheap labor. Bob Koopman, senior professorial lecturer at American University and a former chief economist at the World Trade Organization, points out that modern infrastructure was a big factor in drawing global companies to use the country as a manufacturing hub.
Local politics also will play a role. Chile's new left-wing government this summer proposed a dramatic increase in mining royalties before settling in October on a more investment-friendly plan. Mexico's dispute with the U.S. and Canada over its energy policy, which companies north of the border think puts them at a disadvantage, highlights the risk that it fails to capitalize on today's "nearshoring" opportunity.
Even the countries best-positioned to take advantage of today's potentially seismic changes in global trade will need to work at it." [1]
Who would like to repeat what was done to China - temporary cheap primitive stuff producer kicked out when salaries start growing? Mexico is too smart for this. Sorry guys, go to the jungle.
1. Global Trade Is Shifting, Not Reversing --- Mexico is one country well-placed to take advantage of U.S.-China trade war
Wilmot, Stephen. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Jan 2023: B.10.
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