Sunday, January 22, 2023

International trade concentration is a problem not discussed

 


While everyone talks about international trade as a complex web of competitive suppliers, the reality is different with a high level of concentration in many key industries. The high concentration with few suppliers means supply disruption like we have seen over the last two years are more likely. See McKinsey Global Institute "The complication of concentration in global trade". 

About 40% of global traded is concentrated with only a few suppliers. Importers around the world are dependent on these key suppliers so a trade disruption cannot just be solved. by moving business to a different firm. Pandemics, sanctions, supply chain disruptions will all be magnified if shocks are focused in these key industries. Manufacturing may be competitive but the raw inputs may be concentrated, so international dependency is significant. This is especially true with agriculture, mining, and electronics. Supply shocks may be more prevalent given this concentration which will translate into higher "inflation". Supply chains matter.





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