https://www.cnbc.com/2023/04/06/imf-foreign-direct-investment.html
The International Monetary Fund said in a report on Wednesday, April 5th 2023, that the global tension between the United States and China could have significant impacts on the world output. This is because the tensions would disrupt the overseas investment and therefore lead to a long-term loss of 2% of the world’s GDP. This would highly impact supply chains that are already suffering, and countries are brainstorming various ways to create supply chains that can withstand this tension.
IMF economists said that money is now flowing into what are considered “geopolitically close countries.” The rise of “friend-shoring” could hurt less developed markets the most, the organization said. Friend-shoring or ally-shoring is the act of manufacturing and sourcing from countries that are geopolitical allies. Some companies and governments pursue friend-shoring as a way to continue accessing international markets and supply chains while reducing certain geopolitical risks.
As we have discussed in class, economies can experience shocks, and from our planner’s headache problem, we saw first hand how hard it is for companies to redesign their resource allocation and needs to produce products. These tensions have created strong vulnerability for countries to experience macroeconomic shocks. Overall, companies and countries are in dire need for reconfiguration of supply chains in order to keep them viable and not further hurt the world economy and its various systems.
1 comment:
I have to say after the trade war between China and the US< I would have expected us to move more manufacturing back to the US. The tensions has only risen with the War in Ukraine and the increased tensions between China and Taiwan, so it makes sense that supply chains in China can impact the US and world economy. There is a theory in International Relations called the Liberalism in which global peace is achieved due to an increased network of economic reliance of countries upon one another. The ally-shoring tactic, however, undermines this theory because peace is only achieved between those allied and co-dependent countries. I am worrisome that ally-shoring will cause significant damage to the international market and world economy.
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