The Global Supply Chains in 2023
In this bulletin, Qiu et al. analyze the ongoing realignments of Global Supply Chains (GVCs) since the end of 2021. In particular, they look at the extent of cross-country linkages, network distances between firms, and density metrics such as the average number of supplier and customer linkages at the firm level. They find:
- Since December 2021, there has been a notable increase in network firm distance, with the average distance between connected firm pairs rising from 9.67 in 2021 to 10.03 in 2023. This shift has been particularly pronounced for supply chains involving suppliers from China and customers in the United States, increasing from 9.18 to 10.11.
- The lengthening of the distance between suppliers in China and customers in the United States suggests that firms from other jurisdictions, notably in Asia, have interposed themselves in the supply chains from China to the United States. In the IT industry, the decrease of the China-US linkages has been striking, with other other Asian economies picking up these links.
Mapping the realignment of global value chains
Authors: Han Qiu, Hyun Song Shin, Leanne Si Ying Zhang
The impact of friendshoring and reshoring in the U.S.
Alfaro and Chor in this paper find similar trends in GVCs realignment as Qiu et al. above. The authors complement their research by examining the frequency with which the terms “friendshoring”, “nearshoring”, or “reshoring” appear in earnings conference calls conducted by listed firms, particularly when these terms are raised in the context of sourcing from China. They use call transcripts in Refinitiv Eikon that have been processed by NL Analytics and find a sharp rise in the use of phrases about friendshoring, nearshoring, or reshoring away from China. Vietnam and Mexico, two low-wage locations, feature as countries gaining in import share. In addition, the production line positioning of the US’ imports has also become more upstream, which is indicative of some reshoring of production stages. Alfaro and Chor argue that these GVC trends are largely the result of intentional government policies that started with the Trump administration and continued with the Biden administration’s turn toward large-scale industrial policies.
[W]e seek to register two cautionary notes. First, the policies which have set this reallocation in motion may ultimately not even achieve their stated goal of reducing the US dependence on supply chains linked to China. Already, we can see in the trade data that while China’s share in US imports has fallen, its share in Europe’s imports has risen. China has moreover stepped up its trade and FDI in both Vietnam and Mexico in recent years. This means that the US could well remain indirectly connected to China through its trade and GVC links with these third-party countries.
Global Supply Chains: The Looming “Great Reallocation”
Authors: Laura Alfaro, Davin Chor
From: Harvard Business School, Tuck School of Business at Dartmouth