Pandemic will strengthen onshoring says Atradius

The pandemic is certainly likely to strengthen the onshoring or near shoring trend that started during the US-China trade war, according to a new economic research by trade credit insurer Atradius.

In its latest country report, Atradius reveals a combination of pandemic-induced economic scarring and political rivalry is changing the landscape of international trade in Asia with the long-term outcome still to be determined.

The shift comes after three decades of globalisation which facilitated the geographic diversification of supply chains away from domestic markets, it says.

Over this time, according to the insurer, improved technology and innovation have enhanced logistics while investment liberalisation and free-trade agreements lowered the barriers between countries, enabling firms to benefit from lower costs from international markets. In particular, Asia has been at the heart of global supply chain developments and benefited enormously.

However, Atradius reports the US-China trade war and geopolitical rivalry led to tensions and tariffs which laid the foundations for diversification and a shift in global supply networks. Compounding this trend, the coronavirus pandemic has caused disruptions, leading to shortages of commodities around the world and creating a catalyst for change.

Oliver Ford, global country manager for Atradius, explained: “The combination of the pandemic and trade war has prompted businesses and governments to reconsider their reliance on foreign suppliers and international production networks. To reduce their vulnerability and mitigate risks that may arise from future external shocks, corporate leaders and governments will need to make adjustments, relying more on the supply of commodities and intermediate goods from nearby countries or regions as they exchange efficiency for resilience.”

He added that the pandemic is certainly likely to strengthen the onshoring or near shoring trend that started during the US-China trade war, but stressed that “a complete disintegration of international trade relations is unthinkable, only time will tell to what extent protectionism tendencies will prevail”.

Looking forward, the Atradius report, entitled ‘COVID scars and political rivalry: Asian trade at a crossroads’, forecasts a positive outlook for economic growth and trade in Asia. It assures businesses that supply chain disruptions will ease and recovery will gain momentum with strong GDP growth likely in coming years.

However, the long-term trade outlook remains clouded by the ongoing trade war despite a new US President in the White House.

Ford added: “Whether corporate decision makers opt for optimal efficiency or  reduced vulnerability, and whether governments choose cooperation over rivalry, will have a significant impact on future trade patterns in the region and beyond. While economic recovery has started and companies are trying to normalise their operations, the business environment certainly seems more risky than it once was. With an uncertain future, a comprehensive trade strategy is essential for any business; equipping them with intelligence on buyers and wider market trends so risks can be quickly identified and managed, alongside protection against non-payment.”

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