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Steep Drop in Trade Flows Shows Pitfalls of Cross-Border Supply Chains

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Global trade flows tumbled in the first quarter, a preview of what could be the largest contraction in international commerce in decades, as the coronavirus pandemic causes policy makers and multinationals to reconsider globe-spanning supply chains that have become a defining feature of the world economy.
The World Trade Organization’s economists estimate that flows will fall by between 13% and 32% during 2020 as a whole. A decline of a third would be equivalent to the collapse associated with the Great Depression—but concentrated in one year rather than spread over three.
Trade flows are likely to rebound next year if economic activity returns to normal and the virus is contained.

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But the sudden halt in trade has exposed how interdependent countries are in sourcing and manufacturing everything from cars to ventilators to smartphones. Individual countries have become nodes in vast supply chains whose vulnerability became clear when the pandemic sliced them apart.
As a result, the coronavirus—along with previous tensions between China and the U.S. over trade and technology—is forcing multinationals and policy makers to consider ways to bring production closer to home, safeguard the production of essential goods and reduce their reliance on China as a manufacturing base.



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