Global trade needs to learn from the supply chain disruptions caused by the COVID-19 pandemic and become more diverse, not less, Gita Gopinath, the First Deputy Managing Director of the International Monetary Fund (IMF), tweeted on Tuesday.

Share Market Live

NSE

The economic turmoil caused by the pandemic had exposed the vulnerabilities in supply chains and led to the call for higher domestic production of goods, new IMF research has revealed. The lockdowns in countries had international spillovers, leading to larger declines in imports of goods.

In the first half of 2020, lockdowns in countries, which are trade partners to others, accounted for up to 60 percent on an average of the decline in imports, the research said. Industries that are heavily dependent on global value chains, such as electronics, were largely impacted by the disruption.

Although international trade proved to be more resilient than during previous global crises, the disruptions brought about by the pandemic led to calls for reshoring of goods and a larger focus on domestic production.

“The latest World Economic Outlook shows that dismantling global value chains is not the answer—more diversification, not less, improves resilience,” the IMF said in a blog post .

Referring to the research by the IMF, Gopinath said global trade needs to adopt two options for building supply chain resilience -- diversifying inputs across countries and increasing substitutability of inputs.

“New @IMFNews research shows that global trade needs more supply diversity, not less. To build resilience diversify inputs across countries and increase substitutability of inputs,” she tweeted before the release of the World Economic Outlook.

New @IMFNews research shows that global trade needs more supply diversity, not less. To build resilience diversify inputs across countries & increase substitutability of inputs. Eg. @Tesla dealt with the semiconductor shortage by rewriting car software. https://t.co/hp9m74djow

— Gita Gopinath (@GitaGopinath) April 19, 2022She gave the example of electric car manufacturer Tesla, which “dealt with the semiconductor shortage by rewriting car software”.

According to the IMF blog post, to deal with the shortage in semiconductors, Tesla rewrote software to enable its cars to use alternative semiconductors. This shows greater flexibility in production which is one way of bringing in substitutability. Another way of achieving substitutability is by standardising inputs internationally, the blog said.

Automobile company General Motors recently said it was collaborating with semiconductor suppliers to bring down the number of unique chips used by the company by 95 percent to just three families of microcontrollers. Adopting such standardisation methods would reduce the dependency on a host of chips and eliminate costs of substituting between them, the research said.

Prior to publishing the World Economic Outlook, Gopinath had shared the Global Manufacturing PMI (Purchasing Managers' Index) last week and tweeted that despite a few months of improvement, “the latest data points to renewed pressure on supply chains and input prices”. The economist had hoped the pressure would be short-lived.

After a few months of improvement the latest data points to renewed pressure on supply chains and input prices. Hoping this is short lived. pic.twitter.com/fFfX2HCxSf

— Gita Gopinath (@GitaGopinath) April 15, 2022

(Edited by : Sudarsanan Mani)

First Published:Apr 19, 2022 12:35 PM IST