Growth of global value chains has stalled: WB
‘Trade tensions could block path out of poverty’
WASHINGTON, Oct 9, (Agencies): The growth of global value chains, a key driver of trade and poverty reduction in emerging market countries, has largely stalled in the past decade and is under threat from trade conflicts and emerging new technologies, the World Bank said on Tuesday.
In a new report, the World Bank said global value chains – which spread production processes of goods over multiple countries – grew swiftly from 1990 to 2007 as reduced trade barriers and improved information technology and transportation links induced manufacturers, making up half of all trade.
But this has reversed in recent years, partly due to slower economic growth and a maturing of manufacturing in dynamic regions such as China. Trade conflicts among large economies have contributed to the decline, and could lead to a retrenchment or a segmentation of GVCs.
The report said such disruptions were already resulting from the US-China trade conflict.
“If the trade conflict worsens and causes a slump in investor confidence, the effects on global growth and poverty could be significant – more than 30 million people could be pushed into poverty,” the World Bank said in the report. “And global income could fall by as much as $1.4 trillion.”
The multilateral lender’s poverty benchmark is measured as income levels below $5.50 a day.
Increased protection was likely to induce the reshoring of global value chains or shift them to new locations unless policy predictability is restored, and uncertainty was delaying investment plans.
The stalling of global value chains is bad news for emerging market countries that participate in global value chains, because those that do have seen the steepest declines in poverty, including China, Vietnam, and Bangladesh, according to the report.
The World Bank report follows a blunt warning from the International Monetary Fund’s new managing director, Kristalina Georgieva, that trade conflicts were causing a “synchronized slowdown” in the global economy that could substantially worsen unless these were resolved.
There are other serious threats to global value chains, including new technologies such as 3-D printing that could draw production closer to the consumer, the World Bank report said.
Rising trade tensions are threatening to block a path out of poverty for the world’s poorest countries: their ability to manufacture low-cost parts for multinational corporations.
In a report out Tuesday, the World Bank warns that trade conflicts between major countries – specifically the United States and China – are disrupting supply chains and causing manufacturers to delay investment decisions to avoid getting caught in a trade-war crossfire.
For years, poor countries have been able to “export their way out of poverty” by feeding multinational companies with components, said World Bank economist Aaditya Mattoo, who co-directed the study.
President Donald Trump has reversed decades of US support for ever-freer trade. In a drive to reduce America’s vast trade deficits, he has slapped tariffs on foreign steel and other products and pursued a trade war with China over US allegations that the Chinese steal technology and pressure foreign companies to hand over trade secrets.
But the damage in trade conflicts isn’t limited to the combatants, Mattoo notes. For example, Mongolia sells metals to Chinese factories; so what hurts China, hurts Mongolia too.
The World Bank said developing countries could offset some of the damage by enacting reforms that improve efficiency – by speeding up customs processing and reducing border delays, for instance, and by modernizing ports, roads and railways.
The World Bank’s report did deliver some good news for developing countries. It downplayed the notion that new technologies such as 3D printing would reduce trade and hurt poor exporting countries.