Global Supply Chains and Economic “Resilience”: (More) Evidence from the Pandemic

Scott LincicomeThe last few months have providedseveralcounterexamples to the trendy claim that “re‐​nationalizing” global supply chains for essential goods would have bolstered the United States’ economic “resilience” during the pandemic (and thus is a necessity in the future). As I explain in a forthcoming paper on trade, manufacturing, and national security, these claims ne ver made much sense: “greater trade and investment openness might make an economy more vulnerable to external supply or demand shocks, but it also helps reduce a nation’s vulnerability to (and improve its recovery from) domestic shocks.” New economic research confirms this intuition (and thos e anecdotes) with respect to COVID-19:In a  mid‐​2020analysis of the pandemic ’s earliest days, economists Barthélémy Bonadio, Zhen Huo, Andrei A. Levchenko and Nitya Pandalai‐​Nayar–show that the average real GDP downturn due to the Covid ‐​19 shock is expected to be — 29:6%, with one quarter of the total due to transmission through global supply chains. However, “renationalization” of global supply chains does not in general make countries more resilient to pandemic‐​induced contractions in labor supply. The average GD P drop would have been — 30:2% in a world without trade in inputs and final goods. This is because eliminating reliance on foreign inputs increases reliance on the domestic inputs, which are also disrupted due to nationwide lockdowns. In fact,...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs