Electronics market shows US-China decoupling will hike inflation and slow growth
Singapore's central bank has a gloomy vision of the future
According to the Monetary Authority of Singapore (MAS), trade barriers between US and China have resulted in geoeconomic fragmentation and will likely result in slower global growth and higher inflation.
Speaking at the at the IMAS-Bloomberg Investment Conference on Thursday, MAS managing director Ravi Menon said tensions between the US and China have not only affected the two countries, but global trade patterns and supply chains as well.
The US and China have implemented tighter cross-border investment restrictions and stepped up domestic production of critical goods as a result, said Menon.
This has forced some companies to move production out of China. A case in point: Foxconn's recent $62.5 million commitment to expand factories in Vietnam and the stream of investments in Indian manufacturing facilities.
"These shifts are most evident in the electronics industry," said Menon, who pointed out that Vietnam has seen the largest increase in its goods' exposure to the US market. Menon cites Taiwan and Thailand as also having gained market share. Between 2017 and 2021, the US's share in China's electronic exports dropped four percentage points.
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The proposed chip alliance between the US, Taiwan, South Korea and Japan could drive away trade from countries not included in the alliance while diverting some trade from China to Vietnam, India and Mexico – all areas the MAS exec said had great potential for hosting final electronic assembly.
"The result of all this geoeconomic fragmentation is most likely slower global growth," said the managing director.
One study Menon drew on pegged global GDP losses at 1.2 percent for limited trade fragmentation and another at 8-12 percent in individual countries if there was a "full technological decoupling" of the US and China.
However, it's the low-income developing countries that will suffer the most as they miss out on the knowledge transfer that comes when their more advantaged neighbors bring work and expertise.
The supply chain diversification, according to Menon, will drive inflation. Relocation is expensive, as is beefing up staff, and a suppressed global competition distracted by such matters will reduce innovation and increase prices. Larger established companies will thus have the advantage in this nasty new normal. ®