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#152 A Long View of the 2020 Global Economy





Summary:

It is important to take a longer-term view of global economic prospects that looks beyond the short-term ups and downs of the economic and political cycle. This posting focuses on the fundamental drivers of growth: demographics and productivity, which in turn is driven by technological progress and diffused through international trade and investment. The contents of this Blog posting an assembly of data from the firm PriceWaterhouseCoopers;
https://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html 
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A Long View of the 2050 Global Economy

Emerging economies will dominate the 21st century. By 2050 we project China will be the largest economy in the world by a significant margin, while India could have edged past the US into second place and Indonesia have risen to fourth place. The EU27’s share of global GDP could have fallen to below 10%. The world economy will more than double in size between now and 2050, far outstripping population growth.


Emerging markets will dominate the world’s top economies in 2050 (measured in PPP GDP):


Within 34 years the US and Europe will steadily lose GDP rank to China and India:



The following is a summary of key findings:

1. The world economy could more than double in size by 2050, assuming broadly growth-friendly policies and no major global civilization-threatening catastrophes. 
2. Emerging markets will continue to be the growth engine of the global economy. By 2050, the E7 economies could have increased their share of world GDP from around 35% to almost 50%. China could be the largest economy in the world, accounting for around 20% of world GDP in 2050, with India in second place and Indonesia in fourth place (based on GDP at PPPs). 
3. A number of other emerging markets will also take center stage – Mexico could be larger than the UK and Germany by 2050 in PPP terms and six of the seven largest economies in the world could be emerging markets by that time. 
4. The EU27 share of world GDP could be down to less than 10% by 2050, smaller than India. 
5. Vietnam, India and Bangladesh to be three of the world’s fastest growing economies over this period. UK growth has the potential to outpace the average rate in the EU27 after the transitional impact of Brexit has passed. The fastest growing large EU economy to be Poland. 
6. Today’s advanced economies will continue to have higher average incomes, but emerging economies should make good progress towards closing this gap by 2050. 
7. To realize this growth potential, emerging market governments need to implement structural reforms to improve macroeconomic stability, diversify their economies away from undue reliance on natural resources and develop more effective political and legal institutions. 




How will the global economic order change by 2050?

Growth in the E7 will continue to outpace that of the G7 with annual average growth of around 3.5% between 2016 and 2050, while the G7’s growth will be slower at around 1.6% per annum. G7 is a group of advanced economies of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. E7 is a group of emerging market economies of Brazil, China, India, Indonesia, Mexico, Russia and Turkey.

China’s rises to around 20% and India’s to 15%. The US’s share of world GDP will also fall, potentially to around 12% by 2050. By 2050, India could overtake the US to be the world’s second largest economy in GDP at PPP terms, and Indonesia could be the world’s fourth largest economy. Six of the seven largest economies could be today’s emerging markets by 2050. Vietnam, India and Bangladesh could achieve annual average growth of around 5% over the next 34 years. Nigeria could achieve growth of around 4% per annum if it can diversify and reform its economy. 


EU will steadily lose ground relative to the Asian giants. By 2050, emerging economies such as Mexico and Indonesia are likely to be larger than the UK and France, while Pakistan and Egypt could overtake Italy and Canada. In terms of growth, Vietnam, India and Bangladesh could be the fastest growing economies over the period to 2050, averaging growth of around 5% a year. The following chart shows the projected average annual GDP growth rate over the next 34 years for all of the 32 countries. Total GDP growth is also broken down into how much is attributable to population growth and how much to real GDP per capita growth. 



Nigeria has the potential to be the fastest growing large African economy and could move up the GDP rankings from 22nd place to 14th by 2050. But Nigeria will only realize this potential if it can diversify its economy away from oil and strengthen its institutions and infrastructure. Colombia and Poland also exhibit great potential, and are projected to be the fastest growing large economies in their respective regions, Latin America and the EU.

Growth in many emerging economies will be supported by relatively fast-growing populations, boosting domestic demand and the size of the workforce. This will, however, need to be complemented with investment in education and an improvement in macroeconomic fundamentals to ensure there are sufficient jobs for growing numbers of young people in these countries.



The projected annual global economic growth to average around 3.5% over the next 4 years to 2020, slowing down to 2.7% for 2021-2030, 2.5% for the decade after that, and 2.4% for 2041-2050. This will occur as many advanced economies experience a marked decline in their working-age populations.


There will be also a rise in income inequality:


Nevertheless, the GDP/capita will remain the highest for the USA and continue at half of the USA amount in China because of the continued differences in the size of the population:



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Notes:
GDP at PPP: gross domestic product at purchasing power parity adjusts for price level differences across countries and provides a better measure of the volume of goods and services produced in an economyEurope
GDP at MER: gross domestic product at market exchange rates provides a better measure of the value of goods and services produced in an economy and converts a country’s GDP in national currencies to US$ based on current market exchange rates

#159 Systems Warfare by the China PLA

The following is extracted from:
Engstrom, J., How the Chinese People's Liberation Army Seeks to Wage Modern Warfare, RAND Corporation, 2018, https://doi.org/10.7249/RR1708

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This blog reflects an attempt to understand current thinking in the Chinese People's Liberation Army (PLA) regarding system of systems and systems warfare, as well as current methods of warfare.  It reflects current thinking in the PLA regarding system of systems and systems warfare, as well as current methods for fighting wars. The PLA now characterizes and understands modern warfare as a confrontation between opposing operational systems rather than merely opposing armies.

A doctrine about victory in modern warfare recognizes system destruction warfare as a method of modern war fighting. Warfare is no longer centered on the annihilation of enemy forces on the battlefield. Rather, it is won by the belligerent that can disrupt, paralyze, or destroy the operational capability of the enemy’s operational system. This can be achieved through conventional strikes against key points while simultaneously employing a more robust, capable operational system of its own.

This blog should be of interest to scholars of the PLA, policymakers, and anyone else who seeks insight into scholars how the PLA conceptualizes modern warfare. It is important to note that many systems discussed in here are conceptual. The PLA continues to refine its concepts and theories about how to best carry out systems-based warfare. Various components of the PLA’s envisioned operational system may not yet be fielded.

The RAND research, on which this blog is based, was sponsored by United States Pacific Command, was supported by the Office of the Secretary of Defense the defense Intelligence Community.
Systems thinking has an enormous impact on how the PLA is currently organizing, equipping and training itself for future war-fighting contingencies.

Chinese military publications indicate that the PLA has recognized that war is no longer a contest between particular units, arms, services, or even specific weapons platforms of competing adversaries, but rather a contest among numerous adversarial operational systems.

This mode of fighting is unique to modern warfare, as are the battlefields. This is referred to as systems confrontation which is waged not only in the traditional physical domains of land, sea, and air, but also in outer space, nonphysical cyberspace, electromagnetic, and even psychological domains. Whereas achieving dominance in any one of physical domains was sufficient for war fighting success in the past, Systems Confrontation Warfare requires that “comprehensive dominance” be achieved in all domains or battlefields.

As result, operational systems must be sufficiently multidimensional to wage war in all of these domains simultaneously. According to these concepts the enemy “loses the will and ability to resist” once its operational system cannot effectively function. There are four target types that PLA planners seek when attempting to paralyze the enemy’s operational system.

First, the PLA literature calls for strikes that degrade or disrupt the flow of information within the adversary’s operational system.
Second, the literature mentions degrading or disrupting that operational system’s essential factors, which include, but are not limited to its command and control (C2), reconnaissance intelligence, and firepower capabilities.
Third, the literature advocates degrading or disrupting the operational architecture of the adversary’s operational system. These include support capabilities and therefore would consist of, for example, the entire C2 network, reconnaissance intelligence network, or firepower network.
Forth, calls for disrupting the time sequence and/or tempo of the enemy’s operational architecture. This is to degrade and undermine the operational system’s own “reconnaissance & control- attack-evaluation” process.

The PLA’s own operational systems do not exist in peacetime, but rather are purpose-built when the need for impending operations becomes apparent. As a result, each operational system is unique with regard to the conflict or operation it was designed to wage. It considers such various aspects as the scope, scale, and abilities of the adversary’s operational system(s), as well as the various battlefield domains and dispositions required by the impending war fight. The actual generation of an operational system begins by combining a “wide range of operational forces, modules and elements” through integrated information networks platform that are “seamlessly linked.”

The PLA operational system comprises modular designs for five main component systems:
1. The command system;
2. The firepower strike system;
3. The information confrontation system;
4. The reconnaissance intelligence system;
5. The support system.

There will be components of operational systems that exist in peacetime, to be may be augmented when the operational system for a warfare engagement is created. This includes the reconnaissance intelligence system and components of the command organization system.

SUMMARY:

Systems confrontation is recognized by the PLA to be the mode of warfare in the 21st century, as the PLA perceives militarized conflict to be a contest between opposing operational systems.
System destruction warfare constitutes the PLA's theory of victory.
PLA sees system of systems as the foundation by which to achieve integrated joint operations and "win information-based local wars."
Provided a strong impetus to move from the former Military Region structure to the recently developed theater command structure.
Strategic Support Force has been created to unify and improve the PLA's efforts in achieving dominance in the space, cyber, electromagnetic, and possibly psychological domains.




#153 Technology and the The Future of Global Trade

Summary:

Global value chains as we know them today could not exist without technology. The previous wave of digital technologies—from instant communications to supply chain management software—reduced barriers of distance and complexity, enabling companies to interact with suppliers and customers anywhere around the world. By reducing transaction costs, digital technologies enable trade in goods and services to soar.

This Blog was extracted from: https://www.mckinsey.com/featured-insights/innovation-and-growth/globalization-in-transition-the-future-of-trade-and-value-chains


Technology and The Future of Global Trade

Although trade tensions dominate the headlines, deeper changes in the nature of globalization have one largely unnoticed. We analyze 23 industry value chains spanning 43 countries to understand how trade, production, and participation changed from 1995 to 2017. Grouping these value chains into six archetypes based on their trade intensity, input intensity, and country participation reveals diverging pathways. We see that globalization reached a turning point in the mid-2000s, although the changes
were obscured by the Great Recession. Among our key findings:
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First, goods-producing value chains have become less trade-intensive. Output and trade both continue to grow in absolute terms, but a smaller share of the goods rolling off the world’s assembly lines is now traded across borders. Between 2007 and 2017, exports declined from 28.1 to 22.5 percent of gross output in goods-producing value chains.

Second, cross-border services are growing more than 60 percent faster than trade in goods, and they generate far more economic value than traditional trade statistics capture. We assess three uncounted aspects (the value added services contribute to exported goods, the intangibles companies send to foreign affiliates, and free digital services made available to global users). National statistics attribute 23 percent of all trade to services, but including these three channels would increase their share to more than half.

Third, less than 20 percent of goods trade is based on labor-cost arbitrage, and in many value chains, that share has been declining over the last decade. The fourth and related shift is that global value chains are becoming more knowledge-intensive and reliant on high-skill labor. Across all value chains, investment in intangible assets (such as R&D, brands, and Intellectual Property) has more than doubled as a share of revenue, from 5.5 to 13.1 percent, since 2000. Finally, goods-producing value chains (particularly automotive as well as computers and  electronics) are becoming more regionally concentrated, especially within Asia and Europe. Companies are increasingly establishing production in proximity to demand.
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Three forces explain these changes in value chains. First, emerging markets’ share of global consumption has risen by roughly 50 percent over the past decade. China and other developing countries are consuming more of what they produce and exporting a smaller share. Second, emerging economies are building more comprehensive domestic supply chains, reducing their reliance on imported intermediate  inputs. Lower global trade intensity is a sign that these  countries are reaching the next stage of economic development. Finally, global value chains are being reshaped by cross-border data flows and new technologies, including digital platforms, the Internet of Things, and automation and AI. In some scenarios,  these technologies could further dampen goods trade  while boosting trade in services over the next decade.

Companies face more complex unknowns than ever before, making flexibility and resilience critical. With  the costs and the risks of global operations shifting,  companies need to decide where to compete along  the value chain, consider new service offerings,  and reassess their geographic footprint. Speed to mark e next-generation technologies on trade flows is unclear, but in some scenarios, they could dampen goods trade and further boost flows of services and data. As they diffuse through global value chains, they will create openings for new players and opportunities for incumbents to shift their business models. Different regions of the world may also be able to develop new competitive advantages.

The history of globalization can be seen as waves of “unbundling.”  The first wave came after the Industrial Revolution, when the introduction of steamships and railroads reduced the cost of moving goods. This changed the economics of buying things made halfway around the world. This trend continued through the 20th century. From 1930 to 2000, the price of shipping fell by approximately two-thirds. Production could now occur far from the final consumer.

The second great unbundling was the more recent ICT revolution, which made it possible for companies to disaggregate linear production processes—that is, breaking them into discrete steps and outsourcing some of those steps to external suppliers. Global value chains existed before the internet, but the internet helped to fuel further fragmentation and realignment. Many more countries began participating in all types of value chains, and networks of specialized suppliers and assembly plants sprang up worldwide.

During this state there will be widespread reduction in manufacturing employment in all advanced economies:

The reductions in manufacturing employment cannot be reversed, with the exception Germany that has meanwhile become an export leader in automobiles. There is no way how Italy, US, France, Japan and the UK can create the manufacturing and human capital that would reconstitute industrialization. 

The Information & Communications Technology (ICT) revolution also paved the way for the explosive growth of cross-border data flows noted in progress of digital globalization. According to World Bank data, 46% of the world is online, up from 20%a decade ago. The number of cellular subscriptions worldwide now exceeds the planet’s population. From 2005 to 2017, the amount of cross-border bandwidth in use grew 148 times larger.  Some of the traffic being carried reflects companies interacting with their foreign operations, suppliers, and customers.

While ICT and the internet accelerated trade by reducing transaction costs, the next wave of technologies will have a more varied and complex effect:

1. Reducing transaction costs.  Some new technologies will smooth transportation   logistics, financing, and search and coordination—all of which enables increased trade in goods, services, commodities, and digital flows.
2. Altering production processes. Advanced robotics, AI, and analytics are the building blocks of a more automated and efficient form of digitized manufacturing—and because they substitute for labor, they may reduce the importance of wage differentials in location decisions. Additive manufacturing makes it possible to produce goods even closer to the end consumer; it also supports speed and customization.
3. Creating and transforming products.  From renewable energy and electric vehicles to music streaming, technology is transforming some existing products and services as well as creating entirely new ones.

Digital Platforms Create New Markets and Reduce Coordination Costs

The costs of transportation and logistics, financing, and search and coordination, as well as time in transit, are among the biggest barriers to trade. But digital platforms, logistics technologies, and data-processing technologies reduce these frictions. Digital platforms create new markets and reduce coordination costs. Digital platforms for e-commerce, social media, payments, travel, learning, and labor services connect buyers and sellers directly, lowering the costs of search and coordination   between buyers and sellers. 

E-commerce has already enabled significant cross-border flows by aggregating huge selections and making pricing and comparisons more transparent. It has also reduced the impact of distance on trade flows. Research projects that cross-border B2C e-commerce alone will grow to approximately $1 trillion by 2020. Cross-border B2B e-commerce is likely to be several times larger. 
Logistics technologies also continue to improve. The Internet of Things (IoT) can make delivery services more efficient by tracking shipments in real time, and AI can route trucks based on current road conditions. Automated document processing can speed goods through customs. At ports, autonomous vehicles can unload, stack, and reload containers faster and with fewer errors. Blockchain shipping solutions can reduce transit times and speed payments. We calculate that new logistics technologies could reduce shipping and customs processing times by 16 to 28%. By removing some of the frictions that slow the movement of goods today, these technologies together could potentially boost overall trade by 6 to 11% by 2030.

Automation Changes Production Processes

Roughly half of the tasks that workers are paid to do could technically be automated, suggesting a profound shift in the importance of capital versus labor across industries. The growing adoption of automation and robotics in manufacturing makes proximity to consumer markets, access to resources, workforce skills, and infrastructure quality assume more importance as companies decide where to produce goods. Companies are reconsidering location decisions as a result. Service processes can also be automated by artificial intelligence (AI) agents.



The addition of machine learning to these virtual assistants means they can perform a growing range of tasks. Companies in advanced economies are already automating some customer support services rather than offshoring them. This could reduce the $160 billion global market for business process outsourcing (BPO), now one of the most heavily traded service sectors. Additive manufacturing (3-D printing) could also influence future trade flows. Most experts believe it will not replace mass production over the next decade; its cost, speed, and quality are still limitations. But it is gaining traction for prototypes, replacement parts, toys, shoes, and medical devices. While 3-D printing could reduce trade in some specific products substantially, the drop is unlikely to amount to more than a few percentage points across overall trade in manufactured goods by 2030. 

 Overall, we estimate that automation, Artificial Intelligence (AI), and additive manufacturing could reduce global goods trade by up to 10 percent by 2030. However, this reflects only the direct impact of these technologies on enabling production closer to end consumers in advanced economies. It is also possible that these technologies could lead to near-shoring and regionalization of trade instead of re-shoring in advanced economies.

Invisible Value of Services

In the traditional view, global flows of services in gross terms are much smaller than flows of goods. But as detailed above, the true value of services in trade is obscured in three areas: the value added they contribute to the production of goods, cross-border flows of intangibles, and global access to free digital services. There are three channels that collectively produce up to $8.3 trillion in value annually—a figure that would increase overall trade flows by $4.0 trillion and reallocate another $4.3 trillion currently counted as part of the flow of goods. If we add our estimates of these three channels to directly observed service flows, the total   value of services trade in value-added terms would be an estimated $13.4 trillion, a figure that would exceed the $13.0 trillion value added of goods trade. 

Over the past quarter century, more than a billion people worldwide have exited poverty. As their incomes rise, many of them are passing the point at which they can begin to make significant discretionary purchases and join the consuming class. Not only have millions of households gained spending power for the first time, but millions more are moving up into higher income segments, passing the point at which consumption accelerates sharply. The global middle class had expanded to 3.2 billion people as of 2016 and posits that we have almost reached a tipping point at which middle-class.

In the years ahead, emerging economies are projected to be the world’s fastest-growing pockets of demand. By 2030, overall global consumption is forecast to reach $106 trillion, twice its 2017 level, with 60 percent of this increase coming from the developing world. McKinsey estimates that emerging markets will likely consume almost two thirds of the world’s manufactured goods by 2025, with products such as cars, building products, and machinery leading the way. The map of global demand, once heavily tilted toward advanced economies, is being completely redrawn—and global value chains are reconfiguring accordingly. While China is the largest part of this story, other developing countries also play a role.



For instance, the adoption of EVs (Electric Vehicles) could disrupt automotive value chains and trade. Battery-powered EVs have only 20 to 30 moving parts in their drivetrains, compared to 130 to 170 moving parts in an internal combustion engine. We estimate that EVs could reduce trade in auto parts (which totals some $700 billion today) by up to 10 percent while also reducing demand for crude oil and petroleum.
The world is also shifting toward greater use of renewable energy, driven by a combination of technology improvements and regulatory mandates. Perspective projects that the world’s electricity generation mix will have a very different look by 2030, with the share of electricity generated from solar and wind energy increasing by 4 times and 2.5 times, respectively. These sources could account for almost 20 percent of electricity generation in 2030, up from just 6 percent today.

The potential impact created by six next-generation technologies: digital platforms, logistics technologies, additive manufacturing, automation technologies, electric vehicles, and renewable resources illustrates the degree to which technologies could affect global trade:


Estimated savings in world trade from innovative technologies will influence the future economics. The largest savings will come from digital platforms that became the basis for transaction savings. Digital transactions will simplify logistics. But the greatest savings will accrue from labor saving robots and computerized manufacture of parts (“additive manufacturing”). When electric vehicles are introduced they will not only reduce the costs of automobiles but also industries that support them, such as gasoline in and parts. The projected cost reductions in global trade could deliver over ten trillion of savings within the next decade.






















#154 New Developments in China

Impact of Trade Tensions on China Value Chains

The general trend of the past 40 years has been toward lowering tariffs and nontariff barriers. But now the pendulum may be swinging in the other direction. Global value chains will respond to the changes in trade policy that ultimately emerge. The direct impact of the new US China tariffs could be relatively limited. China’s exports to the United States amount to 4% of its GDP, while its imports equal about 1%. Similarly, US exports to China are equivalent to 1% of its GDP, and its imports amount to 3%.

A full-blown trade war could have a cumulative negative impact of 1.6% on China’s GDP and 1.0% on US GDP by 2020. There were around 500,000 foreign enterprises operating in China. 40% of China’s exports are the products of foreign-owned enterprises and joint ventures between foreign and Chinese firms. The first two rounds of tariffs imposed by the United States on China amounted to $250 billions of goods. Half are on electronics or machinery—and foreign firms produce 87% of the electronics and 60% of machinery made in China. Higher tariffs affect firms in the United States, given that 29% of China’s exports to the United States are intermediate goods used in producing finished goods. As tariffs increase the cost of production in the United States, the effects can manifest as higher consumer prices and pressure on the bottom line for US manufacturers.

In the September 2018 McKinsey Global Executive Survey, 33% of companies said that uncertainty over trade policy was their top concern, and 25% said recent tariff increases were their biggest worry. Nearly half of respondents stated that their companies will shift their global footprint in response, and one-quarter said they expect to invest more in local supply chains. Rolling back globalization undermine global productivity growth and innovation. Research has found that global flows of goods, services, finance, people, and data boosted world GDP by around 10% in a decade over a scenario in which those flows did not exist. Openness to both inflows and outflows of all kinds has real economic value.


Change in the Geography of Global Demand

The map of global demand, once heavily tilted toward advanced economies, is being redrawn—and value chains are reconfiguring as companies decide how to compete in the many major consumer markets that are now dotted worldwide. According to current projections, emerging markets will consume almost two-thirds of the world’s manufactured goods by 2025, with products such as cars, building products, and machinery leading the way.  By 2030, developing countries are projected to account for more than half of all global consumption. These nations continue to deepen their participation in global flows of goods, services, finance, people, and data.


The biggest wave of growth has been happening in China. China’s working-age population is one of the key global consumer segments. By 2030, they are projected to account for 12 cents of every $1 of worldwide urban consumption. China will have more millionaires than any other country in the world. China now represents roughly a third of the global market for luxury goods. In 2016, 40% more cars than were sold in China as compared with all of Europe. China also accounts for 40% of global textiles and apparel consumption. As consumption grows, more of what gets made in China is now sold in China leading to the decline in trade intensity. 

China exported 17% of what it produced in 2007. By 2017, the share of exports was down to 9% which is on a par with the share in the United States but is far lower than the shares in Germany (34%), South Korea (28%, and Japan (14% ). China’s output, imports, and exports have all been rising so dramatically in absolute terms. But overall, China is rebalancing toward more domestic consumption.

China Building Domestic Supply Chains

There is an advantage in placing production close to their customers and building networks of suppliers in closer proximity to one another to improve coordination. Local industries become more vertically integrated and multinationals to serve these fast-growing domestic consumer markets. 
China, which drove the expansion of global value chains, has now developed more comprehensive domestic supply chains. Since 2001 its manufacturing output began to soar as its share of overall global goods production grew from 6% in 1995 to hit 32% by 2017. Automotive, transportation equipment, and computers and electronics saw especially large increases. China now produces almost half of global output in three industries: glass, cement, and ceramics and electrical machinery.


China now builds new industrial capacity modernizing industries at the same time, phasing out aging factories and building more technologically advanced new plants. In computers and electronics, for instance, China first emerged as a place for low-cost assembly and re-export. Now China is developing its own capabilities to manufacture components, including sophisticated chips that it previously imported from advanced economies. 

Building out domestic supply chains is enabling China to bring new jobs to its inland provinces—regions that did not make the same kind of economic gains as the coastal provinces during the recent export-led boom. China is now focusing on economic development in parts of the country that were left behind, and it has invested heavily in transportation infrastructure to move goods from the heartland to the coast. China hopes to take pressure off its biggest megacities and encourage more balanced development across a greater number of smaller cities.

Wages in Chinese coastal provinces have been rising but China can retain many types of manufacturing by moving production inland. In essence, Chinese companies can engage in labor-cost arbitrage within the country’s own borders. The “Made in China 2025” policy designates dozens of inland pilot cities for industrial upgrades. As a result of China’s growing domestic supply chains, its trade intensity has fallen. This new China effect explains the entirety of the recent slowdown in goods trade that has been observed at the global level. The steepest fall-off in China’s intermediate trade has occurred in computers and electronics. Measured as a share of global output, trade in intermediate inputs fell by 5.1%points between 2007 and 2017. China fully accounted for the fall; in fact, trade in intermediate inputs actually expanded slightly among other countries participating in this value chain. The industry’s overall trade intensity fell sharply over the decade as China’s industry became more vertically integrated and more of the computers, phones, and devices it turns out were sold to Chinese consumers rather than being shipped abroad.

The automotive industry’s global trade intensity similarly fell by 7.9% between 2007 and 2017. Two-thirds of this decline can be traced to the millions of vehicles being both made and sold in China. Trade intensity also tumbled by ten percentage points in the textiles and apparel industry during this period, with China accounting for 80% of the drop. China remains the world’s largest importer and exporter of goods. China’s focus on building domestic supply chains and vertically integrated industries has dampened the scope of the trading opportunities foreign companies once envisioned.

Summary:

A full-blown trade war is likely to have a small negative impact on China’s GDP because China exports to the United States amount to only 4% of its GDP. Such trade confrontations will undermine global productivity growth and innovation because global flows of goods, services, finance, people, and data have so far boosted world GDP by around 10%. Openness to both inflows and outflows of all kinds has real economic value.

Emerging markets will consume almost two-thirds of the world’s manufactured goods by 2025. By 2030, developing countries are projected to account for more than half of all global consumption.
China, which has so far driven the expansion of global value chains is now developing its own domestic supply chains. China now produces almost half of global output in leading industries.