G20’s Roles in Improving the Resilience of Supply Chains

Taiji Furusawa and Lili Yan Ing

from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: About half of the total global output of goods and services is sold as intermediate inputs (Baldwin and Lopez-Gonzalez, 2015), and more than two-thirds of all international trade flows involve trade in global value chains (GVCs) (World Bank and WTO, 2019). In the past two decades, the value of intermediate goods traded worldwide has risen threefold to more than $10 trillion annually (McKinsey Global Institute, 2020). Falling information and communication technology (ICT) costs led to the proliferation of GVCs at diversified production sites. The shares of GVC-related trade in the manufacturing sector relative to total trade rose sharply from 2000 to 2008 in all major regions of the world during the period considered as the golden age of globalisation. The pandemic lockdowns and limited activities lowered global demand and supply simultaneously, which halted production and trade. The disruption caused shortages of a wide variety of consumer and industrial goods, ranging from health supplies and medical equipment to microchips and semiconductors. About 28% of firms in 62 countries reported at least 20 supply chain disruptions during 2020 compared with 5% in 2019 (BCI, 2022). Furthermore, not only did the coronavirus disease (COVID-19) disrupt firms’ direct immediate supplies, but it also affected about 40% of their tier 2 suppliers and beyond. Supply-side shocks were also recorded in sectors with domestic production capacity in which there was little vertical integration and thus high reliance on imported inputs (OECD, 2021a). The disruptions hit not only labour-intensive sectors such as apparel and furniture, but also capital-intensive sectors such as utomotives and aerospace (McKinsey Global Institute, 2020) Section 2 explains how supply shocks affect trade and the economy. Section 3 observes trends in supply chains and challenges. Section 4 concludes and draws policy recommendations for the G20.

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