Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: Thank you for listening.
Speaker: You're listening to the HSBC Global Research Macro Viewpoint, our weekly review of the key reports from our economists and strategists across the globe.
Speaker: Coming up this week, we look at whether the ongoing changes to supply chains could spell the end of globalization as we know it.
Speaker: We assess the disruption caused to China's economy from the Shanghai lockdown.
Speaker: And we examine what heightened global uncertainty means for the metals markets.
Speaker: This podcast was recorded on Thursday, the 21st of April, 2022.
Speaker: Our full disclosures and disclaimers can be found in the link attached to this podcast.
Speaker: Hello, I'm Piers Butler.
Speaker: And I'm Aline Van Dyne.
Speaker: We start this week with a look at global trade, where the COVID-19 pandemic and Russia's invasion of Ukraine have led to a big push for companies to build resilience into their supply chains.
Speaker: However, by doing so, there is a risk that such strategies could spell the end of globalization as we know it.
Speaker: Shanela Rajanayagam, trade economist, is here to give us her thoughts.
Speaker: Shanela, why has the future of globalization been called into question?
Speaker: Well, really, because we've had quite a few disruptive years when it comes to trade.
Speaker: So there's been ongoing trade tensions, the COVID-19 pandemic, and of course, more recently, the war in Ukraine, which has all led to a lot of supply chain disruption.
Speaker: So as a result, there has been this increased focus on building resilience into supply chains.
Speaker: And with that, a lot of talk about reshoring production, all of which might point to a bit of a retreat in globalization.
Speaker: So how have trade patterns changed since the start of the pandemic?
Speaker: So over the past couple of years, there were greater flows of trade that moved from east to west.
Speaker: For example, containerized volumes from Asia to North America were up around 27% between 2019 and 2021, and intra-Asia trade also boomed.
Speaker: During this time, mainland China became more important in terms of global trade and its role.
Speaker: Its share of global exports, for example, increased from around 13%.
Speaker: in 2019 to over 15% last year.
Speaker: And actually last year it was involved in about nine out of the top 15 bilateral goods trade flows.
Speaker: And have economies become more or less trade protectionist?
Speaker: So since the pandemic began, economies around the world have implemented nearly 400 measures to either facilitate or restrict trade.
Speaker: Around two thirds of these were trade liberalizing, whilst restrictive measures tended to focus on ways to limit exports.
Speaker: Now, some of these restrictions still remain in place, and the war in Ukraine has led to an increase in food protectionism.
Speaker: But it's important to consider these within the broader historical context.
Speaker: So if we take a longer term view, tariffs are extremely low today.
Speaker: Dr. Nisthu Kauruwaa Kauruwaa Kauruwaa Kauruhaa Kauruhaa Kauruhaa Kauru
Speaker: And certainly as it stands at the moment, there could be a risk of more trade protectionism to come.
Speaker: You know, widespread support for free trade is no longer a given.
Speaker: And there's certainly a risk that some economies may increasingly use trade measures to tackle issues that are broader than trade.
Speaker: So like economic coercion, for example.
Speaker: And how could trade flows evolve going forward?
Speaker: So there has been a lot of talk about reshoring production in recent years.
Speaker: But based on what we looked at, the rush to exit mainland China in the wake of the pandemic hasn't really materialised.
Speaker: So according to business surveys, American and European companies certainly remain committed to their operations in mainland China, although there has been a bit of market diversification to certain ASEAN countries amid ongoing US-China trade tensions.
Speaker: Plus, in addition to reshoring, there are other strategies that businesses could take.
Speaker: So for example, some companies have already moved some of their supply chain activities to nearby economies.
Speaker: So near-shoring rather than fully on-shoring.
Speaker: And given that around 50% of global trade already takes place between economies in the same region, these types of shifts could certainly lead to an increase in regionalization post-pandemic.
Speaker: So bringing all this together, what do you think, Shanela?
Speaker: Is this the end of globalization as we know it?
Speaker: Well, there's certainly a lot of uncertainty at the moment, and globalization has been in retreat for some time, and it's clear that the days of hyper-globalization are behind us.
Speaker: But I still remain quite positive.
Speaker: I think supply chains will continue to reconfigure as economies grow and evolve, but it's likely that the rush to reshore production will be concentrated in a few critical industries, so like semiconductors and pharmaceuticals.
Speaker: And for the bulk of businesses, I think maintaining global supply chains would still make sense.
Speaker: Shanela, thanks very much.
Speaker: Thank you.
Speaker: Sticking to trade, China's supply chains have been severely disrupted by the Shanghai lockdown introduced earlier in the month to counter rising COVID-19 cases.
Speaker: Jing Liu, senior economist for Greater China, has been assessing the extent of the damage, and she joins us from Hong Kong.
Speaker: Jing, all eyes are on the Shanghai lockdown right now.
Speaker: What's the latest?
Speaker: So in Shanghai, I think in the past couple of days, we finally see some leveling off of the new cases.
Speaker: So hopefully the inflection point is soon.
Speaker: And in terms of the categorization of different zones, we have seen about one third of the residents in Shanghai is now in a
Speaker: quote-unquote precaution zone, which means they can move around in their district.
Speaker: So I think it's a step forward.
Speaker: But still, you know, there's no clarity when they're going to remove the wide-scale lockdown for the whole city.
Speaker: Your new report looks beyond the lockdown and focuses on supply chain disruptions.
Speaker: Tell us more.
Speaker: Yeah, sure.
Speaker: So lately, you might have been reading a lot of news talking about the potential supply chain disruption, like the truck drivers stuck somewhere waiting for their test result before entering certain districts.
Speaker: So we want to take a look at what exactly is going on.
Speaker: We look at the traffic flows between Shanghai and
Speaker: and the neighboring cities and you know kind of expectedly we have seen a nosedive for the traffic flows and then we basically want to take a look at what's going on in the broader Yangtze River Delta region so we basically choose the eight most popular routes within the region and see how that goes
Speaker: And to our sort of a surprise, except one route, all other seven routes see a dramatic decrease of the traffic flow.
Speaker: So that illustrates the severity of the logistics disruption.
Speaker: And relatedly, we have seen the port congestion is on the rise.
Speaker: And again, Shanghai is the outlier here with about 30 to 40 percent week on week.
Speaker: decline in pot volume and the other pots we're looking at also experience different levels of increased congestion.
Speaker: Are certain industries being hit harder than others or are the supply chain difficulties impacting everyone?
Speaker: That's a great question.
Speaker: I think in terms of the truck shortage, that probably should be hitting all industry more or less equally, especially those which need to move cargo from one place to the other.
Speaker: But in terms of the bigger shock to the economy, we actually trying to figure out which are the most important sectors in Shanghai and also in the Yangtze River Delta region.
Speaker: And it turns out, you know, Shanghai and the neighboring city constitute an important tech cluster.
Speaker: So as a result, you know, auto industry and also the integrated circuits, they will be the hit heart.
Speaker: So no wonder those companies in those industries belong to the first batch of work resumption list Shanghai recently published.
Speaker: And what can be done to remedy the situation?
Speaker: Right.
Speaker: So when we talk about stimulus, normally we're thinking about monetary stimulus or, you know, fiscal stimulus.
Speaker: But with respect to the supply chain disruption, these two are not enough to, you know, basically unlock the situation.
Speaker: This Monday following the data release, Vice Premier Liu He basically emphasized that, you know,
Speaker: China will issue enough numbers of nationwide unified travel passes so the truck drivers won't be stuck somewhere waiting for the PCR test result or quarantine before they can go on the road.
Speaker: And if that's implemented, we think that will be a great step forward to remove the bottlenecks on the logistics.
Speaker: Jing, thanks for your time.
Speaker: Thank you.
Speaker: So we've heard a lot today about economic disruption.
Speaker: And one market where this has really had an impact is metals.
Speaker: Jonathan Brandt, metals and mining analyst, has just published his latest outlook, and he joins us from New York.
Speaker: John, metals prices are up pretty much across the board.
Speaker: So what are the main drivers?
Speaker: I think there's a couple of main drivers.
Speaker: The first is the lack of supply.
Speaker: And this is really a theme that we've seen over the past couple of years.
Speaker: It's touched upon most major commodities, particularly copper, iron ore, aluminium.
Speaker: It's becoming harder and harder to get metals out of the ground and get them to their final destination.
Speaker: That supply issue has been increased with the rush to Ukraine war.
Speaker: Both countries are major producers of a few different metals.
Speaker: And it's not so much that we've seen supply disruption coming out of either country, but really it's the threat of supply disruption coming out of there.
Speaker: And given that they're material producers, any disruption coming from either of those countries could have significant impact.
Speaker: The second issue is demand has been relatively strong, particularly post the COVID-19 lockdowns that we've seen.
Speaker: That demand has been further increased by government expenditures on things like EB and renewable investment.
Speaker: And then obviously what China is doing with their stimulus to shore up their economy and continue to drive growth.
Speaker: So really, it's been supply issues combined with demand that has been relatively good.
Speaker: So, John, what does this mean in terms of the sort of short and longer term outlook?
Speaker: How sustainable is this?
Speaker: Well, so I think it depends on the individual metals that you're talking about.
Speaker: Certainly, things like higher inflation that we're seeing globally is good for most metals, at least initially.
Speaker: There's some concern about demand destruction going forward, not only because of high metals prices, but also because of high energy prices and lack of available materials.
Speaker: But I think if you look at things like iron ore, at least in the short term, given the supply disruptions that we're seeing,
Speaker: you know, prices are, we think, you know, stronger for longer.
Speaker: If you look at things like base metals, and that includes things like copper and nickel, because of the structural, you know, demand growth that we're seeing in things like EVs and renewables and just the lack of supply that we're seeing, you know, in our view, you could see over the short and medium term, much higher prices than the market is expecting in the markets.
Speaker: Which metals are particularly affected by these longer-term green investment trends?
Speaker: The biggest one is copper.
Speaker: And that's partly because of the EV you use, depending on the vehicle, three to five times as much copper in an EV than if you own a traditional internal combustion engine.
Speaker: But also, and more importantly, the grid, right?
Speaker: So that means everything from rolling out charging infrastructure is much more copper-intensive,
Speaker: and then building up renewable energy plants.
Speaker: So you can think of it, you know, if you are looking at an offshore wind turbine, that can use upwards of 15 times the amount of copper that you get from a traditional power plant.
Speaker: So as the world invests more and more into renewable energy, one, because it's, you know, the right thing to do for the planet, but also because, you know, the
Speaker: the desire for energy independence, that is going to be very copper intensive.
Speaker: The other metal is nickel.
Speaker: That is very much dependent on what happens with EV batteries.
Speaker: So as that technology changes, so too will be demand for nickel.
Speaker: So that one has a bit of a murkier outlook than copper does.
Speaker: Bill, thanks so much for the update.
Speaker: Thanks, Aline.
Speaker: So that's all from us today.
Speaker: Thank you to our guests, Janela Rajanagam, Jing Liu, and Jonathan Brand.
Speaker: We hope you found today's program useful.
Speaker: We'll be back again next week.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint, Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
