Crypto News: Economics Daily: The rewiring of global trade

I'm Malcolm Scott, international economics enterprise editor in Sydney. Today I'm looking at how global trade is being rewired. Send us feedback and tips to ecodaily@bloomberg.net or tweet to @economics. And if you aren't yet signed up to receive this newsletter, you can do so here.

A measure of China's manufacturing health contracted in July, rippling through factories across Asia.
Australia's central bank extended its rates pause while keeping the door ajar to future hikes if needed.
The economist behind the popular Sahm Rule recession gauge worries she created a "monster."

Russia's war in Ukraine and the deepening economic rivalry between the US and China is slowly but surely rewiring global trade.

Economic data is only just starting to capture the shifting tectonic plates, with China remaining the factory to the world. But beneath the surface, things like greenfield foreign direct investment illustrate the determination of the US and like-minded governments to diversify supply chains.

At the ground level, change is clearly afoot. Bloomberg News deployed reporters to vector points across the globe to illustrate how companies are rewiring their operations to deal with the shifting geopolitical sands.

Read the BigTake on global trade here. Truckers, for instance, are struggling to keep up with surging demand across the US-Mexico border.

That's because US tariffs on China have triggered a significant move in trade flows, with China's sales of tariffed goods to the US down $150 billion relative to the level that could have been expected to prevail without levies, according to Bloomberg Economics.

And shipments from Mexico are filling much of that gap.

FDI data suggest there's further changes to come, Bloomberg Economics writes. UNCTAD's 2023 report shows FDI in electronics surging from $48 billion in 2021 to $181 billion in 2023, driven substantially by greenfield projects in semiconductors.

Some shoe-leather reporting in Japan illustrates the frictions such investments are causing. In the once quiet farm town of Kikuyo, local residents are grumbling at the traffic caused by the massive new factory being built by Taiwan Semiconductor Manufacturing Co. with backing from Japan's government.

Meantime, Russia's annexation of Crimea and invasion of Ukraine show what happens when tariffs and sanctions are applied more broadly across products, and with more countries acting in concert, Bloomberg Economics writes. The impact has been clearer on imports than exports.

Reporting from southern Italy illustrates the push to reduce reliance on Russian energy. The EU is helping pay for an expansion of Brindisi's port to let more containers come through the dock. And a new pipeline, called EastMed-Poseidon, is wending its way from Israel.

Even with such shifts, the vast majority of global trade flows are largely intact, suggesting that fears of globalization's demise are overdone. But that doesn't mean such concerns are altogether misplaced either.

"The hard work of realigning global supply chains to hedge against risks from rising geopolitical tensions and disasters like the Covid pandemic has barely begun," according to Bloomberg Economics's Maeva Cousin and Tom Orlik.

Bloomberg clients can read the full research on the Terminal.

For more on global trade and supply chains, subscribe to our daily Supply Lines newsletter.

Central bank watch: Wall Street economists are looking at a September rate pause at the Federal Reserve, while economists don't expect any further change from the Bank of Japan this year.
Meanwhile, Brazil may be about to cut borrowing costs.
There's a lot of talk about bringing manufacturing back to the US as new factories spring up. But the old ones aren't doing so great.
South Korea's slump in exports persisted in July, undermining hopes for a rebound in global trade.
Italy's manufacturing activity probably continued to shrink at the start of the third quarter after dragging the economy into a contraction.
A key gauge of borrowing costs in Saudi Arabia has risen to a record, potentially hitting businesses and individuals at a time oil-production cuts are slowing economic growth.

Germany's post-World War I hyperinflation is reputed for being economically ruinous. But it had the benefit of wiping away corporate leverage as soaring nominal revenues made debt loads minuscule. In fact, it had some economic benefit, fresh research shows.

"High-leverage firms saw the fastest employment growth once inflation accelerated in 1919," a group of New York Fed and academic economists wrote in a paper this summer. "In terms of magnitudes, the debt-inflation channel can account for the majority of the overall expansion in employment during the German high inflation episode."

There are downsides, such as the hit to creditors that make them less willing to provide fresh lending, the authors noted. But where "debt contracts are nominal, long-term, and denominated in domestic currency, the debt-inflation channel may be relevant," they wrote.