The Complication Of Concentration In Global Trade
Concentration in the origins of traded products is widespread, prompting questions about whether to diversify or decouple. Mckinsey Global Institute
No region is close to being self-sufficient. Every region relies on trade with others for more than 25 percent of at least one important type of good.
About 40 percent of global trade is “concentrated.” Importing economies rely on three or fewer nations for this share of global trade.
Three-quarters of this concentration comes from economy-specific choices. In these cases (30 percent of global trade), individual countries source a product from only a few nations, even when global supply options are diversified.
Over the past five years, the largest economies have not systematically diversified the origins of imports. All have vulnerabilities, some more than others.
Informed reimagination of global trade requires a granular approach¸ both in mapping concentrated trade relationships and in deciding on action—whether to double down, decouple, or diversify.
Concentrated global trade creates complications. On the one hand, concentrated trade relationships can reflect and drive efficiency gains. On the other, interruption of concentrated trade flows can be particularly disruptive if products are harder to replace on short notice due to a lack of visibility and alternatives.
Where do concentrated trading relationships exist across products and between countries? In the face of new disruptions, how should companies and countries adjust these relationships, if at all? To examine these questions, this article builds on the findings of MGI’s recent research on global flows, analyzing concentration across more than 120 countries, roughly 6,000 products, and eight million individual trade corridors
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