China’s Lockdown, Ukraine-Russia War: Trade’s Worst Enemies

The Ukraine-Russia war, China’s lockdowns to contain a new outbreak of COVID-19 and global inflation are the three main factors affecting the Mexican economy and trade. Furthermore, according to experts, if ongoing repercussions and disruptions were to continue, the US could see an early recession that will directly affect Mexico. 

“Inflation shock worsening, rate shock just beginning, and recession shock is looming,” said Michael Hartnett, Chief Investment Strategist, Bank of America.

China’s continued COVID-19 restrictions are increasing concerns about direct and indirect economic damages to countries worldwide. The closure of activities are causing production suspensions among technology companies, drops in sales and contracted general vehicle production by 10.9 percent last month. Finally, the lockdowns are causing congestion at the world’s largest port, resulting in ships being backed up and diverted shipments, as reported by the BBC.

Technology companies based in China froze their operations in the first days of the Shanghai outbreak, leading to logistic bottlenecks that are restricting component shipments and depleting inventories. The manufacturing disruption is limiting the stock of computers, game consoles, smartphones, servers and electric vehicles. The lockdowns are forcing companies to reimagine their production. For example, auto parts manufacturer Robert Bosch GmbH closed two of its factories in China and operated closed-loop systems in two others to address the “temporary effects on logistics and supply chain sourcing,” according to Bloomberg. 

Furthermore, the war between Russia and Ukraine has decoupled two economic blocs, in turn rising tariffs between the Western and Eastern blocs and sinking consumer and business confidence because of uncertainty, according to the WTO official report. “The reduction in global trade is projected to be larger than the projected reduction in GDP. This is because most of the sanctions relate directly to trade flows and thus affect international trade flows more than domestic production.”

Currently, organizations such as the WTO are researching products that could act as potential bottlenecks in global supply chains, which are those exported by a small number of countries or with an extremely high geographic market concentration.