In the complex networks of globalization, nodes can simultaneously become “choke points,” notes Wharton School business professor Stephen J. Kobrin. When any one of them fails, it threatens the entire network—a reality that became almost comically apparent this week when a container vessel the length of the Empire State Building wedged its bulbous nose into a bank of the Suez Canal, blocking the waterway and causing a shipping backup north to the Mediterranean, south to the Red Sea, and beyond.
Puny by comparison, the image of a digger trying to extricate the colossal vessel became an instant social media meme. More prosaically, the stranded Ever Given has become an apt symbol for the fate of globalization, the latest wave of which was spurred—somewhat ironically—by the invention of the shipping container in 1956. (The Ever Given can transport up to 20,000 of these big metal boxes, each of which can fit on a tractor-trailer.)
If the 2008 financial crisis exposed the risks of contagion as a result of global financial integration, the pandemic has highlighted the perils of unbridled interdependence in trade. The first shock helped immiserate the middle classes across the industrialized West and led to a populist backlash against globalization. Covid-19 has damaged the globalization project even further by highlighting the fragility of supply chains, as well as the mounting risks of viral contagion in an interconnected world.
This week in the New Economy
Global manufacturing has become over-concentrated, reflecting a corporate obsession with cost and efficiency over safety and sustainability. When the coronavirus took off in the U.S., it exposed the fact that almost half of the country’s personal protective equipment is made in factories in China. Suddenly, those production nodes became choke points.
Now that an unexpectedly swift economic recovery seems to be taking hold, nodes are seizing up everywhere. Semiconductor foundries can’t keep up with demand from carmakers. Ports are congested, especially at America’s largest in Los Angeles, and shipping containers are in short supply. The Japanese-owned Ever Given has exacerbated these problems by severing a critical artery that usually carries 12% of global trade.
Advocates of globalization tend to focus on linkages enabled by digital technologies, like Zoom video conferencing, that have kept office workers busy during Covid lockdowns. “I am a technological determinist,” declared Tom Friedman, the New York Times author of “The World is Flat.” He adds that “technology is not just interconnecting the world: it’s actually making the world interdependent.”
Excessively so, caution the skeptics. And while the march of technology may be inevitable, the way production has become ultra-specialized is fueling dangerous uncertainties.
It turns out that almost 90% of the most advanced semiconductors are assembled by one company—Taiwan Semiconductor Manufacturing Co.—which makes the island nation a strategically important choke point (it’s already a political one) in the technological Cold War between the U.S. and China. Beijing has deliberately created a chokehold over the production of rare earths used in a wide array of high tech products, and has talked about restricting their export to the U.S.
The Suez Canal blockage, meanwhile, has underscored China’s own vulnerability to maritime node disruptions. As my Bloomberg News colleagues David Fickling and Anjani Trivedi report, China imports amost three-quarters of the oil it consumes, as well as about four-fifths of the iron ore behind its frantic infrastructure buildout.
The insecurity these facts generate is in part driving the nation’s destabilizing efforts to assert control over the South China Sea.
In the latest installment of our Bloomberg New Economy Conversations series this week, we highlighted how there is no future for our planet without the kind of globalized effort that produced breakthrough Covid vaccines. Scientists and researchers all over the world have worked together to develop diagnostics and therapies that will (hopefully) soon return the global economy to something approaching normal.
A smaller, yet similar international effort is underway in the Suez Canal to refloat the Ever Given.
In too many ways, globalization is coming to be defined more by its risks (the choke points) than its benefits (the linkages). Fixing that, as Professor Kobrin argues, will mean finding a better balance between economic independence and integration. The challenge will be to find that harmony without upsetting the project altogether.
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CANADA STOCKS – TSX ends flat at 19,228.03
* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03
* Leading the index were Corus Entertainment Inc <CJRb.TO>, up 7.0%, Methanex Corp, up 6.4%, and Canaccord Genuity Group Inc, higher by 5.5%.
* Lagging shares were Denison Mines Corp, down 7.0%, Trillium Therapeutics Inc, down 7.0%, and Nexgen Energy Ltd, lower by 5.7%.
* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.
* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.
* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.
* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude fell 0.24%, or $0.15, to $63.05 [O/R]
* The TSX is up 10.3% for the year.
Canadian dollar outshines G10 peers, boosted by jobs surge
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.
Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.
“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”
Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.
The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.
The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.
Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.
The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.
Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.
(Reporting by Fergal Smith; Editing by Andrea Ricci)
Canadian dollar rebounds from one-week low ahead of jobs data
By Fergal Smith
TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.
The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.
“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”
Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.
The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.
Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.
On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.
Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.
(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)