Opportunity and Challenges

Emerging Markets in the Global Economy

Trade tensions between the US and China have accelerated ongoing supply chain shifts, while technological change has created the possibility of entirely new supply and consumer chains. Emerging markets, however, continue to struggle. RANE spoke with trade expert Robert Rogowsky of the Middlebury Institute, who says that each emerging market’s own difficulties are preventing them from fully taking advantage of the shifts in the global economy.

Though the US-China trade war has set the global economy on edge, Rogowsky says emerging markets have largely responded by following the same strategy they have for years: poaching industries from China.

  • Key industries that contributed to China’s growth, such as electronics and textiles, have been moving out of China for years. These primarily low-cost manufacturers began their move well before the trade war due to rising labor costs in China, says Rogowsky.
  • These companies are now moving to southeast Asian nations such as Vietnam and Thailand. Here, economies that have not had decades of dedicated government subsidies and foreign investment have cheaper workforces than China, and are therefore attracting business.
  • Rogowsky believes the trade war has sped up this trend, as companies and investors are moving out of China both to avoid increasing costs, as well as the increasing level of uncertainty regarding the US-China trading relationship. Rogowsky argues that companies and industries that can easily adjust their supply chains have, and will continue to do so.

After expanding dramatically in the last two decades, renewed uncertainty and new consumer trends are causing industries to rethink their supply chains altogether, says Rogowsky.

  • Rogowsky notes that technologies such as the cloud, AI, and the larger Internet of Things have been disrupting traditional supply chains since well before the trade war. These technologies are enabling industries to right-size their globally-extended supply chains.
  • Meanwhile, markets that have seen decades of investment as export-nodes on the supply chains are now becoming consumer-nodes, says Rogowsky. Global supply chains resulted in global growth, and now emerging markets are host to an army of middle managers, IT specialists, and accountants, among others, that all want to partake in the global consumerism they help supply.
  • “Globalization is starting to trickle down,” says Rogowsky, as products produced in emerging markets are increasingly consumed there, as well.

While these changes are presenting opportunities for emerging markets, driven by increased investment and a growing middle class, domestic issues still pose difficult challenges for these countries. Rogowsky paraphrases Tolstoy to say, “All economies are growing in the same way, but they all stagnate differently.” Though each country faces its own problems, the common thread is that few emerging economies are well positioned at the moment to take advantage of global economic restructuring.

  • In Brazil, Rogowsky says there was distinct hope of budgetary reforms, especially around the bloated pension system. While such reforms are needed to put the country on a stable economic trajectory, President Bolsonaro has so far been unable to create a coalition in favor of reform.
  • In Mexico, recent downgrades of state oil company PEMEX’s bonds showcases wider financial troubles and corruption. Meanwhile, President López Obrador’s focus on social programs and increasing government spending—along with the challenge of US pressure to prevent Central American immigrants from reaching the US border—further exposes the country to financial strain.
  • In Turkey, where just a few years ago analysts were predicting a revived role for its economy in both the Middle East and Europe, haphazard economic policies and election meddling have exacerbated a currency crisis.
  • In India, economic fragmentation continues to plague economic growth, even after the institution of the nationwide Goods and Services Tax. In its first term, Prime Minister Modi’s government was unable to stem rising inflation and unemployment.

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