The View | The cost of China’s zero-Covid policy is climbing, for Europe especially
- Beijing’s continued insistence on zero Covid could see Europe facing heavy losses as raw material shortages and supply chain disruptions weigh on exports
- The rising cost of trade comes when Europe is already dealing with the crisis in Ukraine, making its road to recovery even more uncertain
First, Europe will feel the pinch from slower trade growth in 2022 as the lockdowns pressure demand from China. Even if national mobility in China roughly returns to normal over the course of this month, the global economy could face an export shortfall of US$140 billion, out of which European exporters would lose US$20 billion versus US$13 billion for American exporters.
Companies in Europe are more vulnerable than their American peers when it comes to relying on intermediate inputs from abroad. While their exposure is similar at the aggregate level – inputs coming from China account for nearly 1 per cent of output in both Europe and the US – the product mix is not in favour of Europe.
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This is particularly the case for semiconductors, an omnipresent input that has faced acute shortages globally since 2021 and for which nearly 90 per cent of global exports come from Asia. Europe’s need for chips mostly comes from the automotive and industrial sectors, which together account for about 20 per cent of global chip sales.