Looking ahead, increased domestic capacity for electronics production in both China and the US will likely lead to a substitution of imports. The US-proposed Chip 4 alliance with Taiwan, South Korea, and Japan for semiconductor production could potentially divert trade flows away from countries that are not part of this arrangement. At the same time, it is also possible that some trade could be diverted from China to lower cost regions such as Vietnam, India and Mexico, which are emerging as competitive assembly locations for final electronics products. The result of all this geoeconomic fragmentation is most likely slower global growth. Several studies show that the long-term effects of receding globalisation are costly. According to an IMF study, a scenario of limited trade fragmentation would reduce global GDP by 1.2%. [5] A WTO study found that under a more adverse scenario of a full technological decoupling from 2020 to 2040, the loss in GDP would be 8.0-12.0% in individual countries during this period. [6] Ultimately, low-income developing countries furthest from the technological frontier will suffer most acutely from reduced knowledge diffusion from advanced economies. Supply chain diversification will increase inflationary pressures. First, relocating operations will incur high upfront costs. Even if governments have the fiscal resources to subsidise duplicate supply chains, there may be insufficient labour to sustain it. Second, restrained global competition will increase the market power of larger firms or domestic oligopolies, resulting in reduced innovation and higher prices.

We allow third country branching, under certain conditions outlined in our 2014 Supervisory Statement. 11  The key factors which have determined the  PRA’s stance towards non-EEA branches are the equivalence of the supervisory regime of the home state, and arrangements for resolution. Second, information sharing is fundamental. Even if two countries have exactly the same set of rules, if they cannot share information on the financial positions of different entities within a global financial group, they cannot clearly gauge and manage the risks that the firm may be running on a consolidated basis. We have seen a few examples of the value of such cooperation in recent years. The FSB and Basel Committee have developed a number of guidelines on information sharing, which have helped foster trust, cooperation and enhanced dialogue between international regulators. These include supervisory and crisis management colleges and supervisory assessments. The EU has further enshrined  10  A global code for the foreign exchange market, put together with support from central banks, will be launched in May as the first globally consistent code of conduct for these markets. 11 ‘Supervising international banks: the Prudential Regulation Authority’s approach to branch supervision’, SS10/14, available at http://www.bankofengland.co.uk/pra/Documents/publications/ss/2014/ss1014.pdf. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  these practices through legislative requirements in the CRR and BRRD for supervisors and resolution authorities respectively. The Bank is a staunch supporter of these mechanisms.