New Paths to Repair
Breads in Supply Chain
·
Reduced
supply and surging demand made other countries realize that they had become
heavily dependent on a single nation — China — for many items, including
medical supplies.
·
Xi
has been vocal about bringing Taiwan under China’s control, using force if
necessary. Taiwan is the dominant manufacturer of the most advanced varieties
of computer chips.
· Wealthy nations are also sending their orders elsewhere. Vietnam has gained factory orders, and India has emerged as another alternative.
[ABS News Service/12.08.2024]
For
decades, major companies have behaved as if geographic distance were almost irrelevant.
A factory in China was the same as a factory in Michigan. The internet,
container shipping and international trading arrangements had supposedly shrunk
the globe.
The
pandemic shock
This
combination of reduced supply and surging demand made
other countries realize that they had become heavily dependent on a single nation
— China — for many items, including medical supplies. Covid eventually
faded from the headlines, but policymakers and business executives in the
United States and Europe faced pressure to diminish their reliance on China.
A
central reason for concern was the rise of geopolitical tensions. China wasn’t
merely the world’s factory; it is also an autocracy that, under President Xi
Jinping, has become more aggressive in asserting global influence. Xi has been vocal about bringing Taiwan under China’s
control, using force if necessary. Taiwan is the dominant manufacturer of the
most advanced varieties of computer chips.
China’s
allies have also become more assertive in ways that have disrupted global
commerce. Vladimir Putin’s invasion of Ukraine triggered sanctions on Russia,
which limited Europe’s access to energy. The war reduced the flow of grains and
fertilizers to Africa and Asia because Russia and Ukraine are both major
sources of these goods.
In
the Middle East, Houthi rebels in Yemen are firing missiles on ships headed
toward the Suez Canal as an expression of solidarity with Palestinians. In
response, many vessels moving between Asia and Europe are traveling the long
way around Africa. That has added as much as two weeks to their journeys while
lifting shipping prices.
The
climate plays a role in the disruption, too. Water levels in the Panama Canal
fell during the recent dry season, bringing restrictions on the number of
vessels that could pass.
All
these developments are forcing companies to reconfigure their supply chains.
Globalization’s
next phase
The
main strategy would have countries make more goods at home.
President
Biden signed a law that allows for the spending of tens of billions of dollars
to subsidize computer chips and electric vehicle manufacturers in the United
States. Europe has joined the United States in protecting its domestic auto
industry against an influx of low-priced, Chinese-made electric vehicles.
Wealthy nations are also sending their
orders elsewhere. Vietnam has gained factory orders, and India has emerged as
another alternative. As
the world’s most populous nation, India might eventually develop a supply chain
rivaling China’s. Walmart is now moving some
production from China to India.
In
the short term, Mexico is a more realistic option for companies that sell many
goods in the United States. Mexico has low labor
costs plus road and rail connections to American consumers. Asian companies
that make parts for U.S. automakers are already setting up factories in Mexico.
The
supply chain is like the electrical grid — something we take for granted, as
long as the lights turn on when we flip the switch. But now we’ve endured the
equivalent of a blackout, forcing us to contemplate what systems we are
depending on — and how to make them more reliable.