Global supply chain crisis fuels push to local manufacturing as China’s appeal wanes | Supply chain crisis


Everyone has a story to tell about the supply chain issues that have plagued the global economy, from the start of the pandemic to the disruption caused by the war in Ukraine. From the shortage of Ikea furniture and Christmas turkeys to the shortage of computer chips that sent the cost of used cars skyrocketing, the dislocation of a system that once worked well has wreaked havoc on the global economy. .

But as predictions about easing bottlenecks come and go without any improvement, it has become clear that the disruptions of the past two years or more are spurring fundamental shifts in the global economy that could have even greater impacts. profound in our lives.

In Washington this week, a hearing was convened by China’s government’s Economic and Security Review Panel to consider how to ease America’s reliance on China’s huge manufacturing base for goods, spare parts and materials of all kinds.

Anxiety in the United States over reliance on China has been building for years and has led to Trump’s tariff war against products from its rival superpower. But pandemic-related disruptions – which continue to rumble thanks to China’s drastic zero Covid strategy that shut down Shanghai’s economic hub for two months this year – have prompted a fundamental rethink of how businesses should s ‘arrange. Among buzzwords such as “reshoring” and “diversification” is the fundamental need to make Western economies less dependent on China and other distant manufacturing hubs.

US President Joe Biden told the opening of the Summit of the Americas on Wednesday night that the region needed to invest to ensure supply chains are safer and more resilient.

His administration has already legislated for a $250 billion fund to boost U.S. computer chip manufacturing, the shortage of which was one of the first visible signs of trouble following pandemic factory shutdowns in the Far East. Samsung also acted by announcing the construction of a $17 billion chip factory in Texas as the company aims to solve the problem of supplying US customers from its manufacturing bases in East Asia. .

The hearings in Washington will seek to push the urgency of the situation, particularly as it relates to the defense industry, and will garner testimony from Harvard management experts, champions of offshoring (AKA bringing manufacturing back to the United States). United States or Mexico from Asia) and Biden administration officials such as Deborah Rosenblum tasked with securing the “industrial base.”

Harry Moser, founder and chairman of the Reshoring Initiative, will tell the commission that “growing inequality, government deficits and the need to secure defense supply lines” make repatriating industry an imperative. Reforms needed to address the problem include a better-educated workforce, a weaker US dollar in the US case, and increased business investment, he will say.

In Britain, a recent survey of retailers found that 87% of respondents do not believe things will go back to how they were before the crisis started and that costs will not return to pre-crisis levels. pandemic. John Foster, director of the policy unit at UK business group CBI, said retailers saw “medium to long term” challenges stemming from the global supply chain crisis over materials, labor and work and changing consumer behavior.

Diversification of the “critical” supply chain

Russia’s exclusion from global supply chains has exacerbated existing problems and driven up energy prices. Brandon Daniels, managing director of Exiger, which has developed software to analyze and reshape supply chains, says companies need more transparency through open source data to research alternative supply routes. He believes time is running out for the famous just-in-time delivery systems pioneered by Japanese automakers such as Toyota and Nissan in the 1980s, which helped transform the global economy.

“Diversifying our supply chains is critical to our economic prosperity and national security,” says Daniels. “I think you’ll see substantial revisions to just-in-time delivery models, leading to better warehouse management and longer inventory that mitigates the risk of material shortages.”

Flavio Romero Macau, supply chain expert and associate professor at the School of Business and Law at Edith Cowan University in Western Australia, warned in December that supply chain issues could take another two years to be resolved and says there is still some way to go thanks to China’s ‘inevitable’ lockdown issues.

“In a nutshell, we’re not off the hook yet,” he said. “China falling with Covid at some point was inevitable. Some have learned their lessons, others have been pinned down and couldn’t do much, others will relive it all.

Lockdowns and rising wages are among the factors that have diluted China’s global competitiveness as a manufacturing base. Photography: VCG/Getty Images

On the other side of the ledger, there are signs that the disruption might not be as drastic as feared. Data firm FourKites analyzes trade flows in China, and while it said in its latest report that it continues to see a lukewarm recovery from major city lockdowns, the number of delayed shipments from China to the United States had capped at 35%.

Glenn Koepke, managing director of network collaboration at FourKites, said companies were getting used to dealing with delays at Chinese ports despite what JP Morgan economists called “jerks” in the Chinese economy.

“The bottom line is that while China’s reopening may increase volume, it is unlikely to cause the kind of disruption we saw last year.”

When experts meet in Washington this week, they may find out what S&P analysts have identified as a major problem with overhauling supply chains: that “it’s easy to say but hard to do.” Despite lockdowns and rising wages eroding one of China’s key competitive advantages, its position in the global supply chain may be more entrenched than some realize.

“Big markets, entrenched production infrastructure, proximity to suppliers and large pools of skilled and trained labor make major offshoring unattractive,” says Charles Chang, an analyst at S&P China. “These factors are long-term in nature and are likely to remain in play beyond the current lockdowns.”

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