I think that Claire Jones’s paean to global supply chains in FT Alphaville:
Spare a thought for the global value chain. The complex web of relationships between the world’s makers has pushed down costs and opened up new markets – driving strong global growth and low inflation through the nineties and much of the noughties.
The backlash really began with the rise of populism, but these chains are facing a fresh wave of attacks following the outbreak of the coronavirus. The reason being that the focus on low-cost and just-in-time production has made our economies less robust, less able to weather shocks.
largely misses the point. I’m not arguing that every product that we consume should be manufactured in the United States from U. S.-made components or ingredients. I’m arguing that no conceivable economic benefit offsets the risks of relying on China for strategic goods like pharmaceuticals or personal protective equipment (PPE). You can understand why that is by reflecting on one, simple question: what happens when China goes offline, as was the case for several months?
Nothing in Ms. Jones’s piece addresses that. There’s also the issue of liability. As I have pointed out ad nauseam there is no such thing as a robust system of civil law. When a U. S. brand receives substandard merchandise or components from its offshore suppliers, there’s basically no recourse. U. S. consumers can sue the brand in a U. S. court but the brand will need to sue its supplier, if that remedy is available at all, in a court in which the supplier is at a decided advantage. “Well, we saved 10 cents on a $200 product” is cold comfort to someone who has been poisoned by adulterated drugs or infected with a serious infection due to faulty protective gear.
And let’s face it. No company actually does due diligence on their East Asian supply chains. The costs of doing so would outweigh the value of extending the supply chain that far. They just believe they can trust their suppliers. Under the circumstances the notion that we can just trust Chinese suppliers is laughable.
We have a vital, urgent need to shorten supply chains and make them more resilient. Don’t hold out the hope of manufacturing everything here. Yes, manufacture more here but also manufacture more in Canada, Mexico, and Central America where we can actually monitor what’s going on and exert a little more control.
‘“Well, we saved 10 cents on a $200 product‒
I rather suspect the savings derived from shifting production to China were considerably more than that, but you made the point. But the savings only last until the Chinese steal the designs and patents, then it’s confiscation and eviction. It’s a classic selling of the rope to hang yourself with tactic. One benefit from chopping off China at the knees is they will no longer get the benefit of our R & D.
The Han Empire has a far different attitude towards trade than we do. They consider all trade relationships to be strictly win-lose, and if it doesn’t benefit them, they won’t do it. This attitude predates the current regime by millennia. The problem with their Belt and Road initiative is that all the transport routes depend heavily on the Law of the Sea, which for all practical purposes is dependent on a friendly American Navy. That is why they are all in on electing Biden, ’cause Trump ain’t friendly and is likely to be even less so as time goes on. Sometimes vindictiveness has its uses.
The Empire has a rule of man, not of law. Too many people assume or pretend to assume otherwise. They also have a nasty habit of incarcerating foreign nationals who complain too much and then activate their paid politicians and pundits in the host countries to run interference for them.
That’s actually been pretty well documented. The savings Apple realizes from making iPhones in China is actually pretty darned small. I’ve posted on this enough times. Something from a few bucks to, maybe, $80 on an $800 product. The real benefit was access to the Chinese market from which, as was obvious would be the case from the start, it is being crowded by Chinese competitors.
The apparent cost savings of China sourcing misses the point. The costs of dealing with these scoundrels dwarfs the 10%-50% savings on widgets.
But if the consumer is only exposed to the savings, well…………