Chinese stimulus plan – defend and spend
Don’t burst the bubble…
DSV: STAR OF THE WEEKDSV: FLAWLESS EXECUTIONKNIN: ANOTHER LOWWTC: TAKING PROFITMAERSK: HAMMEREDZIM: PAINFUL END OF STRIKE STLA: PAYOUT RISKAMZN: GOING NOWHEREAMZN: SEASONAL PEAK PREPARATIONSJBHT: LVL PARTNERSHIPHD: MACRO READING AND DISCONNECTSTLA: 'FALLING LEAVES'STLA: THE STEEP DROP
DSV: STAR OF THE WEEKDSV: FLAWLESS EXECUTIONKNIN: ANOTHER LOWWTC: TAKING PROFITMAERSK: HAMMEREDZIM: PAINFUL END OF STRIKE STLA: PAYOUT RISKAMZN: GOING NOWHEREAMZN: SEASONAL PEAK PREPARATIONSJBHT: LVL PARTNERSHIPHD: MACRO READING AND DISCONNECTSTLA: 'FALLING LEAVES'STLA: THE STEEP DROP
Appropriately, this book review is published the day after US president Joe Biden convened the first meeting of the recently formed national supply chain council and unveiled a package of some 30 actions, primarily designed to reduce inflation for US consumers.
It is appropriate because Mr Biden’s policies are often to be found at the heart of the main thesis of John Manners-Bell’s new book The Death of Globalization: How politics, ethics and the environment are transforming global supply chains.
In particular, the president’s Inflation Reduction Act is mentioned within the preface and features heavily from then on – it is a landmark legislation that aims to invigorate the country’s electric vehicle industry, in particular, but which is set to affect every one of the US’s trading partners, possibly bar Mexico. It is also a blunt protectionist policy, and one of many that, as Mr Manners-Bell repeatedly shows, are almost uniformly counter-productive.
Ironically, the further into the book one ventures, the stronger is the realisation that, when we talked about globalisation, we were largely talking about outsourcing production to one country: China. Almost everything that has occurred in the 20-plus years since China’s acceptance to the WTO, took place in reaction to entrance – and subsequent entrenchment – of China to supply chains and global trade. Re-shoring, near-shoring, friend-shoring, de-coupling, China plus-one etc… are expressions of businesses and governments keen to reduce their dependence on China, because, well, too many eggs are in one giant basket, and the dangers of that have been repeatedly shown during, and since, the Covid pandemic. Nothing shows supply chain weakness like the sight of medical staff dressed in bin bags because they had no PPE.
Take, for example, Taiwan’s laser-like focus on the semi-conductor industry, where it accounts for 92% of global production. This is largely the result of an increasingly belligerent China and the understanding in Taipei that expertise in such a critical sector gives the US extra impetus for its military protection – the so-called ‘Silicon Shield’. In fact, the analysis of the semi-conductor business and its extraordinarily complex supply chain is probably worth the cover price of this book alone.
However, Mr Manners-Bell’s work shows in great clarity that what really seems to determine how trade develops is the law of unintended consequences. By bringing China into the global trading system, the WTO effectively signed its own death warrant: “Rather than becoming stronger, the WTO has become a shadow of its former self. Not only has it failed to advance trade liberalisation over he past two decades, but it has become sidelined by the world’s largest trading partners,” he writes, noting how it has systematically failed to prevent China abusing the trade regions; how the US, under Obama and then Trump, prevented it from mediating in trade disputes; while the EU appears to have given up on it altogether and has simply set up its own dispute resolution mechanism.
A further irony is that if we are to conclude that deglobalisation is primarily characterised by policies that encourage a departure from China, the net result – the emergence of alternative sourcing locations such as Vietnam, Bangladesh, Turkey and, of course, Mexico – is a dilution of the major trades. The importance of the traditional main east-west trunk routes of China-Europe, transpacific and transatlantic is expected to wane in coming years as the importance of a range of south-south, north-south and intra-regional supply chains rise. As far as physical trading routes go, it looks like they will become even more globalised or, to borrow a word fashionable from the 1990s, Balkanised.
“If a subsidy war escalates, combined with the protectionist sentiment already seen over the last decade, global trade would be significantly affected. Supply chains will become Balkanised – with the trend towards national and regional, rather than intercontinental, flows of goods.”
The Death of Globalization by John Manners-Bell is published by Sea Pen Books. Copies can be ordered here
Readers interested in the reversal of globalisation may want to check out this recent Loadstar podcast
Deep Dive Podcast: The end of globalisation and a new (trade) Cold War?
Comment on this article