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Yogesh Gupta
Former ambassador
Keith Krach, Under Secretary for Economic Growth, Energy and Environment in the US Government. The US recently said in an interview that the Trump Administration is ‘turbocharging’ an initiative to wipe out China’s global industrial supply chains while examining various ways to ‘punish’ Beijing for its mishandling of the Covid-19 pandemic. These may include more tariffs and sanctions on China to pressure foreign companies to move outsourcing and manufacturing outside of China. A strong opinion is emerging, shared by many countries, that they should not depend on an authoritarian, inexplicable and insecure China with its unfair and opaque processes, for the acquisition of essential goods and services.
The United States is considering establishing an ‘Economic Prosperity Network’ (EPN), which will be a grouping of trusted partners such as Japan, India, South Korea, Vietnam, Australia and New Zealand, which will work on the basis of similar standards throughout , from digital business, energy, infrastructure, research to commerce, education and commerce. This Quad group (USA, Japan, India, and Australia) would further drive an agenda that would balance the economic, political, and security imperatives for the
member countries are not in the
Beijing’s mercy to secure emergency supplies.
The immediate backdrop for this initiative has been the massive loss of life and damage to economies due to Covid-19 in the United States, the United Kingdom, France, Italy, Spain, Japan, India, and other countries. Many believe that this loss could have been greatly reduced if China had shared vital information about the pandemic with other countries in a transparent way at an early stage and had not allowed its five million citizens carrying the virus to travel to various countries before 25 September. January of this year. The growing anger at China has been further exacerbated by its “warrior diplomats” who have done their best to annoy local governments by using open threats of Beijing’s influence as a major trading partner.
The change in China’s supply chains is an ancient phenomenon that began after 2008, when the global economy witnessed a new rebalancing with several emerging economies that became the latest demand engines and multinational companies that relocated the chains. supply in or around these markets. The expansion of trade in services such as telecommunications, information technology, business services, and finance created a new set of supply chains. The rise in wages in China after 2008 and the escalation of the tariff war between the US USA And China after 2018 further pushed many companies to shift a portion of existing or new investments in countries outside of China.
Several sectoral chains have reacted differently to the new political and economic conditions. Textile, clothing and footwear companies are looking for countries with low labor costs. Auto manufacturing companies are aggregating in or around major demand destinations like China, India, and the United States. Electronic product supply chains primarily focus on high-tech locations such as the United States, Europe, Japan, South Korea, and Malaysia, although some have also moved to Vietnam, India, and Mexico.
However, China remains a key overseas destination for many American and foreign companies due to its unrivaled high-tech supply ecosystem. Supply chains in China, built over a period of 20 years or more, have vast networks of manufacturers and suppliers, fully attuned to US quality control standards. USA, On-time deliveries, safety certifications and high volume production. US iPhone manufacturer Apple has faced obstacles to diversify its production beyond China due to the lack of availability of highly qualified engineers, the lack of high value-added and innovation-based providers that they can offer competitive rates and the absence of reliable logistics, transportation, infrastructure and public services.
For these reasons, many companies will continue to retain a significant portion of their manufacturing in China to take advantage of the large Chinese market. Furthermore, the demand for goods in many countries in the post-Covid-19 environment has dropped dramatically and it will take years to recover. Therefore, creating green field units will take time. Many business executives will watch closely as the rivalry between the United States and China under President Trump develops further and whether the former would be reelected in the upcoming presidential elections in November 2020; The prospects of a mercurial Trump reaching a new trade deal with China should also not be ruled out if the latter offered more economic incentives.
Japan has already announced an initiative to establish a $ 2.2 billion fund to encourage companies to move from China. Given the hardening of the bipartisan consensus in the US. USA To investigate China’s role in the pandemic and take punitive measures against it, manufacturers of medical equipment, pharmaceuticals and other essential goods can relocate the production of these items in their own EPN-friendly countries. Such an initiative by the United States will undoubtedly find resonance among European countries and their allies on other continents. It has the potential to sharply accelerate the movement of supply chains from China, particularly those intended to provide goods to other countries.
The acceleration in the relocation of China’s supply chains will undoubtedly affect its economy (trade contributes about 40 percent to its GDP), high-value jobs, the purchasing power of its people, and even its stability. internal. It must be remembered that much of China’s economy thrived when it was an integral part of the global supply chains and the manufacturing capital of the world.
India is considering a series of steps to attract foreign companies moving from China. These include reducing corporate taxes to the lowest level in the region and assisting removal companies through the provision of land, public services, and essential infrastructure. However, there are several weaknesses that India will have to address, such as the low productivity of our industries due to outdated technologies, the lack of an ecosystem of efficient suppliers that can manufacture quality products at the speed required in high volumes, and logistical constraints and infrastructural. , in addition to being a member of major trade groups to emerge as a serious destination for supply chains moving from China.
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