The dangers of ripping-off the global supply chain
The world is about to face a divided supply chain, a total ripping-off of an established order. The question is what are we going to do about it?
Yuji Miura, a senior researcher at the well-known Japan Research Institute, notices a strange phenomenon. It is an effective global market division into ‘China’ and ‘non-China’.
<<This is a striking statement because, with globalisation, trade should not be split into different sections or fall into isolation.>>
In the context of US-China trade war, the concept of industrial transfer is not the same anymore. Originally, the dominant factor in the supply chain transfer was horizontal integrations for competitive advantages.
However, studies have shown that the global supply chain is favouring vertical integrations because of trade protectionism.
Taking the US-China trade war as a backdrop we see the high tariffs imposed by Washington on Beijing’s exports.
The range of 10% to 25% tariffs has greatly impacted companies dealing with the US as an export market. It also impacts industrial transfer’s which is the biggest intention in such trade exchanges.
To gain intuitions on this scenario, let’s consider the supply chain of mobile phones.
Mobile phone and semiconductor companies in Silicon Valley such as Apple and Qualcomm are the primary designers of the iPhone. This is an upstream business. MicroSD cards and mobile processors produce the other components in Taiwan, Japan, Korea.
All these components and designs go to mainland China for the final product manufacture, for shipping to the US. Hence, China is the last player in the chain of production, the US plays the role of the export market.
But the China-US trade war has a great impact on the global supply chain. A Japan Research Institute study lists the total value, per countries and regions, involved in China’s US exports.
South Korea, US, Taiwan and Japan value is at JPY1 trillion each, indicating China’s massive usage of overseas components. The study dates back in 2015 but is important in determining the trend.
As a result, several enterprises are developing strategies to reduce their dependence on China. They are facing economic pains that stagnate the circulation of their products in China.
Recent data shows 50 companies worldwide made it public the need to move their manufacturing because of the China-US conflict.
But the US is losing here, with most of the companies deciding to retain their Chinese production base and transfer away from US operations. These operations are targeted by tariffs overseas.
<<Data has also shown that investment in China’s neighbouring countries like India and Vietnam is growing by 10% – 30%.>>