Don’t be fooled by America’s “new” supply chains

0 2

DPRAY THE covid-19 pandemic, with sudden shortages teaching businesses and policymakers a costly lesson. Many hoped that shorter and more diversified supply chains would protect them against the next shock. Russia’s war in Ukraine and the tension over Taiwan’s status have added further urgency to efforts to bring manufacturing closer to home. Global supply chains have indeed shifted (see table 1). But a closer look reveals that it has not been in the way that governments had hoped.

Analysis by the Bank for International Settlements shows that supply chains are becoming longer and more complex, while the source remains unchanged. The effect is particularly evident in supply chains that are under pressure to separate, such as those that connect American customers with Chinese suppliers. In 2021 American and Chinese companies were closer together in the supply chain than the global average (as measured by the number of steps between American buyers and Chinese suppliers). They will end in 2023 further apart than before. And, although chains have expanded globally, the distance between American and Chinese companies has increased more than the rest.

As security fears, trade tariffs and covid lockdowns made Chinese suppliers less attractive, many American companies sought to diversify their supply routes. But rather than eliminating China entirely, changes to supply chains have seen traders in Asia increasingly wedged between American and Chinese companies. Take the IT department (see table 2). American companies as a share of China’s total customer base moved ten percentage points over the past two years. But suppliers in China did not eventually stop selling to American companies. Instead, companies in Asia – especially in India and Vietnam – are now buying more from China (the share of Chinese customers in Asia has increased by 13.5 percentage points) and they are selling more to America (the share of American suppliers in Asia has grown exponentially). about five percentage points).

Businesses with supply chains that pass through many hands often do not know the true origin of their products. So these extended chains may be hiding the fact that supplies, for the most part, still originate in China. Attempts at real diversification have shown no progress. Companies are more dependent on a few key suppliers than before: the average number of customers and suppliers for companies worldwide has decreased slightly. That suggests that the “China Plus One” strategy, in which companies create a contingency supply route that excludes China, is more talk than action. Despite the rhetoric heard in C-suites and halls of government, America’s new supply chains continue to trace back to the same dangerous trading partner.

Leave A Reply

Your email address will not be published.