US reshaping of global supply chains is ultimately self-serving

Far from being defensive, proposals such as the Indo-Pacific Economic Framework supply chain deal are designed to de-Sinicise critical sectors, prevent China’s rise and cut it off from the world
They also risk creating vulnerabilities for developing countries and fracturing the world into two or more global trading blocs

Zhou Xiaoming

Published: 8:15am, 30 Jun 2023

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Supply chain issues used to largely be the preserve of businesses. These days, supply chains are a priority area for intensive US government intervention. To enhance the US’ “supply chain security and resilience”, the Biden administration is doubling down on reducing what it calls “dependencies on China”.

China enjoys a large global market share in several sectors, including rare earths, electrical vehicle batteries and solar panels. Yet few non-Western countries see this as a cause for concern. Most countries in the Global South view China’s lead in clean energy technology as crucial to their transition into a green economy.

South Africa, for example, has turned to China for its affordable renewable energy expertise amid a serious power shortage, with the minister in charge of electricity, Kgosientsho Ramokgopa, saying earlier this month: “We have gone to all other embassies, you are the only ones who have come back to us saying ‘we will assist you without any condition’.”

While there is fragility in global supply chains, “the case for policy intervention”, said World Trade Organization chief economist Ralph Ossa, “is weak” because “there is no reason to believe that firms are systematically under-or overexposed to supply chain risks”.

The American approach simply highlights Washington’s conception of China as the US’ principal adversary. It is a reflection of the US mentality that adversaries it depends on would be tempted to take action against it. As US Secretary of State Antony Blinken said: “If the shoe was on the other foot, I have no doubt that China would do exactly the same thing”.

Indicative of the real motives behind its attempt to restructure global supply chains, the Biden administration’s actions extend far beyond the few sectors China dominates.

In 5G, Chinese manufacturers face vigorous global competition from the likes of Nokia and Ericsson. In semiconductors, China depends heavily on external supplies, spending US$415.6 billion on integrated circuits last year, more than 15 per cent of total imports. But even in these sectors where the US does not rely on China, the Biden administration has still spared no effort to severely handicap Chinese industries.

It would seem the Biden administration is not so much addressing so-called vulnerabilities as pre-empting and stymieing China’s rise. US moves, rather than being defensive, appear to be attacks designed to de-Sinicise global supply chains in critical sectors and cut off China’s ties with the world’s economy. The US is decoupling from the Chinese economy in tandem with the geopolitisation and weaponisation of supply chains.

But the US’ drive to reshape global supply chains also carries implications for global trade and economic growth.

While businesses base their supply chain decisions on commercial considerations, the Biden administration prioritises geopolitical goals. The US push for new supply chains is part of the new global economic order and aims to help America regain its dominance. Through proposals such as the Indo-Pacific Economic Framework (IPEF) supply chain agreement, Washington is seen as envisioning the US at the centre of supply chains.

This goal means shifting high-value supply chains towards key US sectors, even from allies, such as the European Union and Japan, as is happening for semiconductors. It means potentially locking “partners” from the Global South into dependency and underdevelopment.

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US Trade Representative Katherine Tai, speaking at the National Press Club on supply chain resilience two weeks ago, said the US offered “economies a spot in vertical integration so that developing countries are not perpetually trapped in an exploitative cycle”. I fear the result could be the opposite, consigning partners to the periphery of US networks and creating new vulnerabilities for them.

For all its touted benefits for the world, Washington’s scheme is self-serving. For its “partners”, there would ultimately be neither security or resilience. In times of crisis, Washington would not hesitate to sacrifice its partners’ interests for its own, as evidenced by its abrupt troop withdrawal from Afghanistan and hoarding of Covid-19 vaccines early on in the pandemic.

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Washington also intends for its new supply chains to be a vehicle for enforcing its economic rules and standards in partner countries. This could give Washington freer rein to interfere in other countries’ internal affairs. Tai, in talking about the US-Mexico-Canada Agreement, said it has “a mechanism that allows us to bring cases against specific facilities that do not respect the rights of workers to freedom of association and collective bargaining”.

In this regard, one dream of the Biden administration is to level the playing field. But the approach is akin to pitting a heavyweight boxer against a featherweight. Elevating labour standards in developing countries too quickly is a sure way to raise their labour costs and whittle away their competitiveness. Uncle Sam, with his much higher productivity, stands to win in what Tai calls “a race to the top”.

Reading between the lines of the high-sounding terms used to glorify the IPEF deal, the US appears to desire a closed system of supply chains, an invitation-only club that keeps out the great majority of countries. Such a plurilateral approach threatens to fracture the world into two or more global trading blocs.

This fragmentation would in turn lead to a loss of global economic efficiency. WTO economists estimate it could cut global real domestic product by 5.4 per cent, with developing countries hit almost twice as hard as developed ones. The question, in light of the enormous harm politicians in Washington are wreaking on the global economy, is whether it’s time for businesses to be allowed back in the driver’s seat to reshape global supply chains.

Zhou Xiaoming is a senior fellow at the Centre for China and Globalisation in Beijing and a former deputy representative of China’s Permanent Mission to the United Nations Office in Geneva