The last two years have been a rough awakening for many industries. We’ve seen severe shortages across consumer goods and correspondingly severe weaknesses in supply chains. These weaknesses – often stemming from excessive reliance on China – continue to be evidenced as China attempts to enforce a zero-COVID policy. Businesses across industries and the globe are beginning to realize that the prior model for efficient supply chains – based heavily out of East Asia – are not resilient in the face of the challenges of the last two years.
A Bloomberg article addressing the vulnerability of globalized supply chains notes that backlogs continue to characterize international container shipping. On average, it takes between 110 and 120 days for a product to travel from a Chinese factory to a US or European manufacturer, over double the lag time in 2019. Shortening supply chains is no longer a political stand, for some firms, it’s a business necessity. Tesla lost a month of productivity due to a lockdown in Shanghai, and companies across the US and Europe lack the necessary inventory to produce their needed goods. That relying heavily upon China opens one to vulnerability has already been revealed. I believe, however, that Russia’s invasion of Ukraine will usher in a new era of international trade, one that is willing to sacrifice cost and efficiency in the name of geopolitical stability.
Following Russia’s invasion of Ukraine, the EU committed to eliminating their dependence on Russian oil. While they could not immediately “turn off the tap” for Russian Oil, they’ve committed to bearing the cost of accelerating the transition to green energy and importing oil from the US in the meantime. Similarly, the Bloomberg article notes that many German manufacturers will be reducing their reliance on China to increase supply resilience and geopolitical stability. Throughout the age of globalization, the industrial world has relied on goods supplied from countries and entities with, putting it mildly, poor human rights records. Oil from Russia and Saudi Arabia, semiconductors and computer chips from China, cheap textiles from sweat shops, and rare-earth elements mined by some of the most oppressed workers on planet earth. As with the EU’s dependence on Russian oil, society’s dependence on these goods might be too strong to spontaneously halt demand. However, I believe that the supply chain vulnerabilities highlighted by the pandemic and the philosophical conflicts exemplified by the Russian invasion of Ukraine will begin to usher in a new era of globalization, one in which philosophical and political alignment count for more than a low-cost, high-efficiency process.