Companies are questioning the past 50 years of globalization. This includes always seeking out the lowest-cost manufacturer (see Chapter 11), no matter how distant, and never carrying surplus inventory or parts (see Chapter 12). The results of the shift currently underway includes the movement of jobs and manufacturing representing hundreds of billions of dollars.
As companies build more factories, in more locations, and buy parts and materials from a greater diversity of suppliers, the world’s supply chains are becoming more like supply webs.
Modern supply chains were designed to be cost-effective, but not necessarily resilient. Ever since the adoption of the shipping container in the 1960s, supply chains have grown ever longer. Making oceanic shipping cheap and reliable meant manufacturing could move to wherever wages were lowest. This, in turn, meant most factories moved to the opposite side of the world, principally to China. But it also meant, especially for complicated tech like smartphones and computers, that as materials were synthesized into parts, and then subcomponents and finally finished products, they might crisscross the world multiple times.
Gadgets, which tend to have more parts sourced from more places than almost anything save autos and industrial equipment, have turned out to be especially dependent on three features of global trade that were taken for granted: (1) that raw materials would always be cheap and widely available; (2) that shipping would always cost a fraction of the value of the goods being moved; and (3) that this shipping would always be reliable.
In the current global situation, countries are lining up in geopolitical alliances separated by trade wars and actual wars. In the event of escalated tensions between the U.S. (and its allies) and Russia and China, the U.S. cannot afford to lose access to advanced microchips and the other parts and manufacturing required to build everything from weapons systems to smartphones and 5G networks.
Currently, almost all of the world’s advanced microchip manufacturing is concentrated in Taiwan, which China has long claimed. And even if we wanted to, trying to reproduce the whole of electronics supply chains in the U.S., from raw materials to finished goods, would be nearly impossible.
Classroom discussion questions:
- Why would it be so hard to bring the electronic supply chain back to the U.S.?
- How have the 3 features of global trade changed?