There is much wisdom in this piece by Theodore Darlymple on the coronavirus epidemic. At the end of the article, he writes:
The world has suddenly woken up to the dangers of allowing China to be the workshop of the world and of relying on it as the ultimate source for supply chains for almost everything, from cars to medicines, from computers to telephones. No doubt normal service will soon resume once the epidemic is over, even if at a lower level, but at the very least supply chains should be diversified politically and perhaps geographically; dependence on a single country is to industry what dependence on monoculture is to agriculture. And just as the heart has its reasons that reason knows not of, so countries may have strategic reasons that economic reasons know not of.
This reminded me of a comment to my post on Coronavirus and the free trade narrative, in which I expressed my sad conclusion that the Coronavirus epidemic will create even more space for political enemies of free trade. Mark commented:
The course of this disease seems unpredictable, but if current trends continue (where it comes under control in China but flares up elsewhere in the world), then it will be good that so many medical supply chains are in China because those will come back online as infections occur in the rest of the world. And if the worst case scenarios come true where a huge percentage of the global population is infected, then we will want to have the global capacity to produce as many masks as possible, which means taking advantage of the manufacturing economies of scale which China is very good at instead of trying to create less efficient small-scale production in different sites in every country. Hopefully, it will make people appreciate the importance of free trade when the supplies needed to fight this virus are traded across countries.
I’d be interested in rather readers’ views. When this emergency ends, will we [immagino che sia “we”] be more or less reliant on China? It seems that China contained the epidemic, somehow – though at a cost (this article by Amy Quin is enlightening). Will containment help in keeping the regime reputation up? Will Western electorates call for energy, Chinese style governments, as the epidemic progresses?
READER COMMENTS
Speed
Mar 11 2020 at 10:11am
We all have one heart. If it breaks and can’t be fixed or replaced, we’re dead. We have two kidneys and can live well on just one.
MarkW
Mar 11 2020 at 5:17pm
My prediction — the reliance on China will turn out to have been a good thing (just as you suggest), but most of ‘we’ won’t see it that way and anti-global trade, anti-China demagoguery will prove to be a winning strategy for politicians nonetheless.
Mark Z
Mar 11 2020 at 11:20pm
There are probably a great many complex finished goods that require parts produced mostly in one country. I think this is just an inevitablity in a specialized global economy, and the insurance of diversification wouldn’t be worth the sustained cost. Besides, for durable goods, it may be possible to instead stockpile them ahead of time in case of an emergency.
I wonder, though, what Dalrymple would say if foreign countries started putting quotas on the amount of wheat allowed to be imported from the US, or the amount of money Americans are allowed to invest in their countries, so as to reduce exposure to a potential America-specific catastrophe. Does geographical diversification apply to the US as well as China?
Hazel Meade
Mar 13 2020 at 1:34pm
I suspect that supply chains may become a bit more diversified organically as retailers and other will be incentivized to maintain backup suppliers in the event that the primary supplier is disrupted, for any reason. There’s a lot of money to be made some product becomes scarce, and you’re the only one who has stock on hand. Of course, there will be a marginal cost, as they will have to price things a little higher since the alternative suppliers are likely to be higher cost. I think the market will work itself out and businesses will be willing to pay a marginally higher price to keep products on the shelves and avoid production delays.
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