Into the Unknown: the Present and Future of U.S.-China Decoupling
Cindy Wang | August 25, 2020
Responding To: Is U.S.-China Decoupling Really Feasible?
As Jimmy Goodrich points out, the recent COVID-19 pandemic did not create vulnerabilities in supply chains, but rather shone a light on existing vulnerabilities and led to their politicization. The pandemic-stricken and travel-locked current world state has made the need to evaluate the logistics of global supply chains, and particularly in the midst of frosty U.S.-China relations, a pressing reality. At the forefront of the heated debate about whether the United States and China should economically decouple are security concerns that major military and medical assets could find themselves locked and inaccessible on the other side of the world. Dan Wang reminds us of the myriad political voices warning about the risks to the United States of locating all PPD production in China, Jörg Wuttke points out that security-related sectors including medical supply producers will likely be among those making changes to their supply chains, and Wang Tao points out the difference between decoupling and diversification, noting that moving supply chains out of China does not necessarily mean they will re-shore in the United States. In fact, many companies look to Southeast Asia to find cheaper locations to manufacture their products. While these economic and business experts thoroughly covered the economic implications to the United States and China resulting from their decoupling, they provide little explanation on the environmental and labor impacts this would have on the world and its workers.
Complex global supply chains adversely impact public health and the environment in the form of carbon, nitrogen oxide, and sulfur oxide emissions from shipping. McKinsey notes that 90% of companies’ impacts on the environment come from supply chains, and MITSloan Management Review points out in its article “‘Greening’ Transportation in the Supply Chain” that many of the goods produced in developing countries are consumed in more industrialized nations. This means that shipping goods long distances from the source of their raw materials, to their point of manufacture, to their place of consumption creates a much greater transportation burden than does local manufacturing and consumption. In terms of decoupling, this begs the question— who is the target market? As Wang Tao points out, the Chinese market is expanding fast. So if China is the target market of U.S. goods, it makes sense to have the supply chain nearby, especially, as Dan Wang points out, because it is more efficient to centralize production and keep the supply chain close together. However, if the United States is its own market for its manufactured goods, it just seems ridiculous to wreak such havoc on the environment for the sake of lowering overhead. Of course, capitalism espouses taking all measures possible to reduce costs and increase profit, so it’s a bit of a pickle to devise a way to change this long-held cultural value and economic strategy so many companies adhere to.
In terms of diversification— moving production from China to other countries in Southeast Asia comes with its own set of moral landmines. While Dan Wang points out that China is a good place for production due to its “reliable policies,” among other reasons, China has received criticism over the years for its poor factory conditions and treatment of workers— including overworking and underpaying them— and large number of child laborers. By diversifying global supply chains and relocating manufacturing to cheaper countries in Southeast Asia, companies make it even more difficult to monitor where and how their products are made. In their article “Improving Work Conditions in a Global Supply Chain,” MITSloan says “globalization and the diffusion of industry supply chains to developing countries…has led to child labor, hazardous working conditions, excessive working hours and poor wages in these emerging centers of production.” While China, the ‘Asian Tiger’ fueled by export-led development and now the second largest economy in the world, is ameliorating some of its historically dismal working conditions, other developing countries hoping for the same economic success are likely to fall victim to the same mistreatment of workers. As “Child Labor in the Fashion Supply Chain,” an article by the Guardian and sponsored by UNICEF describes, complex supply chains mean work often gets sub-contracted to other factories without informing the buying companies. Of course, immense investments in time and money make it possible for companies to better oversee the production of their goods, but if companies were willing to spend money and time which equals money anyway, then perhaps they’d be willing to invest in more ethical and sustainable alternatives, including a transition to more onshore manufacturing.
As Goodrich points out, the United States is not a financially competitive place to set up production for many companies. And as Dan Wang and Wuttke say, China is a great place for production because it has a large workforce and the supply chain and clusters are already there. And on top of all this, there is the thin political ice China and the United States skate on concerning decoupling. But interestingly enough, China and the United States are the top two monetary contributors to the United Nations, which has expounded its Ten Principles of the United Nations Global Compact concerning corporate sustainability. These principles highlight the necessity of corporate attention to human rights, labor, and the environment, all of which are more threatened by complex global supply chains and relocations to developing countries with less government oversight to ensure the rights of workers and protection of the environment. Perhaps it’s time to depoliticize decoupling and diversification, and for companies and countries to consider their ethical and environmental impacts, rather than simply their economic effects. To do this, rather than slap tariffs on China, the U.S. government could consider incentivizing onshore production for American companies and create tax and trade consequences that would dis-incentivize foreign production. But given the traditional ardent U.S. love of free-market capitalism, this possibility seems unlikely.
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