Gareth Prendergast | 28 September 2020
Trade and strategic overreliance on global supply chains: A new phase in globalisation?
Lt. Col. Gareth Prendergast took part in an expert panel discussion in August 2020 as part of The Azure Forum for Contemporary Security Strategy 2020 series on ‘Peace, security and defence during and beyond the Covid-19 Crisis: Lessons for future global crises’, with support from University College Dublin. This commentary discusses increased dependency on strategic reserves and supply chain redundancies in the wake of a global pandemic like Covid-19, arguing for a need to review the pooling and sharing policy now being advocated at EU level.
By the turn of the millennium, outsourcing had become a norm rather than an exception. Global access to vendors, falling interaction costs, and improved information technologies and communications links provided all companies a possibility to grow and restructure their businesses. With this restructuring and the opening up of international markets throughout the world as a result of the Cold War ending, globalisation became a key concept in spreading prosperity and also the associated peace dividends. Countries that trade together and are interdependent on supplies and manufacturing tend to foster improved international relations thus enhancing security.
While the events of 9/11, the SARS outbreak in Asia and the global financial crash of 2008 were all shocks to globalisation, it survived, readjusted, thrived and grew. The interdependency between countries grew and supply chains became “over-lean” in order to reduce costs, increase profits and keep shareholders happy.
Yet, the shocks now imposed by Covid-19 to global supply chains have been different and more consequential than witnessed before. As a consequence of the current pandemic, supply chains are being forced to not only adapt but to change, and in some areas change fundamentally. Nonetheless, globalisation will not go into decline but rather it will have to be reconfigured in order to survive.
Likely supply chain security policy changes
A number of potential policy changes related to supply chain security could now come about as a result of this pandemic, possibly forcing the reconfiguration of global trade and a rethinking of how supply chains are managed with ramifications for future globalisation.
First, as a result of Covid-19, multinationals will no longer become as reliant on the manufacturing super base that is China. The previous reliance on ‘over-lean’ supply chains will be reduced by the multinationals, who will pivot away from China and instead pivot more towards diversification and the regionalisation of supply chains. In order to reduce their over-reliance on China, manufacturing could now be decentralised to regional bases such as India, the EU, Brazil, Mexico and Turkey. This regionalisation will secure supply chains by making them more resilient and less lean. Moreover, the regionalisation and reduction in the length of supply chains will be more efficient and environmentally friendly. Governments of larger countries such as the United States may also seek the reshoring of manufacturing back to their own home bases and other countries for security reasons and political gains within both national and international audiences. These political options and scenarios (especially the future regionalisation of supply chains) should provide a hedge against future global shocks by strengthening supply chains, creating a better balance in international trade, shortening lead times and providing alternative options to sourcing from China. These steps will undoubtedly reverse the trend towards ‘hyper-globalisation’ but they will likely be a more costly option.
Second, in order to provide strategic reserves in the event of future global shocks on the scale of Covid-19, governments and multinationals will now need to build in redundancies and improve warehousing capacities. A recent successful example of the benefits of improved warehousing capacities was the stockpiling of food stocks and medical supplies by Ireland in the event of a ‘Hard’ BREXIT. Fortunately for Ireland, these built-in redundancies to the Irish supply chains enabled Ireland to more securely provide food and medical supplies to the Irish population during the initial crisis months of Covid-19 while many other countries struggled. In particular, while building in such redundancies and extra warehousing was a costly option for Ireland, it was necessary to provide political assuredness.
Third, the tiering of suppliers will now probably be introduced by manufacturers globally in order to secure supply chains. Suppliers will be tiered in order of cost, reliability and location with alternative options and courses of action now being secured in the event of regular supply chains being disrupted. This will certainly reverse the previous reliance on ‘over-lean’ supply chains even where there are additional financial costs to the manufacturer and hence the consumer.
Lastly, as a result of Covid-19 the weaponisation of global trade could be accelerated. Even before the current crisis, countries were already taking advantage of their influences on Trading Blocs and access to Trading Blocs as a weapon of persuasion or change for belligerent or semi-belligerent countries. Previously, countries that were perceived to be misbehaving both nationally and geopolitically were threatened with exclusion from the lucrative markets associated with trading blocs such as MERCOSUR or the EU. Covid-19 will undoubtedly exacerbate this type of behaviour, especially where examples of illicit trading, outpricing and accusations of piracy have already been witnessed in the international search for Personal Protective Equipment (PPE) and facemasks. 1 This ‘piracy’ will only accelerate or be enhanced once vaccines are developed to counter Covid-19 and countries race to secure the health requirements of their populations, disregarding international partnerships and alliances.
Strategic assets: Smaller countries can no longer be over-reliant
The continued threat of pandemics, likely future regionalisation of supply chains and ongoing weaponisation of global trade may mean possible adverse consequences for future EU concepts such as the use of light footprint logistics on EU CSDP missions in Africa and the pooling and resourcing of strategic enablers. Smaller countries within the EU, like Ireland, can no longer be over-reliant on private corporations or larger countries to outsource or share their strategic assets, especially in situations like a global pandemic where strategic assets or airframes are needed nationally in order to save lives. Smaller countries now need to become more self-reliant in this regard and prioritise the ability to have strategic enablers as an inherent national capability.
Authors’ views are their own and do not represent the official position of The Azure Forum.
ABOUT THE AUTHOR
Lt Col Gareth Prendergast is an Adjunct Senior Fellow at The Azure Forum for Contemporary Security Strategy. He is a final year PhD student in University College Cork and a serving officer in the Irish Defence Forces. The opinions expressed in this article do not express the views or opinions of the Irish Defence Forces.
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