The 2021 Ideas Network 2030 Summer University
Session 6:
Economy and Trade: Resilience of Openness?
2 September 2021
Moderator: Sam Lowe
Panellists: Penny Naas and Emily Rees
Rapporteur: Raoul Ruparel
General observations:
• The debate is ongoing about whether openness and global integration of supply chains led to increased vulnerability in the face of a shock like Covid-19. No definitive answer yet.
• Evidence so far suggests that the case may be different for developing vs. developed economies. For the latter, reshoring often leads to less efficiency, higher costs and therefore being more vulnerable to shocks rather than more resilient.
• The ramifications are coming to the fore now in many cases. We see container ships across the world unable to unload at ports. Much of this is down to a lack of warehouse space, but also lack of containers and in particular the restrictions around movement of people.
• The quarantine rules and entry requirements for many countries, especially in Asia, have disrupted supply chains (both air and sea). Many don’t expect these problems to ease until at least 2022.
• Globally there is an imbalance between demand and supply, this will remedy but will take time.
• There is a difference between reshoring and diversification of supply chains. Japan, for example, is providing funding for companies to reduce reliance on China and diversify supply chains. It isn’t about reshoring but reducing concentration, though obviously it has a significant political driver.
Specific observations:
• The debate needs to move beyond this idea of reshoring being an answer. There are a number of practical steps which organisations can take to improve resilience. For example, focusing on their employees and ensuring that there are practical contingency plans in place for any shock. This can include building partnerships with other companies.
• Many firms have already been considering the geographical scope of both their supply chains and customer bases. Are too many suppliers concentrated in one region or area and therefore potentially exposed to a single shock? What are the sources of demand and can they withstand potential future shocks?
• The role for Government in this is complicated. There is a risk that it becomes a spiral of Governments’ wanting ever more control and influence within their economy. But equally, it is hard to imagine that firms which are largely focused on short term profit and value are going to take some of these decisions based on the context of wider economic resilience. As such, may well need some Government incentives if there is a desire to build resilience in certain parts of the supply chain or in certain sectors.
• Some surprise that there hasn’t been greater focus on corporate governance and the role it can play here. Take the approach to financial regulation and corporate governance post the financial crisis. A clear framework was put in place – both globally and in specific jurisdictions. This helped shape the approach to balance sheets, building in greater risk management rather than focusing on pure efficiency. The parallels with our current supply chain debate are clear.
There is a strong case for using corporate governance requirements to have firms set out their preparations and contingencies in the face of future shocks and in the context of protecting wider economic resilience.
• Digitalisation of customs is hugely important. Made significant progress in this space during Covid-19 due to practical reality on the ground. But that is now sadly being undone. This progress should be locked in by Governments wherever possible.
• Need to make use of MC12 at the WTO to discuss some of these issues. If this isn’t done at the WTO where can it be done. Without doing so, the risk of a multipolar or bipolar world increases, which will cause further complications for supply chains.
Miscellaneous:
• Covid-19 has changed the way services are traded, with the use of virtual working. Increasingly, it is easier to sell a service virtually from your home country than to provide fly in/out services which will likely require a visa or work permit. Trade rules need to catch up with this development.
• US and EU relationship isn’t as bad as often made out. But there is clearly no desire on either side for a significant push in terms of liberalisation.
Written summaries of other Summer University Ideas sessions
Session 5: Technology – Who regulates Cyberspace?