For all the Biden administration’s talk of a victory in reshuffling supply chains, China’s trade ties to the US have not really been eroded. Supply chains are moving out of China to Vietnam and Mexico. But as Henry Storey finds, both Vietnam and Mexico are receiving more Chinese imports of and investment in intermediate goods than ever before. Rather than undergoing a wholesale shift, the reconfiguration of supply chains is simply a rerouting of Chinese manufactured componentry to other economies for assembly and re-export. Two of the world’s leading global trade policy thinkers, Wendy Cutler and Clete Willems, put it bluntly: If the US does not take a bolder approach to engaging Asia on economic strategy, Washington risks becoming spectators as America’s Asian partners work among themselves and with China to strengthen regional economic integration. Meanwhile, Rob York and Akhil Ramesh examine how China is responding to America's edge in global semiconductor supply chains. Catch up on a roundtable we jointly held with the Singapore Institute of International Affairs on US engagement with the Indo-Pacific. Plus, our latest discussion guide.
NEW ARTICLE
Who won the global supply chain upheaval?
Henry Storey 26 September 2023
Supply chains are moving out of China, with Vietnam and Mexico emerging as key destinations. But both Vietnam and Mexico are receiving more Chinese imports of and investment in intermediate goods than ever before. Rather than undergoing a wholesale shift, supply chains are reconfiguring around trade barriers and new political exigencies. The results are simply a rerouting of Chinese manufactured componentry to Mexico, Vietnam, and other economies, where it is assembled and re-exported. Dragoman Asia senior analyst Henry Storey lays out how China’s central position in global manufacturing means its indirect linkages to American supply chains persist. The US and its partners currently have the edge over the People’s Republic of China in semiconductor supply chains. Rob York and Akhil Ramesh of Pacific Forum examine how China is responding to American leadership in this area and the factors that will drive semiconductor supremacy in the future.
The Biden administration is pursuing enhanced US trade with Asia through the Indo-Pacific Economic Framework. However, the IPEF outcomes released to date are only a modest step forward, emphasizing process over substance. Ongoing IPEF negotiations do not include comparably enforceable provisions or market access. This omission raises questions about whether the eventual IPEF agreement will be considered a serious alternative to what China is offering. Wendy Cutler of the Asia Society Policy Institute and Clete Willems put it bluntly: If the US does not take a bolder approach, it risks becoming spectators as America’s Asian partners work among themselves and with China to strengthen regional economic integration.
In semiconductors, unlike in other critical supply chains, the US and its partners currently have the edge over China. Rob York and Akhil Ramesh of the think tank Pacific Forum outline how the US, using industrial policies such as CHIPS and IRA as well as reshoring and friend-shoring strategies, is actively trying to hold on to its leadership in this sector. But semiconductor supremacy will largely turn on whether the US achieves self-sufficiency in fabrication and can friend-shore both raw materials and assembly, testing, and packaging – and whether China up-ends the competition by achieving its own breakthroughs in design.
The Singapore Institute of International Affairs organized a roundtable dialogue last month in partnership with the Hinrich Foundation on the marked shift in US trade policy that has deepened cracks in the multilateral system. Discussions amongst participants, featuring a keynote by the foundation’s Senior Research Fellow Keith Rockwell, framed perspectives on how the US-China geopolitical contest has stymied business in the region and whether Washington’s Indo-Pacific Economic Framework really helps US’ Asia strategy (the broad consensus: no). Here are the highlights.
Competition in the telecommunications sector is rising as a central element of the ongoing geopolitical struggle between the US-led West and China. As leading companies in the 5G industry seek to address their mutual exposure through trade diversification, prodded by increasing state intervention, 5G supply chains are likely to become significantly less globalized. Plans are afoot among multilateral forums to upend global 5G supply chains observes Kieran Thompson of Dragoman in this paper. Download the discussion guide to understand how geopolitics affects the 5G race.
