On Supply Chains
Day 3: “It's a bit more complicated than that”
As a nation we've got to thinking about our supply chains, both of perishables and durables. At the moment our supplies of food appear to be good, both locally produced and imported (though the pressure to allow travel from Eastern Europe for farm workers is somewhat salutary). Some of our other supply chains are longer, as has been highlighted by the shortage of reagents for Covid testing kits.
The Blair/Brown years from 1997 to 2010 saw a boom in globalisation (it wasn't their policy, but they benefited from it). During this time a lot of production of goods moved offshore and, particularly as manufacturing capacity grew in China, prices fell. Marks and Spencer was one of the last clothing retailers to move their production offshore, and would not have survived if they hadn't.
We're thinking about supply chains again. One of the starkest examples is the supply of PPE for GB, where we have even had to involve the RAF in its transport. The cry has gone out “We should be making these things here” and it has a resonance.
There is a term to describe making things domestically when it could be made more cheaply elsewhere: protectionism. When we buy goods made elsewhere we get our goods more cheaply and the producers get our money. And in normal times, the people who would be producing these goods here at higher cost are, instead, able to do something else. Everybody wins, hence the global boom since the Uruguay GATT round was completed in the 1990s, the WTO was set up and tariffs fell around the world.
The Covid pandemic has seen a halt in the international movement of people, but the movement of goods has continued. There have been shortages, but these are because production has stopped in (for example) China, not because the merchandise can't be moved. If you look on FlightRadar24 or other aircraft tracking apps, you'll see that most of the air traffic now is cargo: you'll see the air corridors full between the far east and Anchorage (a convenient half-way refuelling and distribution point) and onwards into the US. Similar processions come to Europe.
So what's going to happen? What will be the balance between the “New Normal” and the “status quo ante”? My view is that the status quo ante was not a contrivance that can be replaced, it is instead the steady state of a lot of market forces that have not changed – the outcome of what Adam Smith wrote hundreds of years ago. Some things will change though: if the working conditions in (for example) textile production facilities mean that Covid runs riot, our supply of cheap clothes will change. This will result in dreadful hardship for the workers in these facilities, who will become unemployed. In fact, by globalising production we have also globalised unemployment!
I don't profess to understand all the intricacies of international trade and supply chains. But to the cry “We should be making these things here” I would say “It's a bit more complicated than that”.