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USA creates STRIKE FORCE to end China’s dominance in Global Supply Chain

USA creates STRIKE FORCE to end China’s dominance in Global Supply Chain

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  • GS 3 || Economy || External Sector || Foreign Trade

Why in news?

  • The US President Joe Biden administration has announced that the US will be forming a task force to target the unfair trade practices of China and other competitors.

Details

  • This decision came after a 100-day review of supplies like computer chips in the country. The task force will be composed of  Civilian experts and Military experts.
  • Joe Biden ordered the review in February 2021. He asked the government agencies to report on the country’s access to essential goods like rare earth materials used in phones and electric vehicle batteries.
  • A huge amount of money will be spent in an array of research areas.
  • The Bill provisions $300 million to counter the political influence of the Chinese Communist Party.

Reasons for the Global supply review

  • The US faced difficulties in getting medical equipment during the Coronavirus pandemic, which is why the review was ordered.
  • There was a computer chip shortage in the United States, which caused car production to halt.
  • In addition, demand for television phones and game consoles, all of which employ semiconductor chips, has increased.

What will the task force do?

  • The task force, which will be led by the secretaries of Commerce, Agriculture and Transportation, was among the measures announced to reduce the US’ reliance on goods from outside the US.
  • It will assess and formulate a plan for the removal of bottlenecks.
  • The new task force will bring together stakeholders to figure out how to address the bottlenecks, adding that many of the resulting actions might be taken by private companies rather than the government.

What is a global supply chain?

  • It is a chain of separate but interlinked and coordinated activities, which can be undertaken within a single firm or be divided among multiple firms in different geographical locations to bring out a product or a service to complete production and delivery to final consumers.

Advantages of Globally Sourced Goods

  • Reduced cost price– due to lower labour and operating costs linked to the manufacturer of the products.
  • Supplier development– it is often possible to support specialist product offerings leading to:
    • Opportunity to increase innovation
    • Sharing expertise and upskilling a new market/workforce
  • Increasing competition– Developing new suppliers will open up your access to suitably skilled supply routes.
  • Access to International Market:Participation in GVCs provides important opportunities for firms to access international markets, absorb new technology, and rapidly expand their economies of scale.
  • Magnifying Trade Scenario:It allows resources to flow to their most productive use, not only across countries and sectors but also within sectors across stages of production.
    • As a result, GVCs magnify the growth, employment, and distributional impacts of standard trade.
  • Boost to Development Process: GVC-driven development allows countries to leapfrog their development process by shifting to higher-value-added work and embedding more technology and know-how in all of their agriculture, manufacturing, and service industries.
  • The benefit to Developing Countries: Global value chains benefit developing countries by making it simpler for them to diversify their economies away from primary products and toward manufacturing and services.
  • World Bank’s World Development Report 2020 (WDR 20)suggests, contingent upon deeper reforms in developing countries and policy continuity in industrial economies, GVCs can help reduce poverty, and continue to augment growth and employment.

Disadvantages of Globally Sourced Goods

  • Longer lead times – While manufacturing periods can be short, lead times can frequently be much longer since things must be shipped, which adds to the load
    • This makes planning difficult.
  • Exchange rate fluctuations – Global markets are more vulnerable to regional factors that can have an impact on trading marketplaces.
  • Risk exposure to contemporary slavery, as well as brand and financial risk exposure, can all be elevated.
    • Increased risk exposure due to STEEPLED variables – Because the supply chain crosses numerous nations, there is a greater possibility of instability in other nations affecting your supply chain activities directly.
    • STEEPLED variables– Social, Technological, Economic, Environmental, Political, Legal, and Ethical.
  • Communication issues – To ensure that information is accurately interpreted, it is necessary to carefully evaluate language and the types of communication techniques used to interface with a worldwide provider.

Covid-19: Impact on Global Supply Chains

  • Even as the virus continues to claim lives and livelihoods, governments throughout the world are focusing on food security and the availability of key commodities, the economic impact of the crisis has become clear due to supply chain disruptions.
  • China as a manufacturing hub
    • The COVID-19 pandemic has resulted in business closures, plant shutdowns, and disruptions to global industrial industries and supply chains.
    • This is the result of China’s transformation into the world’s production centre during the previous two decades. China accounts for roughly 16 percent of global GDP.
    • Major supply interruptions have resulted from the shutdown of assembly and production operations.
  • Increased protectionism
    • As governments around the world struggle to reduce the economic harm caused by the coronavirus epidemic, they will become more protectionist.
    • Globally, the international commercial order will revert, and there will be a push toward self-sufficiency.

Global supply chains and  India

  • India’s integration with GVCs is among the lowest in G20 countries.
  • Compared with the ASEAN group of countries, India’s GVC integration is far lower with a decline in both it’s backward (that is, the import content of exports) and forward (domestic value-added embodied in other country exports as a share of gross exports) GVC linkages.

Reasons

  • Inadequate Trade Infrastructure
    • India continues to fall behind in trade infrastructure, which not only raises the cost and duration of export operations but also makes it nearly impossible for a country to participate in GVCs.
    • Through the quality trade infrastructure method, China, Japan, South Korea, Thailand, and Malaysia have joined GVCs.
    • India is unable to do so since it does not meet the criteria for efficient entrance and exit at the majority of ports and customs.
  • Global Share is Weak
    • In major basket products (electronics, communications, and high-end engineering products) that have grown crucial in world trade, India has a negligible presence. It accounts for 30% of India’s export profits.
    • India has a low worldwide export share (0.04 percent).
  • Small Basket Products come in a variety of sizes
    • Surprisingly, small basket products account for 70% of India’s export revenue (Agri- based products). The global basket’s modest size limits its future growth potential.
    • In addition, low-cost countries such as Bangladesh and Vietnam compete fiercely for most products.
    • A country that exports products from a large basket has a better chance of growing.

Way forward

  • A recent Initiative to Counter china
    • India, Australia, and Japan have started the discussions for the launch of a trilateral Supply Chain Resilience Initiative (SCRI) to reduce the dependency on China. The countries should work on SCRI and take the plan forward.
    • The initiative which was first proposed by Japan might be executed.
  • Multilateral Institutions’ Role
    • The World Trade Organization (WTO) and the International Monetary Fund (IMF) must spring into action and devise a blueprint for the revival of global supply chains by first boosting output and creating demand on both ends.
    • These two don’t have the resources to restore the global economy on their own, therefore they may need to join forces and collaborate with other organizations.
  • Reforms needed
    • World Bank’s World Development Report 2020 (WDR 20)suggests, contingent upon deeper reforms in developing countries and policy continuity in industrial economies, GVCs can help reduce poverty, and continue to augment growth and employment.
  • Hopes for India
    • India is the most viable country in terms of geographical size and diversity and the available labour force to emerge as the epicenter of the restart of production.
    • India must increase its self-reliance in the face of China to strengthen the economy’s supply chains. In this case, economic indicators are extremely useful.
  • Ease of Doing Business
    • While India appears to be an appealing market and manufacturing base for potential investors, it has to make faster progress in terms of ease of doing business and talent development.
  • Tax breaks
    • These will aid in recruiting investment from China as well as other desirable locations such as Vietnam and the Philippines.
  • Strengthen India’s Manufacturing Competitiveness
    • India’s objective should be to grow its manufacturing competitiveness and increase its share of global commerce.
  • Infrastructure Improvements
    • To achieve this goal, it is necessary to build infrastructure that improves India’s export competitiveness.
  • Skill development
    • GVC participation leads to job creation in developing countries, provided it occurs with increased and high-skill-based value addition.
    • So, to gain a part of GVCs, countries like India need an education system based on skill development. As well as a competition policy enhancing rivalry, and a tax system and intellectual property laws encouraging investment.

Mains model question

  • India has the capacity and the potential to become one of the world’s largest destinations for investments, and one of the world’s largest manufacturing hubs, in the aftermath of the pandemic.Discuss

References