With the COVID-19 pandemic and recent semiconductor shortages having put a spotlight on supply chains, the US and Europe are critical players in strengthening the resilience of global production networks.
Global supply chains have come under increased scrutiny in the light of the vulnerabilities which have been exposed by recent developments: notably, these include supply-chain disruptions related to the COVID-19 pandemic, geo-economic and geopolitical tensions between the US and China, semiconductor shortages, and a reliance on critical raw materials for the transition towards green and digital economies. These developments have raised concerns about excessive dependencies on foreign suppliers, and have given rise to calls for national self-sufficiency with regard to essential goods and strategic sectors. Proposed solutions have ranged from reshoring production to diversifying supply chains and increasing stockpiles. Much has been made of the supposed shift in attitudes from ‘just-in-time’ systems of production to ‘just-in-case’ (meaning extra inventory and lead times) or ‘just-at-home’ models (focused on domestic manufacturing of critical products). This trend has been accompanied by a shift away from the decades-long focus on efficiency in favour of greater supply-chain resilience.
Many drivers and tools are entangled in the current debate and in countries’ efforts to achieve greater supply-chain resilience. A number of pre-existing trends have driven the reconfiguration of global production networks. These include national security concerns, increasing digitalization and a shift to services, a desire to change domestic income distributions and avoid distortions in global trade, and efforts to tackle issues pertaining to climate change and human rights. Although declarations of the ‘death of globalization’ are exaggerated, a new era of the global economy has begun – the hallmarks of which are an increased regionalization and a convergence of industrial, trade and investment policies.
During its period in office, the administration of Donald Trump aimed at ‘decoupling’ the US economy from that of China. Trump’s successor, President Joe Biden, who was inaugurated in January 2021, has also vowed to bring production back to the US from China in a number of economically and technologically sensitive sectors. The Biden administration has outlined its approach to building resilient supply chains and revitalizing American manufacturing, affirming its desire to ‘work with America’s allies and partners to strengthen collective supply chain resilience.’ For its part, the EU is currently pursuing a policy of ‘open strategic autonomy’, thereby retaining its commitment to open and fair trade while reducing its dependence on external suppliers and strengthening the security of supply across key industries. China, meanwhile, is also seeking to reduce its dependence on overseas markets and technology. In May 2020, President Xi announced the ‘dual circulation’ strategy of economic development, which seeks to focus increasingly on ‘internal circulation’ – the domestic production and consumption of goods and services – while supplementing this with ‘external circulation’, based on Chinese exports.
The current focus on supply-chain resilience can help to find a new balance between globalization and sovereignty. This research paper seeks to contribute to the debate by focusing on the role of governments and international forums in strengthening supply-chain resilience. The future of supply chains is considered within the broader context of what has been termed the ‘new nexus’ of economics, national security and technology.
The paper focuses specifically on the US and Europe, and on opportunities for transatlantic collaboration to boost supply-chain resilience, as well as on the hurdles faced. Decisions taken by US and European policymakers and industry leaders will have implications for global supply chains. Together, the US, the EU-27 and the UK account for close to one-third of world GDP (in terms of purchasing power) and for roughly the same share of global trade. US–European supply chains are deeply intertwined, given the high proportion of transatlantic trade that takes place on an ‘intra-firm’ basis (i.e. transactions occurring between a parent company and its affiliates, as opposed to those occurring ‘at arm’s length’ between independent parties). It is estimated that intra-firm trade accounts for one-third of total trade between the EU and US. During past economic shocks – such as the Asian crisis of 1997 and the global financial and economic crisis which began in 2007 – intra-firm trade has been the more resilient of the two. Thus, transatlantic policymakers will be able to expand on this inbuilt resilience.
Moreover, the transatlantic partners are leading players in key structures for global economic governance, such as the G7 and G20 forums of major global economies, and the World Trade Organization (WTO). If the US and Europe threw their combined weight behind improved international coordination efforts and the development of an updated global trade ‘rule book’, they could boost attempts to build resilient supply chains. Similarly, because both partners share the same broad approaches towards the governance of emerging technologies that can promote supply-chain resilience, enhanced transatlantic cooperation in this space is a natural starting point. The US and Europe can leverage their own (at times overlapping) security and economic partnerships to encourage supply-chain resilience. Thus the transatlantic partners would be at the centre of a hub-and-spoke network to strengthen supply-chain resilience that encompasses advanced industrial democracies around the world.
A mix of efforts to increase local production of critical goods, combined with the reinforcement of the international trade system, offers the best opportunities for the US and Europe to contribute to a strengthening of supply-chain resilience.
In particular, the purpose of this paper is to offer useful insights into how the US, the EU and the UK can better harness the opportunities offered by globalization by providing legitimate protection to strategic supply chains without sliding into protectionism. The paper presents a definition of supply-chain resilience, discusses the long-term structural drivers behind supply-chain reconfiguration and analyses supply-chain vulnerabilities and government objectives for boosting resilience. Based on an assessment of both the public policy instruments available and existing supply-chain resilience efforts, the paper develops a set of principles and recommendations that should guide government action at the domestic, regional and global level.
A mix of efforts to increase local production of critical goods, combined with the reinforcement of the international trade system, offers the best opportunities for the US and Europe to contribute to a strengthening of supply-chain resilience.
