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Pandemic puts focus on Indo-Pacific supply chain resilience

Top Stories | May 2, 2020:

FORUM Staff

Global supply chains could soon be reshuffled as Indo-Pacific nations and their partners around the world attempt to lessen their dependence on the People’s Republic of China (PRC) for critical supplies, labor and pharmaceuticals.

From Japan to Singapore to the United States, government officials are warning that the COVID-19 pandemic has exposed critical vulnerabilities in supply chains. The disease outbreak, which began in Wuhan, China, slowed the manufacture and export of personal protective equipment (PPE) and pharmaceuticals from China while the PRC tried to gain control of the virus within its borders.

Meanwhile, the PRC quarantined the inexpensive, nonunion Chinese laborers used by many international companies to assemble products, which put the brakes on the global economy.

Saying it is time to improve his country’s supply chain resilience, Japanese Prime Minister Shinzo Abe earmarked U.S. $3.2 billion to support domestic companies that are decoupling their supply chains from China, according to a report in The Straits Times newspaper.

When Chinese health experts linked the first cases of COVID-19 to a wholesale market amongst a number of potential points of origin for the outbreak in Wuhan, China, it triggered a lockdown of factories across the country. Japan has since struggled to procure PPE amid the worsening pandemic. Abe’s diversification plan urges “the return to domestic production any products or materials that are highly dependent on a single country.” (Pictured: A woman in Tokyo, Japan, stands near grocery store shelves that were emptied after the COVID-19 pandemic disrupted global supply chains.)

Singapore, meanwhile, has also been promoting the need to diversify the city-state’s economy. Singapore Trade Minister Chan Chun Sing said the crippling effect of the pandemic on supply chains has been eye-opening.

“Today, China is not just producing low-end, low-value products. They are also in the supply chains of many of the high-end products. And that means that the impact on the supply chains will be significant across the entire globe,” he told CNBC’s Squawk Box Asia. The spread of the new coronavirus, he said, serves as a “very good lesson” for companies and economies on the importance of diversified supply chains.

Widespread shortages of medical supplies and pharmaceuticals are also fueling calls for the U.S. to reduce its dependence on China. Peter Navarro, U.S. President Donald Trump’s economic advisor, said the U.S. needs to build up its capabilities to produce medicines and medical supplies, according to a report by The Hill, a U.S. political news website.

“One of the things that this crisis has taught us, sir, is that we are dangerously overdependent on a global supply chain,” Navarro said during a White House press briefing, standing next to President Trump. “Never again should we rely on the rest of the world for our essential medicines and countermeasures.”

The calls for supply chain diversification come while many overseas assembly operations are becoming automated, which reduces the need for cheap labor. Some U.S. companies are already moving their manufacturing processes home or to other Indo-Pacific countries, according to a report in The Boston Globe newspaper.

Toolmaker Stanley Black and Decker, for example, moved its manufacturing processes from China to Fort Worth, Texas, a year ago. Avid Technologies, a video editing equipment maker, moved operations from China to Mexico about a year ago and reported a boost in profits.

The Hasbro toy company’s chief executive said shifting a large portion of his firm’s business out of China has worked well. The company began diversifying its manufacturing operations in 2012 and has moved some of its business to Vietnam and India.

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