The restructuring of global supply chain has multifaceted and complex origins. The COVID-19 pandemic, climate change, automation and geopolitical tensions have all contributed to reshaping companies’ international distribution and trading patterns. Each of these issues alone would make the prospect of improving supply chain resilience daunting. No country alone can easily fix all of them.

Making matters even more complex are the underlying political factors that shape supply chain restructuring. Governments say they want to make supply chains more resilient and sustainable. But they are less clear about whether this means addressing environmental shortcomings and labour abuses, ensuring supplies of critical materials and components are not controlled by adversaries or whether it reveals a desire to shift jobs onshore. Often, it means all of them. 

What is clear is that trading patterns — the best indicator of supply networks — are changing substantially. In a 2023 survey, 67 per cent of global retailers and manufacturers said they had shifted to other suppliers, while two-thirds said that further shifts were likely. This often means sourcing from a different country or shifting to domestic suppliers. According to the Kearney 2024 reshoring index report, North American companies are moving rapidly to reshore operations away from lower-cost Asian countries. US imports from 14 Asian countries fell by US$143 billion in 2023 to US$878 billion.

Global COVID-19 lockdowns severed entrenched channels of product sourcing and laid bare weaknesses in the once-hallowed just-in-time supply chain approach. In 2021 the European Central Bank estimated that from November 2020 to September 2021, world trade would have been 2.7 per cent higher and global manufacturing output 1.4 per cent greater had global supply chains not been derailed by the pandemic.

Crises often induce panic and the initial response to COVID-19 was a classic case of what not to do in such circumstances. Governments’ border closures —made it more difficult to obtain the vital medicines, medical products and care needed to fight the pandemic.

Russia’s 2022 invasion of Ukraine and the subsequent response from NATO and its allies further ignited a desperate search for new sources of oil and gas, grains, fertilisers, iron, steel and critical minerals. With traditional markets slammed shut due to sanctions, Russian producers redirected exports to China, India, Brazil and other emerging countries where their commodities were snapped up quickly.

These shifts largely centred on commodities that are relatively easy to find elsewhere. When Europe turned off the tap on Russian gas, it swiftly turned to liquefied natural gas imports from the United States and elsewhere. But as countries climb the technology ladder, onshoring and friendshoring become more complicated. Vast, US taxpayer-financed measures like the Inflation Reduction Act and the CHIPS and Science Act were designed in no small part to address what US President Joe Biden’s administration sees as supply chain vulnerabilities.

At the heart of the Biden administration’s anxiety is the world’s dependence on TSMC, which supplies 61.2 per cent of the market for high-end semiconductors. Other examples abound. The drive towards electric vehicles (EVs) has been complicated by the fact that supply chains producing EVs—and especially the batteries that power them—are firmly rooted in China.

Of all the factors pushing companies to shift production and supply, growing geopolitical tensions top the list. Writing for the World Economic Forum, Simon Evenett points out that 2023 filings to the US Securities and Exchange Commission, indicate that 75 per cent of internationally active companies believe geopolitical tensions are the most pressing consideration when making business decisions or assessing risk.

These bilateral tensions between the United States and China are particularly vexing for businesses because the economies of the two countries are intertwined, and anticipating the next wave of economic sanctions is challenging. The United States’ disregard of WTO rules also deprives entrepreneurs of the transparency and predictability those rules were designed to provide. The United States has slapped restrictions on exports to China of artificial intelligence, high-end chips and quantum computers while applying import curbs on China’s exports of steel, EVs and solar panels. Washington is also leaning on its allies to follow suit, badgering EU countries to buy less from China and the Netherlands and Japan to cease shipments to China of high-end lithography equipment.

Unsurprisingly, China’s trade with the United States has taken a tumble. US exports to China fell to US$148 billion in 2023 from US$154 billion in 2022. Chinese exports to the United States shrank even more, plunging to US$427 billion from US$536 billion in 2022. But many of the goods previously shipped from China now come from Mexico, Thailand or Vietnam.

The commercial partnership between China and Russia, meanwhile, is burgeoning. Since 2020, Russia has risen from China’s ninth largest trading partner to its fifth largest. In 2023, trade between the two was up 26 per cent to US$240 billion.

Underpinning the drive for the reconfiguration of supply chains is the ill-defined notion of national security. As the global economy fragments, resorting to the national security rationale provides governments with a relatively straightforward explanation for contravening international obligations. But lumping government responses under one umbrella does little to address the underlying problems that require changes to supply chains. Each factor warrants a tailored policy response. Unfortunately, what we have seen is a myriad of ad hoc policies driven by nationalist politics. 

The OECD has proposed sound advice to its 38 member countries—keep markets open and enhance the tools, like e-commerce, that can facilitate more efficient movement of goods and services. But striking multilateral trade agreements has never been more difficult. The WTO failed to dissuade big players like the United States, India and the European Union from hoarding vaccines during the pandemic. Then in March 2023, India and Indonesia forced the near-term termination of a 25-year-old WTO prohibition on duties on e-commerce transmissions. 

International organizations have likewise proven ill-equipped at addressing the question of national security. The handshake agreement at the WTO not to invoke national security when creating barriers to trade, nor to challenge such measures when they were invoked, is in tatters. The UN Security Council is frequently paralyzed by its permanent members’ vetoes. 

In an era when international cooperation is viewed with deep suspicion, uneasiness about global supply chains is understandable.

Improving and strengthening supply chains depends first and foremost on identifying and explaining why restructuring is required. If the motivation is greater environmental protection, then many developing countries providing raw materials that have woeful environmental and labour standards would be unlikely partners. If the issue is geopolitics, then heavy reliance on China is problematic. If the real objective is to bring production and supply inside a country to generate jobs, governments must ensure that the domestic workforce is sufficiently trained and the infrastructure adequate for these new demands.

Some countries, notably the United States, say they want all of these things. What is undeniable is that the only way these diverse and sometimes conflicting objectives can be met is through a cooperative approach. Organizations like the World Bank, the WTO and the OECD can provide such frameworks. But a broader policy alignment is not yet evident. No single nation—no matter how powerful—can prevent the next pandemic, combat climate change or ease rising geopolitical tensions. Restructuring supply chains in isolation is a fool’s errand.

Keith Rockwell is a Senior Research Fellow at the Hinrich Foundation and a Global Fellow at the Wilson Center. 

To read the full analysis as it was published on East Asia Forum, click here.

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A future Harris presidency would likely maintain much of the Biden administration’s trade policy, including import barriers on specific technologies and sectors, paired with preferential market access for geopolitical allies – a policy to counter Chinese global trade and supply chain dominance. Trump favors a broader policy of global universal tariffs to reduce goods trade deficits and address alleged unfair trade practices, which would dramatically impact global markets and disproportionately harm smaller countries. 

Now is the time for global companies and investors to assess the risks and supply chain vulnerabilities that are possible for their businesses in each scenario and to determine the proactive measures necessary to mitigate their impact. 

Trade under Harris

As a former US Senator and California Attorney General, Harris would enter the White House with limited trade policy experience. Harris’ agenda will be more clearly defined in the coming months, but as both vice president (2021-25) and senator (2017-21), she strongly supported strengthening multilateralism with US partners, supply chain resiliency (against China in particular), and placing environmental issues and protecting US workers at the forefront of trade policy. For these reasons, a Harris administration would likely continue many of Biden’s trade policies, which include maintaining the targeted high-tariff barriers in place against various countries to protect strategic US industries, targeting China with additional duties (in pursuit of reducing supply chain dependencies and preserving US technology leadership), and continually expanding export controls in a range of high-technology sectors.

Strong political support for protectionism and distaste for free trade with allies and adversaries alike began under the Trump administration but has permeated both political parties – a trend likely to continue in the coming years regardless of the 2024 election results. 

However, the Biden-Harris administration diverged from Trump’s protectionist vision in that they were far more willing to offer preferential US market access to geopolitical allies in pursuit of other priorities, such as creating resilient supply chains.  

This is most evident in the Inflation Reduction Act (IRA), which offers lucrative investment subsidies to countries with which the US has either free trade agreement (FTA) or a specially negotiated deal—such as that agreed with Japan and currently proposed for the UK and EU. The Biden-Harris administration has offered similar incentives to rebuild the US domestic chip manufacturing industry and has also worked to enlist countries to join his multi-pillar Indo-Pacific Economic Framework (IPEF).  

All these policies have been designed to incentivize third countries – preferably close allies – to decrease trade and supply chain dependencies on China in exchange for the US. This multilateralist aspect of US trade policy would continue in a potential Harris administration.

Trade under Trump

Trump’s priorities are more singularly focused on reducing goods trade deficits and punishing countries for alleged unfair trade practices. During his campaign, he and his advisors have proposed high import barriers on both allies and adversaries of the US, with especially high import taxes – 60% – reserved for all Chinese imports.  

It is important to note, however, that Trump does not have a clearly defined trade vision. His policymaking is highly transactional and has often depended on the nature of his personal relationship with the leader of the country in question. 

Former US Director of the Office of Trade and Manufacturing Policy Peter Navarro and former US Trade Representative Robert Lighthizer – the architects of Trump’s first-term trade policy – are likely to return to a potential second Trump administration. Navarro favors reciprocal tariffs as a remedy to US trade deficits, while Lighthizer prefers an increasing universal tariff on all countries. In recent interviews Trump has promised to implement both policies.

Reciprocal tariffs – a policy to mirror import taxes that other countries have in place against the US – would benefit companies from countries that already have low import duties, such as New Zealand or Japan. Universal tariffs would disproportionately harm smaller and less wealthy countries that are not a threat to US economic security, as was the case with the 25% Section 232 tariffs on steel imports under Trump.  

These universal tariffs would create significant market distortions. Exports from countries like Canada, for example, would suddenly be much more competitive relative to other non-FTA countries, like the EU or New Zealand (both close US allies). Such a scenario would have significant impacts on companies from countries that do not have an FTA with the US. 

There is a legal debate to be had as to whether Trump could implement universal tariffs against free trade partners. While the president can do so in limited cases – such as on a specific import over national security grounds – tariffs across all imports would clearly violate the terms of a Free Trade Agreement.  

The US president already has well-established authority to formulate and implement tariffs over national security grounds and on individual countries over unfair trade practices. However, Trump’s proposed reciprocal and universal tariffs are much more extreme in scope than anything proposed during his first term. Such policies, if implemented, would almost certainly be contested in court. 

Regardless of any limits on Trump’s power, he will pursue a far more aggressive tariff policy than what has been seen under the Biden-Harris administration.

Scenario-based risk assessments: the best preparation

Whether it’s Trump or Harris in the White House in 2025, the most well-prepared organizations are conducting scenario-based risk assessments on the various outcomes of the election and running crisis simulations to ensure supply chain resilience and business continuity in all contingencies.

To read the full analysis as it was published on Control Risks, click here.

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While China’s saber rattling may be performative, it serves an important reminder. If a “Taiwan contingency” was triggered today, it would leave the US desperately short of goods vital to economic security, including pharmaceuticals, critical minerals, and semiconductors. And while many economies in Southeast Asia already provide alternative sources of supply, uncertainty in the region means the US must also cultivate supply chains outside the “weapons engagement zone,” the area within immediate reach of China’s vast missile arsenal. 

Luckily, there are opportunities to diversify much closer to home. But taking advantage of them requires a shift in US policy toward more active engagement with strategic partners throughout the Americas. 

The current US strategy for “de-risking” trade is simply to move as much production back home as possible. The government has already offered a variety of financial incentives, including grants and loans under the CHIPS Act, to reshore semiconductor production. Those efforts, along with tariffs and other trade barriers, are designed to make it more viable financially to manufacture critical goods in the US. 

However, efforts to reshore production run up against two problems. 

First, the US doesn’t have the labor it needs to produce everything at home. Skills shortages have already delayed the opening of semiconductor fabrication plants, such as TSMC’s operation in Arizona. And even where skills are not the issue, US workers are too expensive for the labor-intensive, low-margin jobs that are done more efficiently abroad. That’s precisely why many semiconductor firms globalized pieces of the production process to begin with, moving chip-conventional packaging and testing overseas, where affordable labor is more readily available. 

Second, even if the US had the workers, it doesn’t always have the raw materials. Because it lacks its own deposits, the US imports at least half its supply of 44 minerals and commodities necessary for production. That list includes graphite, which has wide applications in batteries, lubricants, and, of course, semiconductors. The US gets 100 percent of its graphite from overseas—with China being the main supplier. 

Given the economic realities, self-sufficiency isn’t an option. The US can’t produce everything it needs at a scale to insulate the economy from disruptions across the Pacific. 

So, what can it do? One answer is that it can learn from its competitors. China didn’t become a hub of global manufacturing by investing solely in domestic capacity. It pursued an aggressive, decades-long effort to partner with countries of high strategic importance, including those with rich critical mineral reserves. China’s investments in markets across Asia, Africa, and increasingly in Latin America, have placed it in the position we see today as a center of raw materials extraction and processing. 

There’s a lesson in that for the US. Rather than trying in vain to reshore everything, America must remember that its allies and partners can help guarantee its economic security—especially those in the region. 

A more proactive, outward-looking strategy involves two priorities. One is trade agreements. Allies have been exasperated by the perceived uncertainty in US policy in recent years. The US must reboot trade deals to reassure its economic partners. Investments to provide new, reliable sources of supply  require reliable, long-term access to America’s market. Only concrete guarantees will provide the economic incentives to align production with critical US needs. 

At the same time, America’s development finance efforts should be coordinated with trade deals to help partner countries bolster capacity. China has invested hundreds of billions in trade-enabling infrastructure across emerging markets and developing countries, plugging countries into a China-centric supply network and cultivating export markets. The US already has commenced similar efforts in Africa’s Lobito Corridor and in the Philippines Luzon Economic Corridor. These efforts should be expanded, especially in the Americas.

The good news is that several new, bipartisan initiatives are moving in a positive direction. 

The Americas Act seeks to (among other things) extend membership in the USMCA (US, Mexico, Canada Agreement)  to additional Latin American economies. It provides a way to not just balance against China’s growing influence in Latin America and the Caribbean, but to help lock in mutual market access enjoyed under the USMCA umbrella. This could help make the US supply chain more resilient to a Taiwan contingency. 

Similarly, the Semiconductor Supply Chain Security and Diversification Act looks to empower the US International Development Finance Corporation (DFC) to make larger investments in the chips supply chain in the Western Hemisphere. Specifically, it targets investments at all steps of production (from mining through chips testing and production) in countries otherwise not eligible for DFC loans. This recognizes the value of supporting strategic priorities consistent with the DFC’s development mission. 

These two bills are in their early stages and their fate remains uncertain. But sponsorship from both sides of the aisle reflects a growing understanding that the US can’t go it alone. Strength always comes in numbers, and if a fight starts overseas, it will be essential for the US to have friends close to home. 

Jeffery Kucik is a Global Fellow with the Wilson Center and an Associate Professor in the School of Government and Public Policy and the James E. Rogers College of Law, University of Arizona.

Mark Kennedy is the Director for the Wahba Institute for Strategic Competition.

To read the full article as it was published by the Wilson Center, click here.

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Electronics manufacturers face the urgent task of strengthening their supply chains amid trade disputes, geopolitical tensions, and the unpredictable impact of climate change events. Making sure everything runs smoothly, works well, and stays secure is key to long-term success. For manufacturers of electronic products, it’s crucial to keep a close eye on every step of the process, from getting parts to making and delivering products.

To combat these multifaceted challenges, many are now turning to reshoring and nearshoring strategies. These approaches build resiliency into supply chains and provide solutions to the pressing issues manufacturers confront daily.

Diversified Supply Chains are More Resilient

Electronics companies today are relying more on supply chain and manufacturing diversification as a key strategy. This approach acts as a vital shield against growing trade tensions, political uncertainties and the increasing occurrence of natural disasters.

By spreading their sources for electronics components, locations for sourcing, and manufacturing bases, companies are fortifying themselves against potential disruptions. This strategy not only improves their bargaining power but also enhances their agility in responding to market demand shifts.

Embracing Nearshoring for Supply Chain Diversification

Nearshoring plays a pivotal role in diversifying supply chains by relocating manufacturing operations closer to end markets. This approach helps companies reduce their reliance on single-sourcing locations and lowers the risk of disruption. By spreading production across multiple geographic regions, nearshoring creates a supply chain that is both resilient and flexible.

Moreover, nearshoring offers easier access to local suppliers and resources, allowing companies to quickly adapt to changes in market demand and supply chain dynamics. For electronics companies seeking to diversify their supply chains, nearshoring is a powerful tool to increase resilience against disruptions.

China Plus One

Ongoing unease about the stability of the Chinese economy, United States trade tensions with the country, and continued uncertainty about China’s potential future actions towards Taiwan are leading many electronics manufacturers to reconsider their reliance on that country for manufacturing electronics components and PCB assembly. Facing an unpredictable future, these companies are broadening their strategies.

Many have adopted the “China-plus-one” strategy. This approach means maintaining operations in China while also establishing a presence in another country. Its goal is to mitigate risks and ensure business continuity. This strategic move reflects a broader trend toward factory flexibility and resilient supply chains, driven by digital technologies and a focus on sustainability.

Another emerging practice involves the utilization of factory networks. These networks streamline PCB assembly and system integration, facilitating swift and efficient management of large orders. Moreover, they ease the transition to reshoring, fitting within or outside the framework of a China-plus-one strategy. The portability and flexibility of these factory setups enable consistent lead times and competitive pricing from various manufacturing facilities. This gives customers access to substantial production capacity while enhancing supply chain resilience.

Finding the Right Nearshoring Location

Networks of manufacturing facilities linked by technology-enabled platforms enable manufacturers to tap into unused capacity. Mexico, in particular, has become a nearshoring haven. The ongoing geopolitical tensions between the U.S. and China and the global restructuring of supply chains following the COVID-19 pandemic are expected to solidify Mexico’s status as a prime nearshoring destination in the coming decade.

This is primarily due to Mexico’s proximity to the U.S. market and its competitive labor costs, which make it an attractive option for companies seeking to diversify their manufacturing operations. As businesses prioritize resilience and agility in their supply chains, Mexico’s strategic location and cost-effectiveness are likely to make it a preferred choice for nearshoring activities, further bolstering its position as a leading player in the global manufacturing landscape.

In addition to a favorable labor market, Mexico also affords electronics manufacturers with intellectual property protections similar to those in the U.S. Also, due to numerous global agreements, electronics manufacturers who nearshore to Mexico are safeguarded by a wide-ranging network of trade and investment treaties covering over 50 countries, with the USMCA chief among those protections.

Overcoming Challenges with Expert Partners

Finding the right nearshoring facility–as part of a plus-one strategy or out of it– remains challenging, however.

Navigating unfamiliar markets can present many challenges for electronics manufacturers looking to reshore their operations. There is the time-consuming process of vetting a new facility, ensuring it possesses the necessary capabilities, skills, capacity, and quality standards to meet company needs. Carefully evaluating changes in cost structure due to labor costs, shipping, and other factors is also key to successfully reshoring. Language and cultural differences add another layer of complexity, requiring effective communication and understanding.

Perhaps the most daunting challenge when relocating production from a country like China, where electronics products may have evolved subtly over time, is managing the materials needed for production. Even when a product appears the same, changes may go unnoticed, requiring manufacturers to revert to their original specifications using globally sourceable parts. This may require time and expertise to essentially reverse engineer a product back to its original specifications.

Working closely with experienced partners can help to overcome these challenges by providing guidance, expertise, and local knowledge, in addition to helping to source materials and locate the best manufacturing facilities.

An expert partner with a deep understanding of both the local market and the intricacies of electronics manufacturing can offer valuable insights and support and make reshoring efficient and cost-effective. They can also align these operations with business goals. Moreover, by leveraging their expertise, they can prevent potential disruptions and quality issues before they happen.

Nearshoring: Recent Growth and the Future

While nearshoring may appear to be a new tactic for ensuring supply chain resiliency, the trend shows no signs of slowing down. A recent McKinsey survey found that nearly two-thirds of respondents were working with suppliers located closer to their production sites over the past 12 months. That’s double the share of companies who reported using those strategies last year.

Additionally, 64% of their respondents say that they are actively using nearshoring as a strategy to mitigate risks to their supply chain risks. As global uncertainty looms, it seems that nearshoring is, in turn, becoming a certainty in electronics manufacturing.

Mexico has already surpassed China as the largest supplier to the United States, with no real end to the trend in sight. S&P Global Market Intelligence projects that the trend will continue, projecting that U.S. imports from Mexico will surpass $600 billion by the end of this decade.

Maintaining robust and resilient supply chains is critical for electronics manufacturers to ensure smooth operations and security at every stage of the production process. Recognizing the importance of supply chain diversification, many companies are embracing strategies like reshoring and nearshoring.

Looking ahead, nearshoring is poised to continue its growth trajectory in the electronics manufacturing sector. As companies prioritize supply chain resilience and agility, nearshoring will remain a cornerstone strategy for navigating uncertainties and ensuring business continuity. With Mexico leading the way as a preferred nearshoring destination, the trend is set to reshape the global manufacturing landscape, paving the way for a more resilient and adaptable industry in the years to come. 

To read the full article as it is posted on Supply & Demand Chain Executive, click here. 

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They say President Joe Biden’s strategy imperils U.S. jobs and represents a potentially illegal end-run around Congress.

Critics are calling on Biden to halt mineral negotiations with the European Union and other nations while also slamming a recent mineral deal with Japan. The Biden administration insists that its strategy to boost supply chains among allied nations is the most potent counter to Chinese dominance over global minerals.

At issue is whether Biden should prioritize domestic mineral production and ensure producers in the United States — not manufacturers in foreign countries — reap the benefits of a coveted EV tax credit, known as 30D. The credit was included in last year’s Inflation Reduction Act.

Now, the Treasury Department is in the hot seat as it prepares to screen new trade deals and determine whether the pacts allow access to $3,750 in U.S. tax credits for EVs produced with minerals extracted or processed in partner countries. The mineral negotiations represent a marquee example of the threat Biden’s clean energy pursuit poses to other key administration policy priorities, most notably the rapid expansion of domestic manufacturing.

“They have three goals here,” Bill Reinsch, a trade expert at the Center for Strategic and International Studies, said of the Biden administration. “One is to facilitate the transition to green technology. The second one is to enhance domestic manufacturing and jobs. And the third is to do it in a way consistent with trade law and international trade rules. They can’t do all of those at the same time.”

Minerals such as lithium and cobalt are essential for today’s fleet of EVs. And experts agree that mineral production and refinement will likely form the backbone of the clean energy economy in the future and the millions of jobs that come with it. Minerals are also necessary for a long list of medical devices, smartphones and other staple products.

Meanwhile, compliance with the U.S. EV credit is based on mineral and manufacturing sourcing mandates designed to counter China by strengthening supply chains in the United States and nations with which the U.S. has trade agreements.

But critics are digging in for a fight. They’re challenging the Treasury Department’s loose interpretation of a “free-trade agreement” in the Inflation Reduction Act’s text.

“There’s enough noise to suggest Treasury is going to face some significant challenges in using this broad brush to redefine what trade agreements actually are, from a legal and constitutional standpoint,” Rich Nolan, president of the National Mining Association, a U.S. lobbying group, said in an interview.

Nolan said the mining group is “pushing the administration to bring those tax incentives home, so that those materials come from U.S. mines, from mining communities mined by American miners.”

A U.S. Geological Survey study released in January found that the United States is 100 percent import-reliant on 15 critical minerals, including minerals used in EVs like graphite and manganese. The U.S. remains more than 95 percent import-reliant on rare earths and titanium, while American companies import more than a quarter of lithium used in manufacturing, according to the study.

Another recent assessment from Securing America’s Future Energy, which promotes domestic energy production, laid out the Chinese dominance of global minerals in stark terms.

“Chinese-owned companies have strategically purchased stakes in major mineral deposits around the world, control anywhere from 60 to 100 percent of processing (depending on the mineral), and produce upwards of 70 to 90 percent of the world’s battery components,” the group said in a March report.

Talks ‘in the pipeline’

In March, Biden and European Commission President Ursula von der Leyen launched negotiations over a “targeted critical minerals agreement” that will “count toward requirements for clean vehicles in the Section 30D clean vehicle tax credit.”

The announcement came amid claims from various world leaders that the Inflation Reduction Act’s incentives violate World Trade Organization rules against subsidies that promote domestic products over imports.

The Office of the United States Trade Representative, which leads U.S. trade negotiations, said the E.U. talks are ongoing.

“We will continue to work with our EU allies to boost mineral production and expand access to sources of critical minerals while diversifying global supply chains,” said USTR spokesperson Sam Michel. The Swedish ambassador to the U.S., Karin Olofsdotter, recently told E&E News that a transatlantic pact is “in the pipeline.”

The Japanese deal, announced two weeks after the E.U. talks launched, “affirms” the two countries’ “obligation not to impose prohibitions or restrictions” on bilateral trade relations.

Now, Indonesia, Argentina, and the Philippines are signaling interest in similar deals. Even South Korea, which already shares a trade deal with the United States that was passed by Congress in 2011, is aiming for more mineral concessions.

“President Biden and I welcomed the expansion of our [bilateral] mutual investment in advanced technology, including semiconductors, electric vehicles and batteries,” South Korean President Yoon Suk Yeol said during a recent event at the White House, according to a translator. “President Biden has said that no special support and considerations will be spared for Korean companies’ investment.”

Congressional complaints

U.S. lawmakers say they’ve been kept on the sidelines.

Rep. Adrian Smith (R-Neb.), the chair of the House Ways and Means Trade subcommittee and the co-chair of the U.S.-Japan Congressional Caucus, said the Biden administration has not briefed him on any mineral trade negotiations.

“This is basically a workaround. And I don’t think it’s sustainable long-term,” Smith told E&E News. “I think there will be attempts to assert legislative prerogative.”

Never far from the spotlight on Capitol Hill, Senate Energy and Natural Resources Chair Joe Manchin (D-W.Va.) has regularly blasted the Biden administration’s implementation of the Inflation Reduction Act, saying recently he would “vote to repeal my own bill.”

Manchin has also threatened a lawsuit. Still, legal experts say it’ll be a tough case to make because of challenges in meeting legal standing. The moderate Democrat is now set to face off against West Virginia Gov. Jim Justice next year to retain his seat in a state Biden lost by nearly 40 points in 2020.

The Inflation Reduction Act text says that EVs qualify for half of the $7,500 credit if the minerals used in the models are “extracted or processed” in the U.S. or “in any country with which the United States has a free trade agreement.”

Meanwhile, the proposed Treasury guidance for the 30D credit gives access to 20 foreign countries with which the U.S. has traditional free trade agreements passed by Congress, along with “additional countries that the [Treasury] Secretary identifies,” such as Japan.

Reinsch, the long-time Washington trade expert, predicted the fight over the definition of a free-trade agreement will likely be settled in court.

“Since the term is undefined in the [Inflation Reduction Act], that’ll probably be resolved by litigation. This is America. Anybody can sue anybody for anything,” he said. “There’s no legislative history here to provide any guidance. And the term is not defined in the statute. So it ends up with judges.”

The two top Democratic trade lawmakers in Congress called the Japanese deal “unacceptable,” arguing the administration “does not have the authority to unilaterally enter into free trade agreements.”

“Even among allies, the United States should only enter into agreements that account for the realities of an industry, learn from past agreements, and raise standards,” Rep. Richard Neal (D-Mass.) and Sen. Ron Wyden (D-Ore.) said in late March, the day the Office of the U.S. Trade Representative announced the deal with Japan. “Agreements should be developed transparently and made available to the public for meaningful review well before signing — not after the ink is already dry.”

An aide for Wyden’s Senate Finance Committee, who was granted anonymity because the person is not authorized to speak publicly on the issue, said the Biden administration last briefed the committee on mineral trade talks in “early March.”

The congressional complaints are echoed in environmental and labor circles.

Ben Beachy, vice president of manufacturing and industrial policy at the BlueGreen Alliance, touted domestic manufacturing as the best solution to curb the U.S. climate footprint.

“The onshoring of EV manufacturing will help to cut the climate pollution that, ironically, is often baked into imports of EV components,” Beachy said. “That’s because overseas corporations tend to be more emissions intensive than U.S. factories in producing the aluminum, steel and other materials that go into EVs.”

He said the Japanese deal should “not be repeated” with the E.U. or other countries.

A recent BlueGreen Alliance study found that the Inflation Reduction Act has spurred new domestic manufacturing projects that will create 900,000 jobs. The law sparked a wave of new battery plant announcements. And the Department of Energy recently extended a $2 billion loan to a battery recycling plant in Nevada.

But the mineral negotiations are not the first time the Biden administration has struggled to balance climate and domestic manufacturing priorities.

In April, the Republican-controlled House of Representatives voted to repeal a Biden administration pause on solar tariffs from four Southeast Asian countries where the administration itself determined China is processing solar products in circumvention of U.S. tariffs. And despite a veto threat, the Senate passed the measure Wednesday with nine Democrats in support.

Biden administration officials say the pause was necessary to maintain high levels of solar deployment in the United States.

‘Immediate action today’

For months, top Biden administration officials have urged allied nations to band together with the U.S. to develop collaborative mineral supply chains.

“When we look at critical minerals and we look at solar panels and wind turbines and electric vehicles and batteries, there is already now an effort by some to narrow the control of that supply chain into one or a handful of countries,” Amos Hochstein, deputy assistant to the president and senior adviser for energy and investment, said in a March speech in Washington.

“We have to take immediate action today to work as a global community with our allies and to make sure that that market changes fundamentally,” he said. At the time of the speech, Hochstein was the State Department’s special presidential coordinator for global infrastructure and energy security.

David Turk, deputy secretary at the Department of Energy, told E&E News recently that the effort to boost allied mineral supply chains globally should be a “full interagency” strategy, pointing to expertise at DOE and assistance tools at agencies such as the U.S. International Development Finance Corp. and the U.S. Agency for International Development (USAID).

“We have our national labs, [and] we’re bringing some of that expertise to the table,” said Turk. “We’ve been having a lot of good conversations, including with [the White House]” and the Treasury Department.

Last year, the U.S. Trade and Development Agency helped to finance a mineral processing facility in the Philippines. And on May 1, following a summit at the White House with Philippine President Ferdinand Marcos Jr., Biden announced a new package of assistance to the Philippine mineral sector, including $5 million in USAID funds to boost mineral processing and EV component manufacturing in the country.

Turk said he’s looking for “good, forward-leaning language” on minerals in the upcoming G-7 nations summit in Japan.

The U.S. is home to some of the largest mineral reserves globally. And the U.S. mining sector continues to push the Biden administration to open up key mineral reserves in Minnesota, Arizona and Alaska.

But even where the administration is putting its weight behind mine proposals, judges are raising objections.

Mining experts say a 2019 judicial decision, which halted the Rosemont copper mine in Arizona, is complicating the approval mining permits by requiring companies to prove the existence of valuable minerals even at the locations mining companies want to dump mine waste.

House Republicans included language in their lead energy and permitting package to allow a company to “use, occupy, and conduct operations on public land, with or without the discovery of a valuable mineral deposit.”

Backing Biden

Proponents of EV deployment in the United States are putting their weight behind the Treasury Department’s liberal interpretation of trade agreements.

“We’re certainly supportive of expanding negotiations. We want to make sure we have the largest reach of eligibility possible for the clean vehicle credit,” said Leilani Gonzalez, policy director for the Zero Emission Transportation Association, an EV deployment advocacy group.

She added that with countries still in the middle of developing mineral supply chains, the question to answer is whether they can meet the requirements that the Department of Treasury has laid out.

Abigail Wulf, director of the Center for Critical Minerals Strategy at Securing America’s Future Energy, the pro-domestic-energy organization, also called for a “broadened” definition of trade deals.

“We think it’s a good thing to expand the tent when it comes to trade agreement countries,” said Wulf. “Simultaneously, while we’re letting down those draw bridges, we need to be making sure that the U.S. and others are building high enough walls around the Chinese Communist Party.”

The Inflation Reduction Act disqualifies vehicles from the 30D credit if the EVs contain minerals or battery components from a foreign entity of concern. While experts expect Chinese entities to fit that definition, the foreign entity of concern portion of the 30D credit doesn’t take effect until 2024.

On top of her support for the mineral negotiations, Wulf urged the Biden administration to pass traditional trade pacts with congressional support and enforceable labor and environmental standards. The United States last closed an enforceable trade deal with Mexico and Canada in 2020.

Still, Wulf said the administration is showing little appetite for that route.

“The problem with these trade agreements that aren’t ratified by Congress is that they aren’t actually enforceable,” Wulf said.

To read the full article, please click here.

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World trade requires resilient supply chain strategies in the aftermath of the pandemic for what may come to be seen as the New Normal. Unprecedented factors both from the demand and supply sides of the chains have contributed to the current turbulence which disrupts world trade.

Supply chains in the New Normal need to possess an adaptive resilience capability. This system should be digitally embedded and technically supported and built on three distinct but interrelated capabilities of prediction, response, and recovery in relation to disruptions. Businesses can never eliminate 100 per cent of risks occurring in the supply chain. Therefore, instead of looking for solutions to completely prevent possible risks, businesses should invest in mapping risk scenarios and deal with these potential risks in an adaptive and resilient manner.

Asia SocietyThe capability to predict will require a business to anticipate what can go wrong; when, where and how it will happen, and why it might happen. This is essential for businesses as it enables them to foresee problems and their transmission mechanism that may affect normal operations, and then plan an effective and efficient response. To build up this capability, businesses need to map their supply chains and have total visibility of their suppliers and suppliers’ suppliers and their locations, their customers and customers’ customers and their locations, other logistics players involved, and how product and information flows are exchanged between these players.

Digitisation is a crucial step to resilience

The business’s capability for prediction, or foresight, would be greatly facilitated by the digitisation of business processes across the supply chain. Digital technologies play an essential role in supply chain management nowadays. A digital supply chain would enable players to share information in real, or near real time, and to collaborate and coordinate effectively via digital platforms. Through this, prospective risks can be detected early and proper preparation can be done accordingly through an ecosystem of partnerships.

Once prospective risks have been identified, businesses need to prepare and respond to potential disruptions which may be caused by these risks. This requires the analysis and assessment of risks to understand their likelihood and potential impacts, and then ranking their treatment priority. After this, risk treatment strategies – i.e. retention, transfer (such as via insurance), minimisation, and avoidance by stopping an operation or purchasing insurance contracts – can be devised and implemented accordingly.

In the context of global supply chain management, businesses have several options for risk minimisation. One of the traditional methods is to build up inventory and capacity buffers to increase operational flexibility. This, of course, requires additional resources that not all small and medium businesses can afford. Horizontal integration or collaboration between firms in the same line of business (e.g. manufacturers of the same products) may help to share the investment burden.

Businesses may consider a variety of other risk pooling (hedging) strategies with the aim of increasing diversification. This should be designed and implemented on multiple fronts, from procurement, through productions/operations and transport, to last-mile delivery.

On the procurement front, businesses should adopt a multi-sourcing strategy and avoid having a single source of supply. This is to prevent possible disruptions caused by socio-economic factors such as pandemics or hiccups in bilateral diplomatic relations (such as between Australia and China). For example, the current shortage of the AdBlue diesel additive in Australia may require a multi-pronged approach. This would include building domestic production capabilities for AdBlue; building the nation’s ability to provide hydrogen-fuelled vehicles as an alternative; and diversifying the international supply chain by importing from other countries and regions rather than China.

Diversifying the manufacturing or operations network is also required to guard businesses against unexpected disruptions from factors that may negatively affect the production or operations in a geographical area, such as natural disasters or labour strikes.

Through mapping their supply chain, businesses will be able to assess the criticalness of key components, upon which either an onshoring or near shoring strategy could be applied. There will be, of course, pros and cons when businesses change their procurement and production/operations from overseas to domestic or regional settings, and decisions should be made taking into account trade-off considerations.

Flexibility in supply chain operations should also be designed and implemented in the order management, transport and last-mile delivery aspects of a business, and multiple channels of orders and delivery with alternative transport arrangements and contracts should be in place. Again, digitisation can be the catalyst for change.

Regardless of the risk minimisation strategies, businesses must develop and maintain an up-to-date business continuity management plan. It is futile to ask whether a risk will occur or not. It is however important to know the process for responding in order to return as quickly as possible to normal business when something goes wrong.

In the aftermath of a disruption, businesses should also retain a record of the path to recovery. That is, after the incident happens and the business has implemented a series of response measures, the effectiveness of these measures should be assessed, lessons should be drawn, and supply chain configurations should be adjusted accordingly so that when a similar incident occurs in the future, a better recovery will be possible. This is known as closing the loop in the PDCA (Plan-Do-Check-Act) cycle.

Southeast Asia as a diversification option

Diversification to enhance system and capacity flexibility in all aspects of supply chain management is critical to effectively and efficiently managing disruptions. Many diversification strategies require the reconfiguration of supply chain networks and systems, and one of the considerations for the supply chain redesign is where sourcing and manufacturing/production/operations markets should be.

From the perspective of Australian businesses, Southeast Asian countries should be considered destinations for supply chain diversification. There are several strategic considerations for this.

Apart from China, these countries have been manufacturing/producing and exporting lots of household commodities, including food and whitegoods, as well as other inputs for the production and operations of many industries in Australia. In terms of shipping distance, there is a clear advantage for Australia as a faster response is associated with shorter shipping time in case of disruption.

Businesses in Australia can also take advantage of the benefits provided by several multilateral free trade agreements in the region such as the ASEAN-Australia-New Zealand Free Trade Area, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the Regional Comprehensive Economic Partnership in which many Southeast Asian countries are participating members. There are other more bilateral arrangements such as the Australia-Vietnam Enhanced Economic Engagement Strategy. Enhanced collaboration with regional business partners, empowered by preferential tariff schemes, will enable Australian businesses to favourably deploy diversification strategies such as multi-sourcing and near-shoring, both from supply chain time and cost perspectives.

Southeast Asian countries are perfectly positioned to be considered as the destinations for Australian businesses’ supply chain diversification. As the saying goes in several of these countries “water far off will not quench a fire near at hand”. So the inclusion of these neighbouring countries in the diversification portfolio of Australian businesses will help to enhance their supply chain resilience capability.

The way forward

Managing supply chain disruptions is not a one-off fix-it job, but more of a journey. Indeed, the latest quite different supply chain problems such as the baby formula milk shortage in the US, and the shortage of chicken in Singapore demonstrate that businesses will need to be well-versed in building up their resilience capability and employing supply chain enhancement strategies to support continued international trade.

And this should apply to all businesses, big or small. Sometimes, due to limited resources, small businesses may not put a lot of effort into risk management and some managers think that risks do not appear often. This is an unsustainable course of action. In the context of supply chains being so comprehensively interconnected today, an event happening thousands of kilometres away can affect all sorts of businesses if they don’t have a prepared plan of action.

Vinh Thai is Asia Society Australia Supply Chain Fellow and Associate Professor at the School of Accounting, Information Systems and Supply Chain, RMIT University.

To read the full commentary by Asia Society, please click here.

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The war has also highlighted Ukraine’s resource wealth, including in lithium deposits, Hiroko Tabuchi reports in the New York Times.

Indeed, war changes what we are accustomed to. The rules-based international order? Russia’s invasion is rapidly reshaping that order, writes Alan Beattie in the Financial Times. Calls to suspend Russia’s WTO privileges are gaining traction, details Peter Ungphakorn in the Trade Beta Blog.

And where is China in the reshaping of global order? China is now at center stage, argues Victor Shih in The Wire China. According to Bloomberg, China is moving to secure commodities affected by the war. Billions of dollars in economic ties between Ukraine and China are at risk, reports Ralph Jennings for Voice of America. However, China’s role may have only limited impact on the Russian economy, according to the Wall Street Journal.

As for China’s “Iron Silk Road” vision, those plans may be upended, writes Andreea Brinza in Foreign Policy.

Buy American and other supply chain shifts
The annual US Trade Policy Review, published this week, talks of a “re-alignment” of China trade policy. This may mean further confrontation on trade and industrial policy, argues the Wall Street Journal. A review of existing tariffs on China is also in the cards, notes Bloomberg.

The White House published a plan to revitalize American manufacturing and critical supply chains. The Center for the Strategic and International Studies offers some key takeaways.

Supply chains are shifting elsewhere. New legislation in Japan is working on how to safeguard the country’s supply chains, writes Yoshiaki Nohara in Bloomberg.

Meanwhile, a new report on Industrial Policy and International Competition from the World Economic Forum explains how industrial policy can be harmful to international competition.

Execution is everything
Lastly, new reports remind us that free trade agreements are relevant only with serious execution and enforcement. For example, China’s provincial governments hold the key to the success of the Regional Comprehensive Economic Partnership (RCEP), explains Li Xirui in AsiaGlobal Online.

And, according to a new information resource launched by the Brookings Institution, effective enforcement and execution of the US-Mexico-Canada Agreement may help rebuild US confidence in trade, particularly among Americans.

To read the full commentary from the Hinrich Foundation, please click here. 

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The first receives a lot of attention. A prolonged battle to pass more comprehensive legislation has prompted calls for Congress to split off then quickly consider a narrower bill providing subsidies to locate some semiconductor production in the US.

If supply chains were taken seriously, this bill and others like it would bar China-controlled entities from participating in any aspect of manufacturing and distribution. Otherwise, the PRC will subsidize its way into part of the chip chain, likely in assembly, packaging, and testing, and make our shiny new semiconductor capacity subject to interruption by Beijing.

Related, American companies receiving the subsidies will inevitably be offered Chinese subsidies. Take US government money for a plant here then, a few years later, take Chinese government money for a competing plant there. Unless the US coughs up more, of course. Companies accepting American subsidies should be banned for an extended period from expanding related China business.

Technology companies oppose such restrictions, part of a pattern of harming the national interest. And if Congress and the Biden administration just want to subsidize chip output, they can. But, if the PRC can easily choke new production, this is hardly the US competing. It’s like saying running up debt for infrastructure spending represents tough competition. They might be good ideas, but they have little to do with China.

The second example may be a surprise. The US is the world’s biggest agriculture exporter, the PRC the biggest importer. We have more arable land with a much smaller population. Yet our food supply chains are vulnerable to Beijing.

Animals providing meat, milk, and eggs require feed. Feed, in turn, is fortified with vitamins primarily made in China. Global supply and American imports of B1, B6, and B12, for example, are dominated by the PRC. As is D₃, which is important for animal feed because exposure to sunlight is falling with rising food demand.

The situation didn’t arise out of a Chinese plot. The Communist Party is understandably worried about food security and its economic interventions usually result in overcapacity. Due to subsidies, too much is produced for use at home, with the excess sold on foreign markets at low prices.

If Beijing can dictate market conditions, though, it does. The Chinese government admitted in US court to ordering predatory pricing of vitamin C here, before a later, bizarre court ruling allowed the PRC to continue breaking American law. With an assist from our judges, more predatory Chinese behavior is guaranteed, keeping supply chains vulnerable.

Even where it has no comparative advantage, the PRC can subsidize its way to a position of market power. There are many examples of Chinese dominance in products important to supply chains, from rare earth elements to shipping containers to active pharmaceutical ingredients (where the PRC supplies the US both directly and indirectly through India).

Australia’s recent experience hints at one risk. Australia signed a trade agreement with China, then later criticized Beijing’s behavior with regard to COVID. The PRC blocked various Australian exports, presenting a list of 14 demands that would have been laughable if they didn’t come with a price tag. The trade deal meant nothing.

The US could face worse. If the Biden administration backs the claim that genocide has occurred in Xinjiang with sanctions, for instance, that would be far more provocative than the Australian case. An obvious Chinese response would be to interrupt selected supply chains and see if the administration can handle the resulting angry lobbying.

There’s also outright conflict. It would be painfully ironic if new American chip plants open just in time to be closed by Chinese aggression in the Taiwan Straits. In a Taiwan contingency, a shut off of many drugs and vitamins for animal feed is certain. The first step in protecting these and other supply chains is to determine where we’re most vulnerable. But that will mean nothing unless we’re prepared to act, not just talk.

Derek Scissors is a senior fellow at the American Enterprise Institute (AEI), where he focuses on the Chinese and Indian economies and on US economic relations with Asia. He is concurrently serving on the US-China Economic and Security Review Commission and as the chief economist of the China Beige Book.

To read the full commentary from the American Enterprise Institute, please click here.

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The WTO goods trade barometer, published on a quarterly basis by the intergovernmental organisation, signals changes in world trade growth two to three months ahead of official merchandise trade volume statistics.

In sharp contrast to August’s barometer, which marked the highest growth pace on record, the most recent read-out of 99.5 indicates growth is slightly below the baseline trend, which reflects what the WTO calls “a broad loss of momentum in global goods trade”.

The index’s current reading comes as little surprise, and is broadly consistent with a revised trade forecast published by the WTO in early October which foresaw global merchandise trade volume growth of 10.8% in 2021 – up from 8.0% forecasted in March – followed by a 4.7% rise in 2022. The forecast also predicted that the post-pandemic rebound in global merchandise trade levels would taper off in the second half of 2021.

The barometer is comprised of various individual indices that are combined to provide an overall score. The WTO notes that all of these fell in the latest period, although some sectors fared worse than others.

Felix Thompson is a Digital journalist at Global Trade Review (GTR) 

To read the full commentary by Felix Thompson on the Global Trade Review, please click here.

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There is a perfectly reasonable economic explanation: Ocean carriers are raising prices in reaction to current increased demand and limited supply. Amid the pandemic, people were buying less, and in response, industries curbed production. As vaccines were rolled out and governments lifted pandemic restrictions, consumption increased and now, businesses are trying to catch up. These changes in demand are driven by changes in the market, but supply is partly circumscribed by policy problems that affect labor, immigration, and trade.

Carriers are raising prices to deal with elevated input costs such as higher fuel prices. Additionally, carriers face scarcity that affects their ability to quickly respond to increased demand for transportation; containers used to store and move goods are increasingly scarce and correspondingly expensive as a result of port bottlenecks. Figure 1 from a recent article in The Economist shows the large price increase of a 40‐​foot shipper container in thousands of dollars over the last year. This dearth of containers is made worse by the scarcity of labor at ports that raise the cost of unloading cargo.

Figure 1

Global Container‐​Freight Prices

Source: The Economist magazine and Drewry.

Note: In thousands of dollars per 40‐​foot container.

While these costs have not yet been realized, carriers are preparing to increase wages in an effort to retain crew threatening to quit, creating further potential upward pressure on shipping prices.

Inputs such as fuel, containers, and labor, are all vital for efficiently transporting goods and changes in their availability and prices affect the prices that carriers charge shippers (the person/​business that owns the products being transported). Charging higher prices tempers demand for transportation services and helps cover increased costs.

But shipping prices tend to be quite volatile because they are cyclical. Therefore, as the economy expands and demand exceeds supply (which we are seeing now), shipping prices increase to help manage demand for cargo space, and to cover costs from unprofitable periods when prices fall. Shipping prices are also particularly sensitive to changes in fuel prices. In fact, there is a lead‐​lag relationship between oil prices and freight rates, meaning that if oil prices increase, shipping prices will follow.

However, the debate about how much shipping prices have changed over time is contested. Shipping became more efficient with the introduction of containers making it easier to load, unload, and stack cargo. The value of innovation may be understated in observable shipping price trends because fuel cost increases may have overshadowed the gains. Furthermore, the available data do not adequately differentiate between the use of containers and not, making it difficult to ascertain the true cost savings of containerization.

To add another wrinkle to this, it is uncertain whether available data can point to long‐​term shipping price trends. Outside of some indicators such as the price of shipping containers that do not include the entire price of shipping, we simply do not have enough publicly available data to look at price changes over time.

Nonetheless, current shipping prices have increased because of changes happening in the economy. Those who have to pay higher prices may not like it, but these prices signal and incentivize important adjustments that firms and customers need to make so that the supply chain can rationally adapt to changing economic conditions. While allowing the market to adjust limits the potential policy responses, there are policies that could be changed to help the market flourish.

As my colleagues have written about, policies such as the Jones Act, tariffs on truck chassis, and immigration restrictions on foreign workers artificially restrict the supply of ships, containers, labor, and other inputs essential to transportation. Removing or reforming those policies would certainly help reduce prices. However, increased demand would still likely result in higher shipping prices. Although price changes in shipping are partly a response to policy failures, they also reflect the proper functioning of a market economy. In addition to signaling changes in supply and demand, prices also signal policy failures in this instance. Prices are the messenger and policymakers should not blame them for exposing underlying policy problems where they exist. Before overreacting with counterproductive policies that would raise prices even further, policymakers need to take a deep breath and understand the economic forces at play.

To read the full commentary from the Cato Institute, please click here.

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