June 25, 2024

Supply chain decoupling deemed ‘essential’ amid US-China tensions

The era of globalisation is coming to an end, leading to a renewed focus on reliable supply chains in the US and China, according to a recent report.

GlobalData’s Geopolitics in Retail & Apparel report highlights a shift in priorities for the US and China, impacting global industries.

The report identifies the risks disrupting global supply chains and states: “In the past, geopolitical events could be overlooked by businesses and investors. This is no longer the case. Since 2019, the global economy has experienced significant disruptions due to geopolitical influences.”

US-China relations

The report focuses on the competitive nature of US-China relations as they compete for political, economic, and military power. China’s economic growth since 1978 has been heavily influenced by globalisation, attracting substantial foreign direct investment (FDI) due to its efficient production processes.

This rivalry has led to a trade war, with the US imposing tariffs on Chinese goods, met with retaliation from China. Recent tariffs announced by President Joe Biden on Chinese products indicate a continued escalation in tensions between the two countries.

The report remarks on the shifting priorities of the US and China, noting that domestic pressures will take precedence over foreign policy in 2024.

Decoupling supply chains

In an effort to bolster their economies, both the US and China are moving towards domestic markets to secure their supply chains as various factors threaten global stability.

The report states, “The new focus is on security and resilience, as US-China relations fragment supply chains and prompt retailers to reshore production closer to domestic markets.”

China is adapting to a new economic model amid sluggish growth, while the US is considering bringing manufacturing operations closer to home. However, complete decoupling of supply chains is deemed unrealistic, necessitating strategies like China Plus One to diversify manufacturing opportunities.

The report emphasizes the importance of building supply chain resilience by shortening and diversifying supply chains, minimizing future disruptions and costs to consumers.

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