Ever Stuck in the Great Lockdown

Ever Stuck

The encumbering of the supertanker MV Ever Given in the Suez Canal is the image of the week, or perhaps the year. It speaks to a world economy that has overgrown its natural infrastructure – a vessel greedily stacked with cargo that becomes so unwieldy that it is grounded by a puff of wind (high winds and a dust storm did for the Ever Given). It takes little imagination to think of problems like climate change and inequality taking the place of the tanker in the channel of the world order.

It is also an image that brings home the tangible elements of globalization – as I write 300 ships are stuck behind the Ever Given (at a cost of USD 400mn per hour), and their delayed passage through the Suez Canal will deprive people of vital goods, like toilet paper.

Besides demonstrating what a ‘house of cards’ globalization has become, the grounding of the ship echoes with other supply chain blockages – consider the deprivation of Parisians now that a supply of decent sausages, clotted cream and cheddar is cut off from the continent by Brexit (Marks and Spencer shelves are bare!) or the fact that the fortunes of the semiconductor industry are concentrated in a few hands, with chip shortages rippling through other industries (Volkswagen will produce 100,000 fewer cars because of chip shortages).

We could write off the various supply chain shortages, especially the unfortunate Ever Given, to a continuation of ‘2020’ style bad luck. Indeed, we might even blame COVID on supply chains as some analysts have traced the initial European human-to-human infections to Starnberg in Germany, where a local car parts supplier (Webasto) organized a training session with a Chinese colleague from its operation in Wuhan!

Before we shout ‘down with supply chains’, consider that they have proven both durable and complex over the course of the last year, having been stress tested by Donald Trump, tilted by the rise in new technologies (especially data management) and the ups and downs of the post COVID recovery.

The crisscrossing web of supply chains is the fabric of the global economy, but it is emerging from the COVID crisis in a different shape. Consider two of the themes I have referred to in recent weeks – the post COVID ‘Decameron’ effect (that new, good trends are born out of a pandemic driven economic crisis) and the ‘scramble for rare places’.

Take the scramble for rare places (and rare materials) first. This trend will place a premium on supply chains and could exacerbate blockages. To underline this – and indeed to emphasis that risk to China/US relations comes from a real war rather than a mere trade war under President Trump – twenty Chinese fighter jets (including four nuclear capable bombers) flew into Taiwanese airspace on Friday. Taiwan is the locus of the world’s semiconductor industry (one of the few technologies China has not mastered) and any disruption of it would lay bare supply chains.

It might also echo the work of Norman Angell, a Nobel Peace Prize winner in 1933 and author of ’The Great Illusion’(1909).He argued that the buildup of great navies risked a world war that this would not likely happen because international economies were so interdependent. The war did happen.

Tensions in the South China Sea emphasise how in the future supply chain rollout will be driven not only by economic imperatives, but also by the twin ideas of national security and strategic autonomy. The restriction of vaccine exports from Europe and India is a good example. Increasingly, new industrial capacity will be located in geopolitically friendly locations – Intel announced a USD 20bn investment last week in two new facilities in Arizona, additional capacity in Ireland and more contracts for partner firms in Taiwan and South Korea.

The other consideration is the ‘Decameron’ effect. Every major macro dislocation in the last two centuries – from the global financial crisis to the aftermath of the Great War, has been met with a variety of fiscal, monetary and institutional responses. This time should be no different and the ‘Great Lockdown’ (Harold James’ term) is being met by a barrage of fiscal activity (with monetary support), though undercut by a real absence of collaboration across counties.

The next phase in this will be an infrastructure plan announced by President Biden next week. The imperative here will be to upgrade infrastructure across the US – which lags other countries badly (airports, telecoms, fast trains for instance). The plan may also look to link the more closely with South America and Canada, such that it builds out the backbone of a regional infrastructure.

There are other budding infrastructure networks – such as a planned trade infrastructure between Israel and the UAE, a busier night train network across Europe and multiple plans for drone and air taxi networks give a glimpse of the future. If possible, we might also spare a few shovels for the Ever Given.

Have a great week ahead

Mike

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