Expect a torrent of corporate press releases to be launched over the coming months. Expect, also, for them to be absent of meaning. But the current interest in trade is an opportunity for business to lead the debate on the global supply chain, not contribute to its denigration.
The World Economic Forum gathering of politicians, business leaders, billionaires and other luminaries is abuzz with the potential impact of President Trump’s trade policies.
The main concern has related to protectionism as the President-Elect has attacked the global supply chains of a number of the US’s greatest companies.
The GM-Ford Twitter episode earlier this month is suggestive of a president who is keen to use his office to publically vilify companies that have leant too heavily upon offshore suppliers at the cost, he argues, of American jobs.
On Jan. 3, Trump tweeted: “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!”
The business community has taken notice.
“The basic message is to be more national, don’t just be global,” Richard Edelman, CEO of firm Edelman, told Reuters at Davos. “Let’s try and pre-empt that tweet by having a long-term discussion about the supply chain.”
In 2012, Procurement Leaders conducted research on the intention of senior procurement officers in respect of localizing or shortening their supply chains. Some 74% stated that they had some plans to increase the amount of spend allocated to local suppliers.
Five years later, this ambition is still a distant dream as multinational companies are looking to expand their global footprint and enjoy the benefits of labor arbitrage in developing economies.
Simply put, the profits to be made from low-cost country sourcing are too great to seriously consider a localized the supply chain. Edelman’s ‘long-term discussion’ is a non-starter if the short-term earnings remain high.
Yet, such is the political capital of the new White House team, corporations are loathed to defend their interests and positively advocate for the global supply chain.
Interestingly, opposition to the protectionist noises being made by the capitalist president of America is coming from communist China.
President Xi Jinping launched a vociferous defense of the benefits of globalization at the Swiss conference. “Pursuing protectionism is like locking oneself in a dark room,” said the Chinese leader. “Wind and rain may be kept outside, but so is light and air.”
Jack Ma, CEO of the Chinese market exchange group Alibaba, argued that, over the past 30 years, American corporations have generated billions in profits through globalization. A windfall that the country, he believes, later squandered through foreign wars and unsound bets on Wall Street.
“It’s not that other countries steal jobs from you guys,” Ma advised. “It’s your strategy. Distribute the money and things in a proper way.”
The national economic impact of protectionism will be profound. Both growth and employment will suffer.
Zhu Min, a Chinese economist and Deputy Managing Director of the International Monetary Fund, believes that a 45% percentage US tariff on Chinese goods would halve US GDP growth and cut Chinese growth by a third.
More specifically, the opportunities to earn profits for individual firms will also diminish.
Better, it seems, to obfuscate the matter: Issue a friendly press release that announces a new U.S.-based sourcing project that brings jobs and investment ‘back’ to America.
The actual details of the package are unlikely to be subject to serious presidential scrutiny. Rather, it appears that the intention is to create an impression that American manufacturing is ‘returning’ to the U.S. The reality is less important. Each announcement, the authors calculate, will reduce the chances of tempestuous Trump direct Tweet.
The schemes will likely cover only a small proportion of spend and will seek to distract attention from the billions of dollars that will still be pumped around the global supply chain.
It is, of course, a shame that major businesses have cravenly conceded to the new ideological order. The global supply chain model has brought jobs, prosperity and progress to American shores. That Chinese communists point this out and not business leaders is indicative of strategy built upon the bare minimum.
Offshoring and outsourcing is a trend that has shaped businesses for over a hundred years. For most of that period, this economic restructuring was downplayed. Never has business openly proclaimed the value for all that is brought from working with the global supply chain. Instead, it has allowed conspiracy and xenophobic emotion to proliferate unchallenged.
The focus upon the supply chain by Washington’s highest official is, of course, an opportunity to defend the value of globalization. But instead of embracing the discussion, business looks set to continue a strategy that has compounded the problem: to accept the anti-trade rhetoric and hide behind empty pronouncements. Sad!
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