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Onshoring and the international rules-based order

That governments would promote more international trade has been taken as a given in recent bull markets. This is now being challenged by the very governments that promoted it in the past.

That governments would promote more international trade has been taken as a given in recent bull markets. This is now being challenged by the very governments that promoted it in the past.

Charles Stanley

in Features


Several large countries are developing a new raft of interventions in their economies which stress the need to improve national resilience and self-reliance. It is true there have always been some elements of economic nationalism alongside the move to end state subsidies, remove tariffs and rely on the least-cost suppliers wherever they are in the world.

What is different today is that several leading advanced countries – which fashioned the World Trade Organisation and other global bodies – are rolling out policies to buttress economic activity and supply at home.

Security of supply

China launched its Made in China 2025 policies in 2015, in which Beijing noted its intention to reduce its dependence on imported technology. The country is determined to produce its own digital chips, create its own digital systems – and push hard into the advanced fields of aerospace engineering, new materials, batteries, drugs, robotics, biotech and smart manufacturing.

It also decided to use its large overseas investments and the reach of the Belt and Road initiative to acquire interests in strategic minerals for the new products. It was this ambitious drive which President Trump decided to confront, claiming that state aid, intellectual property theft, unfair joint ventures, enforced technology transfers and other questionable routes were being used by China. China denied this but faced a more hostile climate over technology trade from the West.

China's response to the pandemic has included the allocation of additional sums to speed up its technological development and to assist its move into more blue-sky research, as well as product innovation. China has a strong position in rare earths and is a close collaborator of the Democratic Republic of Congo, which is the dominant producer of cobalt, needed for batteries.

On 24 February, President Biden issued his Executive Order on America's supply chains. Far from reversing the Trump policy, Mr Biden has reinforced the work – and set new exacting deadlines to onshore much more.

The Order requires a 100-day supply-chain review, seeking better answers in semiconductors, batteries, critical rare earths and minerals, and pharmaceuticals. He is updating President Trump's 30 September 2020 Order supporting domestic mining and processing industries and seeks to abate the threat from "foreign adversaries". There then follows a comprehensive year's work programme on all aspects of US supply industry by industry reporting to him with actions needed by all the main departments of government.

In the run up to the Presidential election, Mr Biden’s plans said he would use federal purchasing and federal powers, to "shift production of a range of critical products back to US soil, creating new jobs and protecting US supply chains against national security threats". The Executive Order confirms that there will be plenty of market interventions by government:, to buy up strategic stockpiles; to subsidise surge capacity in the US; to get companies to store designs and be ready to expand productive capability; and to control and produce crucial raw materials.

EU vaccine nationalism

The EU has recently adopted a produce and buy at home policy for vaccines. EU Regulation 2021/111 allows export controls on vaccines produced within the EU where the bloc thinks they are needed at home, despite companies having export contractual commitments. This power was used against exports to Australia.

It is true that the EU and China are close to signing a Free Trade Agreement, moving in the opposite direction. In practice, the EU will remain wary of trade in technology with China and worry about intellectual property under pressures from Washington and from some multinational companies.

All of this will slow world trade-led growth and will cause more rows between the leading protagonists. It will provide plenty of investment opportunities for those wanting to make more and supply more in any given market as more of it will need to be done locally. City analysts now need to be aware of the geography of a company’s investments and the costs and benefits to come from more domestic sourcing. There will be more state aid, more state purchasing and a realignment of investment.

In an area like car production, the new big investments in vehicle assembly will likely go to those places that can secure the materials and make the batteries, an essential part of the new vehicles. That is why the US is busy reopening rare-earth mines and why Europeans are striving to attract mega-battery plants.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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