Last week, during a speech in South Korea, U.S. Treasury Secretary Janet Yellen, said: “These recent shocks to the global economy have refocused global attention on the importance of economic resilience and addressing supply chain vulnerabilities. Working with allies and partners through “friend-shoring” is an important element of strengthening economic resilience while sustaining the dynamism and productivity growth that comes with economic integration.”
I learnt alot from your newletters, including this latest one. May I ask if you could share some suggestions on how US can improve and do better than our thus-far failure to adjust. Thank you.
It's still somewhat disappointing but unsurprising to me how much policymakers and mainstream voters want to disrupt global trade, with friendshoring being one of many initiatives in that vein and justified with somewhat motivated reasoning.
With the benefit of hindsight, I think we will see the era from the 1990s until Covid (or until the US-China trade war) as something of a golden age. This era saw the greatest reduction in human poverty in history, robust growth in developed markets in addition to emerging markets, and was a period of relative peace by historical standards.
And yet we've seen politicians in major economies (not just in the US, but also in China and Europe) rushing to change this status quo, due to political concerns. It is unsurprising but disappointing to see that among major world decisionmakers, there is nobody who really has the best interests of the world's most vulnerable people at heart. But on top of that, world leaders have failed to engage each other on common interests like climate change and failed to have honest conversations with their domestic stakeholders about the tradeoffs involved with economic decoupling.
Take the whole idea of building more "robust" supply chains by on-shoring or near-shoring. If we look at the COVID pandemic from China's perspective, we can see that domestic production of PPE equipment was actually not a strength, but a vulnerability - China experienced disruptions to PPE production when the pandemic was peaking - right when it needed it most. By contrast, in other countries where the peak of the pandemic lagged that in China, their demand was increasing right when Chinese production was ramping up and Chinese demand was falling. I can see the argument that supply chains will be more robust if they are more diversified - but concentrating production domestically or within a small set of allies is the opposite of diversification.
Overall it feels like we've been stuck in this loop of very misleading or even outright dishonest policy debate, and it is somewhat hard to see how we break out of it. I appreciate that you are at least using your platform to shed light on these issues!