Why a cooperative global industrial & supply chains is urgently needed

Editor's note: Chen Xiao, a special commentator of CGTN, is deputy director and associate research fellow in the Division of Research Organization in the Center for International Development Knowledge in China. The article reflects the author's opinions and not necessarily the views of CGTN.

Since the economic globalization of the 1980s, global industrial and supply chains have been important vehicles for international division of labor, economic cooperation and shared development. However, in recent years, these chains have been encountering multiple obstacles, which bring a variety of challenges to global development. At the second China International Supply Chain Expo, China's Premier Li Qiang advocated against all forms of decoupling and emphasized the importance of stable and unimpeded global industrial and supply chains.

During the COVID-19 pandemic, production and supply chains in numerous countries experienced interruptions. Consequently, considerations for the distribution of global industrial and supply chains shifted from higher economic efficiency to greater security and stability.

Many multinational corporations are opting for a diversified approach, selecting multiple suppliers and sourcing locations to strike a balance between maximizing profits and minimizing risks. According to a 2023 KPMG survey, a global organization of independent professional services firms providing audit, tax and advisory services, of 132 multinationals in the Asia-Pacific region, the majority had maintained over half of their production capacity in China from 2018 to 2023, while also expanding their production capabilities in other markets.

Geopolitical conflicts are disrupting global logistics and triggering volatility in commodity prices. The Russia-Ukraine conflict has led to a significant surge in the prices of key commodities, including crude oil, natural gas, steel, fertilizers and grain. Many European countries have faced energy crises. International air freight and logistics were obstructed and delayed. The Palestinian-Israeli conflict has heightened concerns regarding the security of Red Sea transportation. A report by Nikkei Asia indicates that the crisis in the Red Sea waterway has resulted in a 20 percent reduction in global shipping capacity.

Trade protectionism has caused disruptions in the global economic order. According to Global Trade Alert, there was a sharp increase in newly implemented discriminatory interventions between 2019 and 2023. Some countries have resorted to excessive protective measures.

For instance, the United States has shifted the goal of its export control measures from preventing the proliferation of weapons of mass destruction to preserving its hegemonic dominance in science and technology. Additionally, it has established exclusive industrial alliances, such as the Indo-Pacific Economic Framework for Prosperity and the U.S.-EU Trade and Technology Council, which aim at promoting decoupling and friend-shoring strategies.

Protectionist measures prioritize national security above economic principles, leading to the over-securitization of industrial and supply chains, which in turn adversely impact global development.

Over-securitization poses a threat to global economic growth. Friend-shoring, which involves trade and investment between countries sharing similar values and systems, risks underutilizing comparative advantages and impedes the efficient allocation of global resources. The decoupling of global industrial and supply chains could impede technological cooperation and slow the deployment of new technologies.

The International Monetary Fund estimates that if global geo-economic fragmentation materializes, the potential loss to global GDP could reach 2.3 percent. Developed economies and emerging markets might incur losses between 2 percent and 3 percent, while the impact on low-income countries could be the most severe, with losses potentially exceeding 4 percent.

Furthermore, over-securitization poses a challenge to global climate governance. To achieve global climate targets, there is an urgent need for international cooperation across industrial and supply chains to generate sufficient production capacity and markets for green transformation. China has cultivated innovative capabilities, economies of scale and cost advantages in diverse green technologies, including photovoltaic modules and wind power.

However, over-securitization may hinder many countries' access to advanced green technologies, potentially leading to a substantial increase in the costs of their green transformation and delaying the attainment of these objectives.

Additionally, over-securitization impedes the industrialization of developing countries. Open cooperation within global industrial and supply chains enables developing countries to participate in some segments of the global production system and integrate with the international market. Thus, these countries can secure not only stable capital, technology and talent, but also large volumes of good-value intermediate products from other countries.

While friend-shoring may present opportunities for a select few developing countries, over-securitization has placed immense pressure on many countries, compelling them to take sides. This has complicated their ability to achieve an optimal allocation of global resources and to fully leverage the potential of the international market.

It is imperative that we strengthen international cooperation to build inclusive, efficient and stable global industrial and supply chains, thereby fostering global development and benefiting all stakeholders involved.

First, developing open and stable cooperation with mutual trust for global industrial and supply chains. We should establish a dialogue mechanism under the United Nations framework to facilitate communication and consultation on issues pertaining to the stability, safety and efficiency of these chains.

The Global North and Global South could engage in discussions to establish a mechanism that ensures interdependence in key sectors, including electronic information, electric vehicles, new energy, pharmaceuticals and critical minerals. Additionally, countries in the Global South should enhance mutual support to collaboratively enhance the security, innovation and added-value of industrial and supply chains.

Moreover, fostering international cooperation in trade, investment and technological innovation. It's necessary to uphold and reinforce the multilateral trading system, with the World Trade Organization at its core and provide trade preferences and differentiated tariff treatments to developing countries.

We should also enhance the protection of foreign investments, improve investment and operational facilitation and encourage joint ventures between domestic and foreign enterprises within industrial and supply chains. The world should establish open platforms for global collaboration on innovation resources, bolster talent exchange in emerging technologies and promote the development of unified rules and ecosystems across industrial and supply chains.

Finally, assisting developing countries in participating in and upgrading within global industrial and supply chains. The international community can support these nations in selecting an industrialization path aligned with their resource endowments and developmental stages.

Governments of developing countries are expected to encourage proactive investment in infrastructure and implement preferential policies within their industrial parks and continuously expand their local industrial and supply chains.

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