Weakening China’s Role in the Global Supply Chain

US President Donald Trump is promoting China’s isolation from global supply chains on his own initiative under the pretext of China’s malicious handling of the Covid-19 pandemic. Under these US initiatives, the United States is given the opportunity to resume the processing operations of American companies back on American soil in every possible way.

The fact that the Labour costs in China have risen significantly in the last four years has contributed to this, resulting in many multinational companies such as e.g. Samsung and before the start of the pandemic, have decided to transfer their production from China.

by T. C.

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USA

The economic outbreak due to the imposed and prolonged lockdown to tackle the pandemic as well as the increase in the number of cases and deaths due to Covid-19, respectively, give impetus to US incentives and actions to remove part of production and manufacturing activity except China, without necessarily this new country where the manufacturing activity of American companies will be installed, will be the USA, but other Asian countries which will be close to the geopolitical sphere of influence of the USA.

In this context, the ways in which the United States is working to encourage American companies to move their manufacturing activities outside of China are to provide generous tax breaks and financial subsidies.

Japan

Japan has already passed measures to generously boost Japanese businesses as they move their manufacturing activity from China, to Japan or to other countries.

EU

Respectively, the EU, following the US foreign policy, will start looking for ways so that a large part of European companies in China will transfer their processing activities outside China.

At the same time, with the imposed lockdown in the member-states of the Eurozone of the South (Portugal, Spain, Italy, Greece), all the conditions are created for a deep recession in their economies with the simultaneous repayment of basic labour rights such as the full-time work.

Many businesses will not recover because of indirectly implementing a large redistribution of wealth in these member-countries, where businesses and wealth will change owners overnight. These companies that will now operate will work with part-time employees for the most part, while full-time employees will work with much lower wages than before the start of the pandemic.  

In member-countries such as Greece, this will create a drastic reduction in wages, but it will create a fertile ground for a large part of the population of the member-countries of the South Eurozone to work

at extremely low wages, making the transportation of many manufacturing activities attractive. European companies from China to the Southern Eurozone.

In this case although that we will have a drastic reduction in unemployment in these Eurozone member-countries, on the other hand will have a big reduction in the purchasing power of a large percentage of the population in them.  

In addition, the fact that the state governments in the US moves to sue the Chinese Government for huge sums of money for damages caused by Covid-19 are creating an alibi for further US restrictions on China’s exports to the West.

In this way, China’s economic dynamics will be halted, as there will be a cap on Chinese exports, bringing social pressure to the Chinese hinterland due to corporate bankruptcies and staff redundancies, increasing unemployment and social unrest.   

China’s possible reaction

In that case, China will be in difficult position. China’s long-term strategy should be to create new markets that do not belong to the Western geopolitical sphere of influence so that these markets can absorb Chinese products unhindered.

This means that China will have to invest economically, politically, socially in Third World countries to increase the purchasing power of these people so that their citizens can buy Chinese products.

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