In the second part of this two-part analysis, we delve deeper into China’s manufacturing prowess and how it impacts the global manufacturing landscape. China, recognized as a global manufacturing giant, continues to expand its manufacturing capabilities. This growth has sparked apprehensions among other nations, who fear losing their manufacturing bases. Many observers have termed this the second China shock.
The question is, should the US strive to decrease its dependence on China’s manufacturing sector by partnering with other like-minded nations or should it go solo? As I committed in my previous article, this piece will attempt to answer this question. Two quotations set the context for this discussion.
The first quote is from Aaron Friedberg, an international relations expert and professor at Princeton University. In an article published by Foreign Affairs, he argues that no single country has the capacity to curb or manage the impending second China shock. This suggests that collaboration with other nations is unavoidable.
The second quote is from Lord Palmerston, a British statesman from the 19th century, who opined that nations only have permanent interests, not permanent allies. This infers that nations collaborating to counteract China today might change their alliances tomorrow.
In trying to reduce dependency on another nation, one can either strive for self-sufficiency by manufacturing products domestically or ensure a diverse supply of products from various countries.
China’s sourcing of soybeans serves as an example of the latter approach. Despite having a large number of animals to feed, China produces less than 20% of the soybeans it requires. To avoid over-dependence on the US, it has been sourcing more from Brazil and Argentina.
However, what happens when multiple suppliers don’t exist? Or when a country, like China in the case of solar panels, is so dominant that it threatens to eliminate competition?
Friedberg suggests that to ensure multiple suppliers, concerned nations should form a “trade defense coalition” and synchronize their subsidies and tariffs on Chinese goods. The idea is to promote the diffusion of productive capacity for a variety of manufactured goods, thus ensuring that China isn’t the sole or dominant supplier of crucial goods.
However, critics may argue that it would be better to manufacture these products domestically, as today’s allies could become tomorrow’s adversaries.
Despite the historical precedence of such treacheries, Friedberg’s concept of a trade defense coalition holds merit. By promoting a diverse supplier base, one can replicate the diversity China enjoys in soybean procurement. It’s unlikely that all allies will turn against you simultaneously.
In the short term, the US lacks the industrial base to produce everything it requires. For instance, it has already requested Japan to produce Patriot missiles. Therefore, a trade defense coalition may be a viable option despite the challenges it presents.
To conclude, Friedberg rightly points out that China has the potential to inflict sudden and disruptive supply chain shocks on its adversaries. To avoid this, the US would need years if it acted alone. Collaborating with other countries could speed up the process.
A strategy to rejuvenate American manufacturing is essential, and a bipartisan national commission of experts should be formed to devise this strategy. The question of whether to form a trade defense coalition will be one of the major issues that the commission would need to address.
This article was initially published by DTN/The Progressive Farmer and has been republished with permission.
