CORONAVIRUS BREAKS THE GLOBAL AND OFFSETED PRODUCTION CHAIN: THE DONALD TRUMP MODEL WINS

Apr 20, 2020 14:26 PM


95% of ibuprofen, 70% of paracetamol, and between 40% and 45% of the penicillin consumed by the United States comes from China. So, in the midst of the coronavirus pandemic, one wonders what can happen if that country closes its exports, or simply if the impact of the disease slows down its economic activity in such a way that its factories cannot continue producing those drugs. Actually, we already have the answer to both questions.

Massachusetts company PerkinElmer has 1.4 million paralyzed kits for detecting coronavirus at its Chinese factory in Suzhou, very close to Shanghai, after the government of that country changed the criteria to allow the export of these systems. It is not an isolated case.

The deputy mayor of Shanghai has banned the American company 3M - famous worldwide for, among other products, 'Post-it' adhesive sheets - the export of N-95 protective marks, just the type that the US health authorities want. that the personnel of their hospitals take. "Lifting the restriction on the distribution of the company's masks will require instructions from Beijing," said an internal document from the US State Department leaked to The WStreet Journal.

The PerkinElmer and 3M problems are examples of one of the most profound changes that the coronavirus will cause on a global scale: the transformation of the supply chain. Over the past three decades, as economies have been integrating, companies have distributed their production around the world and have reduced inventories as much as possible. The concept of just in time, created by Toyota manager Taiichi Ohno in the 1950s, has become the philosopher's stone of every company. You have to manufacture just enough to meet demand, have no surplus, and never have anything stored, because that only takes up space and costs money.

LIMITATION OF ASSETS

These are formulas that have been copied by everyone, and which have worked very well until a catastrophe on a planetary scale has paralyzed all the economies of the Earth. This is how we have come to 2020: without production, without transportation, and without reservations. And, above all, with countries limiting the production of essential goods to save lives. Because the case of China is not unique.

On April 2, the French government reported that a team of Americans had illegally stolen pallets loaded with coronavirus protection equipment destined for France at the Shanghai airport. The next day, the German government accused the United States of "piracy" by subtracting, with the collusion of the Thai customs authorities, 200,000 masks produced by 3M in that country. A few days earlier, the state of Massachusetts had filed the same charges against the Donald Trump government, to which it had attributed the theft of 3 million protective masks. According to The Washington Post, the White House is giving states where its allies rule even more equipment than they have asked for, while leaving those controlled by the opposition - including New York, where they have already died more than 10,000 people for the Covid-19- without supplies.

But Europe is not an example either. Germany and France, for example, have decided that the single market will come to an end with the trade in coronavirus protection and tracking masks and equipment and have banned its export.

Obviously, all these problems could have been avoided if the countries, or the local administrations, had had stocks. But no one plans thinking about something that hasn't happened since 1918. Pandemics occur at most once a century, while companies report results every quarter, and countries hold elections every four years.

Now, with the world economy in an induced coma, that supply chain is being questioned. There is no production and there are no means of transportation either, because the fleets are moored and, in fact, in the oil sector, ships are acting as fuel tanks due to the accumulation of inventories. Reordering the global supply chain is going to be problematic. And, as the founder and president of the political risk consultancy Eurasia Group explained in these pages last Sunday, let no one expect that this will produce a resurgence of employment in developed countries. If companies bring part of their production back to Europe or North America, they are not going to hire workers, but to buy robots.


THE GLOBAL SUPPLY CHAIN It is quite a challenge for the world economy, because the global supply chain is much deeper than we think. For example, we all think that an iPhone is an American phone. But that is actually a lie. 43 countries on five continents participate in the production of an iPhone. There are those who make the design, manufacture parts, assemble them ... Nor should we forget the countries where the raw materials are extracted from the Apple smartphone. Of the 82 stable and non-radioactive elements on the periodic table, 62 are on the iPhone, including some of the exoticism of the Indian (essential for the screen to be touch), praseodominio (for the device cover), or gallium (for the microprocessor). Those elements are not there on a whim. According to a 2013 Yale University study, 12 of the 62 raw materials used in iPhone manufacturing have no substitute. A car has 30,000 parts that, when examined in detail, have been built in 10 different processes, counting its own subcomponents and the different manufactures. That involves 300,000 raw materials or manipulations. When you drive, you are on a rolling monument to globalization. Now, the coronavirus has highlighted the vulnerability of the system. And, with it, globalization.

Source: El Mundo de Madrid