Slowbalisation and Quit China Moves
The convergence of context and circumstance has forced a rethink on the design of connectedness and dependence, on whether the trade-off of cost productivity is worth the price the political economy is paying.
By Shankkar Aiyar | Published: 19th April 2020 01:42 AM |
‘Realise that everything is connected to everything else’. The great polymath Leonardo da Vinci made this observation while expounding on the need to understand ‘connessione’ as one of the principles of learning. Over 500 years later, amidst demand deflation, disruption and distress, the profound perspective on connection has found its way onto the learning curve of global leadership.
Slowbalisation is manifest in the post pandemic policies for economic resurrection scripted across the countries. The defining feature of the policies is ‘slowbalisation’, a reset to de-risked ‘regionalisation’ and the beginnings of a measured exodus, a quit China movement.
The moves are scarcely surprising — in fact, this column (Corona, China and Why Fear is Viral) had observed the damage to country and company balance sheets ‘will accelerate subscription of the thesis of de-risking growth away from the centrality of China in the story’.
The Yen for de-risking is best illustrated by Japan’s stated shift in policy. The Japanese government has set aside, in its post pandemic package, over 240 billion Yen for companies shifting production out of China into Japan and other countries. Almost on cue, within hours, India reached out to Japan to woo its enterprises.
Prime Minister Narendra Modi tweeted “Had fruitful discussion with my friend, Japanese PM @abeshinzo about the COVID-19 pandemic. The Special Strategic & Global Partnership can help develop new technologies and solutions for the post-COVID world — for our peoples, for the Indo-Pacific region, and for the world.”
Japan, an all-weather ally and the white knight during the 1991 crisis, has for long advocated and presented India as a counter to the rising clout of China. Japan has partnered and funded India in creation of infrastructure.
It is wholly possible for Japan and India to create a mechanism, an institution a la MITI, to collaborate on shifting of supply chain capacity, wherein Japan provides capital and technology. India could leverage labour cost advantage, the scale of its domestic market and quality assurance of existing clusters in Mumbai-Pune or Chennai-Hosur corridors.
And it is not just India. Vietnam, Thailand, Indonesia and Malaysia, who have wooed companies exiting China following rising wage costs and the Sino-US trade dispute, too are serenading Japanese transnationals. Economists in Malaysia have petitioned the Putrajaya regime to ‘seize the opportunity to attract medium to high-end foreign direct investment from Japanese companies’.
Japan is not the only country and has company on the quit China bandwagon. Asian tiger economy Korea, already a major player in India in electronics and automobiles, is also seeking alternate sites. Korean steel giants POSCO and Hyundai, and multinational electronic device and appliance brands, are in talks for relocating to the southern states of India.
Across the Atlantic, public and political rhetoric across the United States is pushing the government to re-think its policies. Larry Kudlow, President Donald Trump’s top economic adviser, has suggested that the US government should offset costs of US companies relocating out of China. Ludlow said “if we had 100% immediate expensing, we should literally pay the moving costs of American companies from China.”
It is true that decisions of relocation for US companies will not be driven by populist diktat but by cold logic of revenue resilience and reliability. Indeed, there is no disputing the competitive advantage that China has built — of costs and scale of operations. Equally, there is no denying the serendipity of circumstance. Across the world there is a coming together of political need and economic viability — from lower corporate taxes to cost of capital to induction of technology to reduction of regulatory cholesterol.
America is the world’s largest economy and accounts for a third of global consumption. For the past four years, the Trump regime has propelled the thesis of ‘Make in America’. In 2020, corporate taxes are low, energy costs are low — cost of gas is barely $1.64 MMBTU, cost of capital has plummeted, regulations have been eased, and land is aplenty.
With over 15 million Americans filing for job claims, job creation/restoration will be the focus of policy — hawks Navarro and Pompeo are pushing for a policy putsch for the exodus and already states, particularly in the mid-west, are rolling out the red carpet. In fact, US companies are spoilt for choice. Thanks to the new trade deal USMCA aka CUSMA, companies from the US can choose to relocate in the neighbourhood.
There is Mexico which is already a beneficiary of the post-trade war thinking. And there is Canada which is leveraging its superclusters approach, convivial industrial climate, availability of land and skilled labour, edge of technology and historic low-interest rates to woo not just American but also companies from China, Japan and Taiwan.
For over three decades, the phenomenon of globalisation on steroids, by design and default, has led to countries and companies parking multiple eggs in one basket located in China. The convergence of context and circumstance has forced a rethink on the design of connectedness and dependence, on whether the trade-off of cost productivity is worth the price the political economy is paying.
In 21st century societies, the risk to lives and livelihoods must outweigh promise of profits.
Shankkar Aiyar, political economy analyst, is author of ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’ which is releasing in May, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’; and ‘Accidental India’. You can email him at firstname.lastname@example.org and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.