US targeting supply chains weakens its hegemony

United States President Donald Trump told his supporters on Monday that he would create 10 million jobs within 10 months by introducing a tax credit for American companies that move their manufacturing units back from China to the US.

He also said that the US government would eliminate federal contracts for companies that have outsourced their business to China. Trump had made similar promises during the last presidential campaign in 2016 and launched tax reforms, but the expected return of manufacturing enterprises has not happened yet.

Ever since the novel coronavirus spread globally, politicians in the US have been talking about ending dependence on the Chinese supply chain. However, the enterprises affected by the pandemic are more concerned about their own survival.

According to a recent survey conducted by the US-China Business Council, nearly 70 percent of American companies said they are optimistic about the business prospects of the Chinese market in the next five years, and based on their longterm confidence in the Chinese market, 87 percent of American companies said they have no plan to move their production lines out of China.

Another survey cited by the BBC shows that nearly 90 percent of global companies have chosen the Chinese mainland among their top three procurement destinations.

Following the outbreak, some countries have called for diversifying supply chains in order to build a more robust and resilient global supply chain, but their real intention is to force manufacturing enterprises to return at the expense of the established global production and supply chains and establish a localized production system under the umbrella of protectionism.

However, it will be difficult for any country to substantially reshape the global supply chain without affecting profitability.

Capital input alone is not enough for gaining a competitive advantage in manufacturing; problems such as high labor costs and shortage of skilled workers also need to be resolved.

Following the novel coronavirus outbreak, the manufacturing sector faces not just financial challenges, but also the pressure of slack demand because of the economic downturn. So, it remains to be seen whether US manufacturers will bid farewell to China and invest in new production lines.

In fact, while US politicians seek to reorganize global supply chains, China is launching a new industrial structure and supply chain system.

Transnational corporations’ competitiveness will be greatly hit if instead of participating in this new system, they focus on industrial relocation.

The US is unlikely to benefit from any attempts to undermine the international division of labor. Instead, it will probably damage the interests of US multinational corporations and sabotage the US-led system of rules, ultimately weakening the US’ established hegemonic status.