According to the Economist Intelligence Unit, 76 countries are expected to hold major elections in 2024. These include eight of the world’s ten most populous countries – Bangladesh, Brazil, India, Indonesia, Mexico, Pakistan, Russia and the United States as well as other strategically important countries such as Taiwan and the UK.
Whilst for decades these elections would have been fought between free marketeers on the Right and interventionists on the Left, this no longer seems the case. The so-called ‘Washington Consensus’ – the belief in an inexorable march towards open markets and free trade – has fractured, and politicians on both sides of the divide are standing on the platform of protectionism, industrial strategies and subsidies. This has already had a major impact on many supply chains which have been forced to adapt to the new political reality. This article provides a snapshot of what the supply chain world can expect from the new governments elected in 2024.
Prime Minister Modi is looking for a third term in charge of the world’s fifth largest economy. His period in office has been focused on creating a viable alternative to China as a major manufacturing hub in the region. To this end he has deployed the twin approach of market intervention and protectionism in an effort to incubate key industries especially the high tech. Looking to the future, he is committed to developing India’s own semiconductor sector as well as driving forward investment in green transition technologies, especially electric vehicles. In this respect he is drawing from China’s playbook: limit foreign imports; encourage nascent high value industries through subsidies; and promote exports. Whilst this, ‘have cake and eat it’ approach may not be very popular with countries looking to exploit India’s burgeoning domestic market, the US and Europe have little choice but to accept it if they want to reduce their dependence on China.
Comment: there is very little chance of Modi being defeated so the world can expect more of the same in terms of supply chain policy. He has been careful to stress India’s non-aligned status which has allowed India to benefit from cheap Russian oil whilst being courted by the US. However, there is still a long way to go before India can challenge China as the largest economic power in the region.
In November, the US electorate will go to the polls most likely facing a choice between former President Trump and President Biden. In terms of supply policy there is little to choose between either candidate. Both administrations have passed legislation over the past eight years to protect US manufacturing by increasing the cost of Chinese imports through a range of tariffs. A bipartisan report by a House Committee published in December 2023 recommended that the government should go further by removing China from its Permanent Normal Trade Relations list which would allow across-the-board tariffs on all goods. At the same time as this, huge amounts of subsidies have been awarded to companies establishing manufacturing in the country, latterly to those involved in green technologies and semiconductor production. This has attracted criticism from partners around the world, fearful that they will lose out in a subsidy bidding war. If Trump is elected, he may well be more likely than Biden to take aim once more at the European Union, as well as trading partners in the rest of Asia.
Comment: there is very little to choose between Biden and Trump in terms of supply chain policy. Both are hostile to China and will campaign on the basis of protecting and supporting American jobs. Whilst many of Biden’s policies have upset European partners, the chances of more trans-Atlantic trade disputes (such as over steel) may be higher with Trump in the White House.
Although a relatively small economy and population, Taiwan’s general election in January 2023 could turn out to be the most important of all. Lai Ching-te, from the governing pro-sovereignty party, was elected as president on 14th January, a result which attracted an angry response from mainland China. The visit of two senior US politicians to meet the new president was also criticised. Although rhetoric seems to have been moderated, analysts believe that tensions will increase in the run up to Lai’s inauguration in May.
In a worst-case scenario, invasion of the island, as threatened by Xi Jin Ping, China’s Premier, is still a possibility (although not in the immediate future). The consequences of such a move would be catastrophic – Bloomberg Economics have estimated the costs to be as much as $10 trillion, dwarfing the impact of the Covid crisis. More likely steps range from the cancelling of the 2010 trade agreement to a blockade, falling short of an invasion, although of course this cannot be ruled out given China’s bellicose pronouncements. This would have major implications on the global high tech sector.
Comment: Whilst Europe and the US are busy attempting to build their own semiconductor industries, the world for the time being is dependent on Taiwanese technologies. Lessening this dependency could even make the situation more dangerous as China may calculate that the Western powers would be less likely to intervene if there was less at risk. There would be no way for the global supply chain industry to prepare for such a development.
A General Election is expected in the UK in the second half of the year. Whilst a change of government is on the cards, big policy changes are not. The present shadow chancellor, Rachel Reeves, quoted in The Economist, is reported as saying that there would be no return to ‘hyper-globalisation’ of the Tony Blair era of the 2000s. Instead, the paper characterises Labour’s likely policy as, ‘…in with industrial subsidies, shortened supply chains and “Buy British” policies, framed by the rhetoric of resilience, security and a “home-grown” economy.’
Comment: Those hopeful that a new Labour government will mean a return to the EU are likely to be disappointed. The new Prime Minister will be wary of re-opening old wounds and alienating a large proportion of its supporters who voted for Brexit in the first place. Closer cooperation with Europe on supply chain matters is probable but an interventionist government may well appreciate the freedom to support business in the UK economy without any recourse to the European Commission.
Protectionism and subsidy the new political reality
Despite the number of elections in 2024, there seems to be little likelihood of major changes in supply chain policy whatever their outcome. Governments around the world are committed to industrial strategies which are likely to involve subsidy and, when deemed necessary, the erection of barriers to foreign competition. Whether to support the development of green technologies, for reasons of ‘strategic resilience’ or explicitly to create and protect jobs, the result will be the same: a fracturing of global supply chains; rising costs caused by ‘trade friction’; the duplication and redundancy of manufacturing and inventory, not to mention inefficiencies related to the flow of knowledge, data, services and capital. If there is a case to be made for free trade and open markets in a complex, risky and volatile world, very few politicians seem willing to make it.
Author: John Manners-Bell
Source: Ti Insight