China Lockdown Cuts Supplies

From The Epoch Times By Anders Corr April 30, 2022 and Nats.news

Natalie’s Commentary: It’s not clear why all of Shanghai has been shutdown with the strictest lockdown of 25 million people living in high rise buildings and starving to death.

China is claiming they are adhering to their COVID zero policy but the world is fully aware this is not the truth or the reason.

As a result, the lockdowns are bringing the country’s manufacturing to a halt and alarming global business leaders who depend on China for parts and manufacturing. That dependency may soon unravel quickly.

If this continues global business leaders will not be able to buy and sell specific products through previous global supply chains. They were depending on China to meet those demands and needs.

This could cause a ripple effect on the worst economies raising inflation because of the lower supply and eventually more demand. It’s crucial countries immediately identify and prioritize the necessary supply chains that are going to be affected through a thorough analysis of the products that the country needs. For example, the United States should start creating manufacturing companies to meet the necessary demands and so create more jobs as unequivocally needed in the United States after the unnecessary shutdown.

As more and more studies come out, they are indicating the pandemic could have been handled more efficiently and effectively without shutting down countries. As they say “live and learn”. 

In the meantime there is an immediate solution, customers will have to hang on to older products and demand less than before the pandemic crises.

After all, new iPhones or new iPads doesn’t necessarily address the real problems in America where censorship is used as a punishing tool preventing freedom of speech by most big tech and social media companies like Twitter, Facebook, Instagram, and Google.

A population of the younger generation has already switched  to TikTok where extreme woke and radical ideology is constantly being posted on TikTok and is really ruining the young minds of children using a out of control social media that will show graphic and very disturbing content.

Users were warned that all the information they are posting on TikTok is being spied on and copied by China. TikTok is China’s social media. This hasn’t deterred or alarmed users from expressing their woke ideology and radical ideas and views on TikTok.

It may be that Facebook, Instagram, and Google’s high censoring of free speech will continue causing users to switch and post more content on Twitter now that Elon Musk as the new owner fully supports freedom of speech as do TruthSocial and Gettr.

Time will only tell when these supply chain disruptions will begin broadly and continue to affect supply and demand. ~ Natalie

News Analysis

China lockdown shows need for subsidies to domestic industry

China’s COVID lockdowns are grinding the country’s manufacturing to a halt and alarming global business leaders who depend on the country for parts and manufacturing.

The CEO of Mercedes Benz, Ola Kallenius, told Bloomberg on April 29 that “new lockdowns in China, in Shanghai but also in other places in China affects the business and also the supply-chains in China but also globally.”

A senior executive from an international supplier that manufactures in China, India, and Vietnam warned in a South China Morning Post article on the same day that lockdowns in Beijing are making China less competitive for companies that have a choice and are constantly comparing business locations on metrics of stability, labor cost, and logistics.

“It is crucial that the current draconian Covid policies in China cannot be normalized,” she said. “The current strict epidemic prevention policy will make [Beijing] lose points in the future.”

According to a Nikkei Asia analysis reportedon April 28, approximately half of the 200 top suppliers to Apple manufacture in the environs of Shanghai, where coronavirus lockdowns are some of the strictest in the world, including traffic restrictions and mass lockdowns when a single case is discovered. This, despite the relatively low fatality rates of, and difficulty controlling, the highly contagious Omicron variant.

The affected Apple suppliers range from iPhone and iPad assemblers “to makers of components such as displays, printed circuit boards, thermal parts, batteries and acoustic components,” according to the Financial Times.

The problems in China sourcing this month and last will continue affecting global supply chains throughout the summer, according to multiple reports. This will decrease the supply of finished goods and increase price inflation.

The remedy, according to some, will be higher interest rates offered by American and European governments to pull money out of the private economy. That will decrease demand for goods, bringing prices down but increasing the risk of business loss, unemployment, and recession.

Raising interest rates to target inflation makes more sense when the inflation is due to government overspending and overprinting of money. It makes less sense when due to supply issues. In the latter case, the remedy should be support of domestic industry, including, most importantly, where there are supply chain bottlenecks.

Suppose that money is pulled out of the economy through higher interest rates offered for government debt in the context of broken supply chains. In that case, the government should put money back into the economy through targeted subsidies of domestic manufacturing that provide the missing inputs.

In addition to COVID lockdowns in China, Kallenius mentioned two other impacts on Mercedes’ operations. First, the lack of microchips used in everything from toasters to cars; second, the Ukraine war, which threatens a supply shock if Russia turns off the gas.

Kallenius said, “We work very closely with the German government” on energy independence as a “top priority.”

European and North American governments could also work closely with businesses to fix the mistake of too much offshoring and foreign sourcing. They should strategically subsidize supply chains to domesticize microchip manufacturing and decouple from China’s supply lines, in addition to sourcing energy from friends rather than adversaries.

Some have called for “reshoring,” while others add the need to establish supply line sourcing to allied nations. Europe, for example, cannot source its own hydrocarbons. The answer, to use a term minted by U.S. Treasury Secretary Janet Yellen, is “friend-shoring.”

That the Treasury department mints more than currency, during an inflationary period, is a good sign for business.

But left to themselves, businesses will almost always ignore the negative externalities of their sourcing to maximize profits. Improving their sourcing from a public good perspective requires moving the goalposts through the award of subsidies to companies that provide positive externalities and the imposition of tariffs on those that cause negative externalities. An example of a negative externality is the empowering of dictators caused by sourcing from Russia and China.

Subsidies and tariffs, known jointly as “industrial policy,” used to be dirty words among economists. After China’s lockdowns, the semiconductor shortage, and the energy crisis from Vladimir Putin’s war, it should be cleaned up and made ready to rumble.