The Changing Supply Chain

For decades, major companies have behaved as if geographic distance were almost irrelevant. A factory in China was the same as a factory in Michigan. The internet, container shipping and international trading arrangements had supposedly shrunk the globe.

No longer. The pandemic and geopolitical upheavals have exposed the risks of depending on faraway industry to make critical things like computer chips, protective gear and medicines.

I recently wrote a book on this topic, “How the World Ran Out of Everything.” I’ll use today’s newsletter to help you understand why commerce has changed — and how companies and governments are reacting.

The pandemic shock

The emergence of Covid in China ended the previous version of globalization. Quarantines shut Chinese factories at the same time that Western consumers, stuck in lockdown, ordered more manufactured goods like exercise equipment and electronic gadgets.

This combination of reduced supply and surging demand made other countries realize that they had become heavily dependent on a single nation — China — for many items, including medical supplies. Covid eventually faded from the headlines, but policymakers and business executives in the United States and Europe faced pressure to diminish their reliance on China.

A central reason for concern was the rise of geopolitical tensions. China wasn’t merely the world’s factory; it is also an autocracy that, under President Xi Jinping, has become more aggressive in asserting global influence. Xi, for instance, has been vocal about bringing Taiwan under China’s control, using force if necessary. Taiwan is the dominant manufacturer of the most advanced varieties of computer chips.