Global Supply Chain Governance and the Future of Globalization

Pang Zhongying

Over the past 30 years or so, globalization has been underpinned by ever-evolving supply chains. The heightened attention to supply chain issues in recent years has been due to a series of global events in the world that have had a significant and profound impact. Factors such as the COVID pandemic, the Ukraine Crisis and increased geopolitical tensions have led to supply chain crises globally or regionally.

Supply chains are closely related to globalization. Today, the adoption of protectionist supply chain strategies and policies by the United States and Western countries has led to major changes in the global supply chain, placing the global supply chain at a historic turning point. There is an urgent need for the international community to think about the future of globalization from the perspective of “chain”, and to build and improve the global supply chain governance system to empower globalization to move forward steadily.

Big Changes in the Global Supply Chain under Profound Global Transfermation

All countries are promoting supply chain diversification to avoid the compound and overlapping risks faced by supply chains. Strengthening supply chain resilience is a top priority in addressing risks. Upgrading supply chain resilience will take some time. At the same time, the linkage of domestic and foreign policy adjustments will further complicate supply chain issues.

At present, countries are planning around the supply chain and paying more and more attention to the international relations on the supply chain side. Since the Biden administration took office, it has been thinking about and responding to the supply chain problems facing the United States. The Biden administration emphasizes the vitality of the U.S. domestic economy, encourages the return of domestic supply chain enterprises, and introduces policies to attract other multinational enterprises to invest in the U.S. On November 27, 2023, Biden announced that the White House Supply Chain Resilience Council held its first meeting. Sullivan, assistant to the President for National Security Affairs noted that, “in recent decades, the U.S. supply chain for critical minerals has relied heavily on unpredictable overseas markets, many of which are dominated by China. Because of this, the Biden administration is working to build resilient, enduring supply chains with partners and allies in important areas, including semiconductors, pharmaceuticals and biotechnology, critical minerals, and batteries, so that the United States is not vulnerable to price or supply disruptions.” Sullivan has repeatedly claimed that he has had to “discuss economic issues in depth” as National Security Advisor. This means that economic issues such as supply chains have risen to the level of national security for the United States.

The German Scholz government has learned from the lessons of the great supply chain disruption and has strategically realigned Germanys international relations on the supply chain. In July 2023, the Scholz government released its first document on “China Strategy”, which argues that Germany also needs to “diversify its supply chain”.

Supply chain issues have become a focal point for the restructuring of relations between major powers. On July 20, 2022, the U.S. and 17 economic partners held a Ministerial Forum on Supply Chains and issued a joint statement. In November 2023, the U.S. and 14 other countries signed the Indo-Pacific Economic Framework (IPEF) during the thirtieth informal meeting of the leaders of the Asia-Pacific Economic Cooperation (APEC) in San Francisco. IPEF partners signed three agreements, including the IPEF Supply Chain Agreement, to promote supply chain diversity and resilience. An important aspect of the realignment of the U.S.-EU relationship is coordination and cooperation on “critical supply chains”. The U.S. and Japan signed what is considered a “historic agreement to diversify critical supply chains and strengthen U.S.-Japan economic and trade relations,” which deepens U.S.-Japan cooperation on strategic mineral supply chains.

The main rationale for the strategic realignment of Western supply chains is de-risking. On March 30, 2023, President of the European Commission Von der Leyen first introduced the concept of de-risking in a speech on the EUs relationship with China. In May, 2023, the Group of Seven (G7) countries signed an agreement with the U.S. and Japan to diversify key supply chains and strengthen U.S.-Japanese economic and trade relations. In May 2023, the G7 Hiroshima Summit formally included “de-risking rather than decoupling” in its joint statement, explicitly “rejecting the use of economic vulnerability as a weapon in geopolitical relations”, and calling on all countries in the world to abide by the principles of transparency, diversity, security, sustainability and reliability in the construction of goods supply chains. In fact, even before von der Leyens speech, the G7 and its members, including the European Union, had already widely discussed and implemented de-risking policies.

Supply Chain and Globalization

From the 1970s to the present, the recognition and study of globalization can be broadly divided into the following stages.

First, in the 1970s, the disciplines of economics and political science recognized the interdependence of nations and its importance to the world economy and world peace. However, in the context of the Cold War, interdependence was seen as occurring only within the “two parallel markets” and not between the United States and the Soviet Union. U.S.-Soviet economic ties did not reach the level of interdependence. It was on the basis of the realization of economic and technological interdependence that American international relations scholars such as Keoghan and Joseph Nye argued that world politics had entered an “era of interdependence”.

In the 1980s and 1990s, the concept of internationalization was very popular. However, due to a lack of innovation, the concept of internationalization did not help people better understand the upcoming great transformation of the world. In the post-Cold War period, the concept of globalization has been widely used in the theory and practice of the world economy and international relations. Globalization is a concept in the sense of an unprecedented paradigm revolution, which was once widely sought after, but was also misunderstood by some, and even subject to undeserved criticism and opposition.

Entering the 21st century, information technology plays a crucial role in globalization. Compared with concepts such as interdependence and connectivity, supply chain is a more useful and powerful concept for understanding globalization. The rise and fall of supply chain reflects the rise and fall of globalization.

In other words, globalization is the formation of global links between economic (especially financial), technological, social and other actors or stakeholders. Since the first industrial revolution took place in Europe in the 1860s, supply chains in the world economy have undergone a number of major transformations, laying the foundation for globalization.

The formation and expansion of supply chains at the global level has been a tremendous economic and civilizational advance for humanity. The supply chain model is widely used because of its increased efficiency, unprecedentedly low transaction costs and inherent resilience. Supply chains are an unprecedented innovation in economic organization, and there are virtually no enterprises that do not rely on them. Many firms are supply chain firms in their own right, and some are part of larger, transnational, regional and global supply chains.

However, in the era of globalization, supply chains are highly vulnerable to external forces, and global risks in particular can impact supply chain stability and security. In recent years, the World Economic Forum in Davos has been issuing an annual Global Risks Report warning the global risks of deep inter-connectedness, arguing that geopolitical conflicts have already triggered a series of global risks that jeopardize deep inter-connectedness, including shortages in energy and grain supplies that are likely to continue to plague the world for the next two years, as well as a sharp rise in the cost of living and debt servicing. At the same time, these risks could undermine the actions of the international community to address long-term challenges, in particular those related to combating climate change, protecting biodiversity and promoting investment in human capital.

Unlike the World Economic Forum, the United Nations, the International Monetary Fund, the World Bank and the World Trade Organization, among others, are emphasizing the compounding nature of global challenges. Perceptions of global risks do vary considerably among stakeholders in the global system. Geopolitical conflict is recognized by global stakeholders as a big risk to supply chains. However, some stakeholders magnify the consequences of geopolitical conflicts, and instead of improving the situation of supply chains, they exacerbate supply chain problems, creating a sort of vicious circle.

Supply chains, among other things, have become a means of competition among major powers. Some countries have mistakenly weaponized interdependence in a way that the scholars who studied and advocated interdependence in those years could never have imagined. If the issue of the weaponization of supply chain is not effectively addressed, it will have even more serious consequences for the world economy and cause serious harm to the overall well-being of mankind.

The Necessity and Urgency of Building A Global Supply Chain Governance System

At present, in order to prevent and respond to the next big supply chain crisis, countries and international organizations are taking actions. Among these actions, global supply chain governance is a way out to deal with the supply chain crisis.

In recent years, the international community has been summing up lessons learned and paying great attention to and focusing on supply chain issues. The 2023 G20 New Delhi Summit Communiqué noted “human suffering and additional negative impacts in terms of global food and energy security, supply chains, macro-financial stability, inflation and growth”, emphasizing “support for sustainable and responsible supply chains of key raw materials, semiconductors and technologies”.

Global governance of supply chains is part of a new type of global governance for the 21st century. It is imperative that the international community collectively resist the impact of geopolitical deterioration on global supply chains, oppose the weaponization of supply chains, and prevent supply chains from closing in on each other and the recurrence of major disruptions in global supply chains, such as those that took place during the COVID pandemic. The fundamental purpose of global supply chain cooperation is to enhance the ability of supply chain enterprises to cope with global risks, and the reform of international organizations, including WTO, should result in formulating common supply chain rules, highlighting the implementation of dispute settlement mechanisms in the field of supply chains, so as to ensure global openness in the field of supply chains.

It was worrying that some regional economic arrangements, such as the United States-led IPEF, had signed exclusive supply chain agreements. Ultimately, supply chain issues can only be resolved by respecting the inherent laws of the world market and using open multilateralism and regionalism.

Strengthening Global Supply Chain Governance to Promote Steady Progress of Globalization

Since the outbreak of the international financial crisis in 2008, there have been occasional global arguments about the end of globalization. These arguments have seriously affected peoples confidence in and judgment of globalization. In particular, the so-called protectionist policies adopted by the U.S. and Western countries, such as decoupling and breaking the chain and de-risking, have caused serious disruptions to the stable development of globalization. However, the history of globalization has shown that, no matter how hard it is hit, globalization can always survive, and that economic globalization is precisely shaped by major economic crises. The fact that the great supply chain crises of recent years have not destroyed global supply chain reflects the resilience themselves. In a certain sense, the resilience of supply chains is the resilience of globalization.

Globalization has slowed down due to various reasons, including some countries strategic and policy involvement in the supply chain with a zero-sum game mentality. However, the slowdown of globalization does not mean the end of globalization. In fact, globalization reconstruction is taking place and a new type of globalization is emerging. Data technology and artificial intelligence are leading globalization into an era of digital globalization.

The fundamental solution to the supply chain problem is effective coordination and cooperation among major countries at the global level, especially the construction of a global supply chain governance system based on the principle of joint construction and sharing. Countries, major international organizations and multilateral forums should continue to explore how to pursue real supply chain security, effectively avoid conflicts among major countries, and fully carry out policy coordination, so as to contribute to global supply chain governance.

Chinas global comparative advantage is its complete domestic supply chain, which is of systemic importance in the global supply chain system. In both short and long terms, Chinas global importance is irreplaceable. China has always opposed decoupling and breaking the chain. President Xi Jinpings concepts of promoting the building of a community with a shared future for mankind, the Belt and Road Initiative, and the three global initiatives are of great significance in overcoming the global challenges of supply chains and improving the global supply chain governance system.

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Pang Zhongying is Professor of School of Economics at the Sichuan University