US-China Decoupling: Implications for Asia

While firms have shifted some production already out of China, it is economically risky for companies to completely ignore the unique advantages that China offers including its quality infrastructure and sizable domestic market, which serve as strong incentives for firms to stay put. Most companies that believe they may be exposed to an ongoing set of trade tensions between the US and China have engaged in internal reviews and scenario planning. COVID-19 has both put a hold on and, paradoxically, accelerated some of this thinking. While the pandemic has made it difficult for many companies to focus on strategy not directly related to immediate survival and management of a series of supply chain disruptions caused by market shutdowns, it has also amplified the risks of potential exposure to new challenges. Every company has begun talking about building more resilience into their systems. What, exactly, such resilience will mean is less clear. For some, it means holding more inventory. For others, it means identifying key chokepoints in the supply chain and looking for additional sources of supply to lower risks in these specific aspects of the chain. For others, it means shifting production closer to final markets to reduce disruptive effects caused by border closings and other specific obstacles. At this point, however, most firms have already instituted supply chain reshuffling between internal locations, if such options are available. For example, companies that have overlapping capabilities in multiple locations have ramped up production in some markets while lowering production elsewhere. Internal swings to mitigate risks have already been put in place wherever possible.

US-China Relations: Remarks of Singapore PM Lee (Part 1)

From PM Lee’s speech: First, there is no irreconcilable ideological divide between the US and China. China may be communist in political structure, but it has adopted market principles in many areas. The Soviets sought to overturn the world order. But China has benefited from, and by and large worked within, the framework of existing multilateral institutions. During the Cold War, the Communist bloc sought to export Communism to the world. But China today is not attempting to turn other countries Communist. Indeed, it is often criticised for being too willing to do business with countries and leaders regardless of their reputation or standing, citing non-interference in the internal affairs of other countries. Second, China has extensive economic and trade links with the rest of the world. It is a major node in the world economy, unlike the USSR, whose economic links outside the Soviet bloc were negligible. In fact, all of the US’ allies in Asia, including Japan, South Korea, the Philippines, Thailand and Australia, as well as many of its friends and partners, including Singapore, have China as their largest trading partner. They all hope that the US and China will resolve their differences. They want to be friends with both: to nurture security and economic ties with the US, as they grow their business links with China. In a new Cold War, there can be no clear division between friend and foe. Nor is it possible to create NATO or Warsaw Pact equivalents with a hard line drawn through Asia, or down the middle of the Pacific Ocean. On the other hand, if there is indeed a conflict between the US and China, where will it end? The Cold War ended with the total collapse of the sclerotic planned economies of the Soviet Union and its allies, under the pressure of enormous defence spending. Even then, it took 40 years. It is highly improbable that the vigorous Chinese economy will collapse in the same way.