Covid-19 and the Great Wall of Mexico
#Hot tag by @Chavodeltoro
What the pandemic has shown us is that the world urgently needs a new supply chain strategically spread across the globe. Mexico is working on it.
What President Trump was unable to accomplish in a trade war with China, the Covid-19 pandemic will likely achieve in one fell swoop. The pandemic raises questions similar to the ones posed by the financial crisis in 2008; namely, how much is the United States willing to risk when it comes to the integrity of the economy and national security in exchange for running lean supply chains? Even more worrisome, has China become too big to fail?
Mazda Motor Corp. recently shifted production of one of its auto parts to Mexico due to plant closures in China caused by the Covid-19 outbreak. The move is part of a developing trend spurred by skittish supply chain managers, responding to uncertainty about the outcome of the tariff wars between the Trump administration and China.
Except for Mazda enthusiasts, very few would agree that a delay in releasing the latest CX-5 model would be an event of much global consequence. On the other hand, the shortage of personal protective equipment (PPE) that we’re now experiencing as we attempt to safeguard our population from the rapidly spreading coronavirus sheds full light on the perils of putting all our proverbial eggs in one basket. By fixating on cost reduction, we’re quickly finding out the tremendous exposure that we’ve put ourselves into.
As we try to “flatten the curve” in the United States we’re finding out that much of the PPE, or the parts that go into them, are made in China. Many of those products are now on back order because they were in high demand domestically when the Wuhan outbreak began spreading like wildfire. Now that it’s too late, we’ve come to realize that the sick workers that didn’t show up to work in China, were the ones who were supposed to manufacture the equipment that we desperately need now in the U.S.
The same logic applies to the active ingredients used in pharmaceuticals all around the world, manufactured mostly in China. Disruptions in the supply chain are likely to cause medication shortages for individuals with compromised immune systems, further exacerbating the potential for contagion and overwhelming an already overtaxed healthcare system.
The greatest lesson that we should learn from this crisis is that the world needs a redundant supply chain, strategically spread across the globe that can provide the market with multiple options in case of disruptions such as pandemics, natural disasters or war. It’s time for the global community to usher in a new era of supply chain multipolarity, where we don’t depend on one single country, especially for products of critical importance such as medical equipment and pharmaceuticals.
Artificial intelligence and automation will likely play an important role in bringing back these processes to America as technology improves. Robots, however, are not immune to disruptions such as power outages or cyber-attacks. Partnering with other countries is necessary to guarantee a diversified supply chain, one that can provide an uninterrupted flow of goods during normal times but can ramp up production to meet demands in crises such as the one that we’re living through now.
Mexico is likely to be that new strategic partner, which will share the burden with China of providing supply chain reliability in the world. Since the emergence of the maquiladora industry in the 1960s, Mexico has developed a highly trained workforce that manufactures products for the largest firms in the world, such as Mazda. Mexico’s transportation, energy and telecommunications backbone is robust enough to support an expansion that can meet the new supply chain demands resulting from the Covid-19 pandemic.
Furthermore, the United States should support Mexico’s plan to stabilize Central America’s northern triangle by way of economic development. This could have an enormous impact on the security and stability of the hemisphere, addressing the social issues behind forced migration and organized crime and providing the world with an alternative to China’s supplier base in the event of future disruptions. China itself could benefit from such a model by having other players that can meet their needs in trying times such as these.
Much has been said about building a border wall to deter the flow of immigrants from the south into the United States. Those who support its construction, usually don’t see the underlying cause of forced migration as America’s problem. But if there’s one lesson that we’re learning from this global crisis is that we’re all in this together and that a disease that started in Wuhan, China, can cause a lock down in Brooklyn, New York, in a matter of months.
The answer shouldn’t be isolation from the rest of the world which would do nothing to prevent the spread of another pandemic. Instead, in the same way an investor diversifies their stock portfolio to spread the risk, our world leaders need to recognize when big has become too big and set the right trade policies to start developing multiple supplier hubs spread evenly around the world. It’s hard to make the argument that the benefits reaped by consumers and shareholders for the past 20 years of Chinese outsourcing are worth the price in life and treasure that we’re paying for today.
