A panel discussion at last week’s Funds Congress centered around the balance of global power between the US and China, and how the world’s supply chain is changing in light of the Covid-19 pandemic.
During the Trump presidency, the US-China trade war escalated to the point where the US had imposed $360 bn worth of tariffs on Chinese goods, while China hit back with $110 bn worth of tariffs on US-made products.
Even so, Jack Bouroudjian, chief economist and co-founder of the Universal Compute Exchange, said the US needed to crack down further on the Chinese government’s unwillingness to enforce laws intended to police intellectual property (IP) theft.
‘History has taught us if we don’t accept China, it will hurt us, so we turned a blind eye to things like IP theft,’ Bouroudjian said at the Funds Congress. ‘All of that has come to a head and as we have seen China’s economy mature, it is now time for it to play by the rules. That is not going to change, no matter who is president.’
Tai Hui, chief market strategist for Asia-Pacific at JPMorgan Asset Management, said that while there will continue to be tensions between the US and China, you will not see a full decoupling of their economies.
‘You saw from the tariffs over the past three or four years that [decoupling] is painful for both sides,’ he said. ‘There is significant economic cost to consumers, businesses and governments if there is a decoupling.’
Hui explained that, for the rest of the world, this could lead to a bifurcation of the global economy based on the two largest superpowers. ‘From a business standpoint and government standpoint, it’s a matter of figuring out a way to placate both the US-centric universe and the China-centric universe,’ he said. ‘I think this is how most countries will approach this challenge.’
Supply chain diversification
The Covid-19 pandemic proved to be a major disruption to the global supply chain. The US government scrambled to figure out how to keep manufacturing going as the pandemic forced closures and caused workers to have to enter quarantine. These events, combined with other occurrences, have caused a shift in supply chain strategy.
‘You are seeing three different strategies play out at the same time as countries try to diversify their supply chain away from China: a North American strategy, a European strategy and a pan-Asian strategy,’ Bouroudjian said.
‘The fact is, you can’t be dependent and because of that you see supply chains being shifted from what was globalization – a ‘competition’ between the US and China – into regionalism, which is what globalism is morphing into. Because of that, supply chains down the road – if we do see another pandemic or black swan event – won’t be as disrupted as they were over this past year.’
Nilesh Shah, group president and managing director at Kotak Mahindra Asset Management, said he believed India would become a bigger part of the global supply chain, noting that India is poised for growth because it has lagged in terms of economic development over the past several decades.
In the 1980s, India’s and China’s economies were roughly the same size, Shah said. Today, China’s economy is five times that of India. What is needed, and what Shah is confident will drive this change, is a change in mindset that will allow the economy to grow.
‘Now, hopefully with the young population of India, economic growth matters,’ he said. ‘There is a mindset change among the political class to pursue good economic policy.’
