"Container ships made it possible to move parts and components from one country to another at low cost, while technology, soon accelerated by the internet, allowed managers to oversee their supply chains from a headquarters far away.
Two factors drove this redistribution of industry. One was wages: The gap between the pay of factory workers in China or Mexico and those in Western Europe, Japan or North America yawned so wide that even if the low-wage workers accomplished far less in an hour of work, producing in Shanghai rather than in St. Louis made financial sense. The other was economies of scale. Factories serving the entire world could specialize, making a small array of products in enormous volume and lowering the cost of each unit.
Foreign investment was once intimately related to exporting and importing. But with outsourcing, there was no need for the company at the top of the chain — often, the brand name on the final product — to undertake large investments in the countries where it wanted its components or its finished goods produced. Firms could build supply chains on the cheap, contracting with other companies to do the manufacturing work rather than tying up their shareholders’ capital in plants and equipment.
Globalization, which arguably dates to the rise of industrial capitalism around 1830, never looked like this before. Executives of multinational corporations were transfixed by the promised savings from shifting production abroad. Factories in Europe, Japan, Canada and the United States closed their doors as companies chased lower costs. Starting in the second half of the 1980s and for two decades after, trade in manufactured goods grew twice as fast as the global economy.
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Hardly any attention was paid to the risks arising from the number of firms that might be involved in making and delivering any given product. The potential loss of revenue if the supply chain failed to deliver goods on time was simply ignored.
The company at the top of a supply chain often has little insight into its suppliers’ suppliers or into the transportation system that connects them. Incident after incident — from the shutdown of the U.S.-Canada border after 9/11 to the earthquake that crippled hundreds of Japanese auto parts plants in 2011 to pandemic-related factory closures in 2020 — has shown long supply chains to be more fragile than imagined. For many firms, the consequences can be painful, even fatal.
And the business risks are not limited to disruption. Famous firms have seen their names tarnished by scandals involving working conditions or environmental practices at obscure companies far down their supply chains. When consumers in Europe and North America, concerned about repression of the Uyghur minority in China, demanded that apparel companies disclose whether their clothing contained cotton grown in Xinjiang province, many companies, well removed from the production process, did not know.
Meanwhile, the ultralarge container ships like Ever Given that have entered the world’s fleet over the past few years have made long value chains even more problematic. These vessels, some carrying as much cargo as 12,000 trucks, steam more slowly than their predecessors. The complexity of loading and unloading often puts them behind schedule, and the sheer number of boxes moved on and off a single ship tangles ports and delays deliveries.
So long-distance trade is slower and less reliable than it was two decades ago. That helps explain why exports of manufactured goods account for a smaller share of the world’s economic output than they did in 2008."
Politically long-distance trade is not sustainable anymore in rich countries.
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