A total of 76 countries are expected to hold major elections in 2024, according to the Economist Intelligence Unit, among them eight of the world’s ten most populous countries – Bangladesh, Brazil, India, Indonesia, Mexico, Pakistan, Russia and the United States as well as other strategically-important states such as the UK and Taiwan.
What impact are the new governments elected this year likely to have on supply chains and global trade?
The so-called ‘Washington Consensus’ – the belief in a relentless march towards open markets and free trade – has fractured, and politicians on both sides of the divide are standing on the platform of protectionism, industrial strategies and state aid.
Manners-Bell argues that this has already had a major impact on many supply chains which have been constrained to adapt to the new political reality.
India’s Economic Aspirations
In India, Prime Minister Narendra Modi is eyeing a third term at the helm of the world’s fifth largest economy. His economic strategy has been largely-focused on creating a viable alternative to China as a major manufacturing hub in Asia.
This has seen the deployment of a dual approach combining market intervention and protectionism in an attempt to ‘incubate’ vital industries, especially those in the high tech space.
“Looking to the future, Modi appears committed to developing India’s own semiconductor sector as well as driving forward investment in green transition technologies, especially electric vehicles. In this respect he is drawing from China’s playbook: limit foreign imports; encourage nascent high value industries through subsidies; and promote exports.”
Whilst this, ‘have cake and eat it’ approach may not be very popular with countries looking to exploit India’s burgeoning domestic market, the US and Europe have little choice but to accept it if they want to reduce their dependence on China, Manners-Bell observes.
“With very little chance of Modi being defeated, the world can expect more of the same in terms of supply chain policy. He has been careful to stress India’s non-aligned status which has allowed India to benefit from cheap Russian oil whilst being courted by the US. However, there is still a long way to go before India can challenge China as the largest economic power in the region.”
Meanwhile, in the US, electors will go to the polls in November very probably facing a choice between former President Trump and President Biden.
In terms of trade or supply chain policy there is little to choose between either candidate.
Both administrations have introduced legislation during their respective terms in office to protect US manufacturing by increasing the cost of Chinese imports through a range of tariffs.
A bipartisan report by a House Committee published last month recommended that the government should go further by removing China from its Permanent Normal Trade Relations list which would allow across-the-board tariffs on all goods. Concurrently, huge amounts of subsidies have been granted to companies establishing manufacturing in the country, latterly to those specializing in green technologies and semiconductor production.
“Both (Biden and Trump) are hostile to China and will campaign on the basis of protecting and supporting American jobs. Whilst many of Biden’s policies have upset European partners, the chances of more trans-Atlantic trade disputes (such as over steel) may be higher with Trump in the White House.”
Taiwan’s “Chip” in the Great Game
Turning to Taiwan, despite having a relatively small economy and population, its general election earlier this month, which saw Lai Ching-te from the governing pro-sovereignty party top the vote, could turn out to be the most important of all, Manners-Bell believes.
The result drew a hostile response from mainland China and tensions are set to increase in the run up to Lai’s inauguration in May. The worst-case scenario is an invasion of the island, as threatened by Xi Jin Ping, but more likely, at least in the immediate term, is less radical action ranging from the cancellation of the 2010 trade agreement with Taiwan to a blockade. This would have major implications on the global high tech sector.
“Whilst Europe and the US are busy attempting to build their own semiconductor industries, the world for the time being is dependent on Taiwanese technologies. Lessening this dependency could even make the situation more dangerous as China may calculate that the Western powers would be less likely to intervene if there was less at risk. There would be no way for the global supply chain industry to prepare for such a development.”
2024 may be a peak year for elections but there seems to be little likelihood of major changes in supply chain policy whatever their outcome. Governments around the world are committed to industrial strategies which are likely to involve subsidy and, when deemed necessary, the erection of barriers to foreign competition, Manners-Bell notes.
Whether to support the development of green technologies, for reasons of ‘strategic resilience’ or explicitly to create and protect jobs, the result will be the same: a fracturing of global supply chains; rising costs caused by ‘trade friction’; the duplication and redundancy of manufacturing and inventory, not to mention inefficiencies related to the flow of knowledge, data, services, and capital, he adds.
“If there is a case to be made for free trade and open markets in a complex, risky and volatile world, very few politicians seem willing to make it.”
