Figure/ic Article | General Administration of Customs Research Center Zhang Jingqiu, Cai Jiayao, Lu Yang
Since the end of last year, as the "throat" of international shipping, the continuous tension of the Red Sea situation has brought serious challenges to international shipping, and the global supply chain has again attracted great attention.
The global industrial system and industrial chain supply chain present a trend of diversified layout, regional cooperation, green transformation, and digital acceleration. Maintaining the resilience and stability of the global industrial chain supply chain is an important guarantee to promote the development of the world economy, which is in line with the common interests of people around the world. China is not only a participant and beneficiary of global industrial chain supply chain cooperation, but also a staunch defender and builder. Economic globalization has greatly promoted the transnational flow of factors and scientific and technological progress. The supply chain continues to expand globally, and the economic development of countries around the world benefits from the public goods attribute of the supply chain.
However, the current globalization is encountering a counter current, and the global supply chain is showing a trend of localization, regionalization and short distance. After the Biden administration took office, it took various measures to try to lay out a supply chain system dominated by the United States and excluding China. In 2022, it launched the "Indo Pacific Economic Framework" (IPEF), which includes four pillars of trade, supply chain, clean energy and infrastructure, taxation and anti-corruption, and took the lead in completing supply chain agreement negotiations in May 2023. How does IPEF affect China? How will China respond?
IPEF takes the opportunity to formulate policies affecting key departments or key goods trade
On September 8, 2023, the U.S. Department of Commerce announced the text of the IPEF supply chain agreement. With the theme of "improving the resilience and security of the supply chain", member countries will strengthen supply chain cooperation in chips, key minerals and other aspects to "reduce dependence on China".
The text of the agreement itself is mostly an outline. It proposes several measures on how to improve the transparency, diversity, security and sustainability of the supply chain in order to make it more flexible, robust and integrated.
The main contents include: Member States commit to improving regulatory transparency in specific areas; Determine the key industries and key commodities in its supply chain; Monitor and resolve supply chain weaknesses; Respect market principles, minimize market distortions, including unnecessary restrictions and trade barriers, and protect trade secrets; Improve the transparency of safeguarding labor rights in the supply chain.
The specific objectives include: cooperating to deal with possible bottlenecks in the supply chain of member countries, enhancing information sharing with the private sector, and creating opportunities for skilled labor and key infrastructure. In order to achieve the above goals, the agreement considers the establishment of a supply chain council, a supply chain crisis response network and an advisory committee on labor rights to take the opportunity to formulate policies affecting key sectors or trade in key goods.
Seven ASEAN countries with high dependence on China's supply chain are included
The supply chain agreement puts forward a new common vision, that is, partners should identify and monitor the supply chain of key industries and key commodities, improve crisis coordination and response, strengthen supply chain logistics, etc., so that member countries can coordinate actions under the leadership of the United States, and make full use of key products and key mineral resources in the region, This will weaken China's dominant position in the global mineral supply chain.
（1） Accelerate supply chain restructuring and weaken China's advantages in key mineral supply chains.
According to the agreement, in order to promote the diversification of the sources of sectors or goods with market concentration, member countries use supply chain mapping and stress testing to clarify the supply chain of key sectors and goods. Within 15 days after the supply chain crisis, they can use the crisis response network to obtain the assistance of member countries. The United States can use this to master regional trade, capital, and technology flows, Lead the division of labor and cooperation in the Indo Pacific supply chain, so as to reduce the dependence of key raw materials, semiconductors, key minerals and clean energy technologies on China in the supply chain, and weaken China's advantages in the key mineral supply chain.
（2） To gain regional economic leadership and weaken China's position in the Asia Pacific region.
The White House said the IPEF was "an important turning point to restore the US economic leadership in the Indo Pacific region and provide alternatives to China for regional countries". Member countries include not only US allies such as Japan, South Korea and Australia, but also India, one of the fastest growing economies in the Asia Pacific region. Seven ASEAN countries with high dependence on China's supply chain were included, while Cambodia, Myanmar and Laos, which were impacted by the supply chain during the epidemic, were excluded. It reflects that its essence is to reshape the regional structure of "taking the United States as the center", aiming to gain regional economic leadership and weaken China's important position in the Asia Pacific region.
（3） Strengthen strategic alliance and form industrial substitution for China to a certain extent.
Almost all the major countries and regions (except the United States) participating in the design and production of the semiconductor industry chain are in Asia. The United States can use the opportunity of the supply chain agreement to consolidate the U.S. Taiwan Japan South Korea Chip4 Semiconductor Alliance, the U.S. Japan India Australia Quadrilateral Security Dialogue (Quad), expand the Mineral Security Partnership (MSP) and other alliances. The supply chain shocks experienced by India, Japan and South Korea in this key area may increase their willingness to form a strategic alliance with the United States. The United States can also help IPEF member countries to improve their production capacity in the semiconductor manufacturing stage, so as to form an industrial substitution for China to a certain extent.
It is expected that the cooperation degree of member countries is not high, and the impact on China's economy is limited
The agreement itself has low legal effect, lacks clear solutions and coercive measures, gives less commercial returns to member countries, and is subject to domestic political constraints in the United States. Subsequent development funds are blocked, which is expected to affect the cooperation of member countries and have limited impact on the overall economy of China.
（1） The solution is vague and lacks practical benefits such as tariff reduction.
IPEF is only promoted by presidential executive order without the approval of the Congress, lacking legal enforceability. Supply chain agreements lack clear solutions or development commitments, and lack enforceability. For example, the agreement proposes that the Supply Chain Council will develop national action plans and joint R&D projects to jointly address infrastructure bottlenecks. However, the investment in infrastructure and development projects available to the Council lacks specific funds or development commitments. Due to fear of US domestic protectionism, the agreement did not make any commitment to provide preferential terms and tariffs for US market access. In contrast, after 10 years of development, RCEP members will basically achieve zero tariff for 90% of their products. The limited benefits of IPEF trade will affect the willingness of participating countries to continue to participate.
（2） Restricted by American political party groups, follow-up funds are difficult to land.
In terms of fiscal budget, the Republican Party often opposes the spending plans of the Democratic government. Previously, the Office of the United States Trade Representative (USTR) faced review due to its lack of transparency in dealing with IPEF. Trump declared IPEF as "TPP No. 2" and believed that it would empty the US manufacturing industry and lead to unemployment. He said that IPEF would be abolished immediately if he returned to the White House. Johnson, the new Speaker of Congress and the Republican hardline conservative, is Trump's loyal ally. Investment plans involving supply chain agreements may be blocked in Congress in the future. Recently, Trump won the first primary election of the 2024 U.S. presidential election by a clear advantage. According to multiple analysis, Trump is likely to take office in 2024. According to his precedent against free trade, the supply chain agreement is likely to be abandoned.
（3） The trade between member countries and China is deeply integrated, and they refuse to choose sides.
The Asia Pacific countries adopt an export-oriented trade model. Among the 14 member countries of IPEF, China is the largest trading partner of 10 member countries. The report of the Asian Development Bank shows that China's contribution to the economic growth of the Asia Pacific region is as high as 64.2%. Based on the deep "binding" of trade, many countries in the Asia Pacific region refuse to participate in the game of major countries. Prime Minister Lee Hsien Loong of Singapore said that he hoped IPEF would become a win-win mechanism between the United States and Asia, and he did not want to see Asia split due to the game between major powers. Indonesia, Vietnam, Malaysia, Cambodia and other countries all expressed similar positions.
Coping strategy: Deepen regional supply chain cooperation based on self-reliance of high-level technology
The industrial chain and supply chain cannot be broken at a critical moment, which is an important feature of a large country's economy. Faced with the potential impact of supply chain agreements, China should build a safe and reliable supply chain based on high-level science and technology, deepen regional supply chain cooperation, and promote institutional openness.
First, we need to build a safe and reliable supply chain by relying on high-level technology.
Scientifically assess risks and actively respond to the changing trend of the global industrial chain supply chain. First, implement classified policies, and do a good job in technical risk plans and backup and replacement work in key areas between China and the United States. Pay close attention to the industrial chain safety in 5G, semiconductor, artificial intelligence and other technical fields, and do a good job in stress testing, corresponding plans and product reserves. Second, accelerate the pace of innovation, increase investment in basic scientific research, focus on the construction of scientific and technological talent system, give play to the role of innovation chain in enabling the supply chain of the industrial chain, cultivate core technologies in the upstream of the industrial chain, and build an independent and controllable alternative supply chain as soon as possible.
Second, give play to the advantages of the super large market, and hedge the disturbance with the cooperation of the Asia Pacific supply chain.
First, promote the formation of regional value chains between China and Asia Pacific countries from the demand side. Further optimize the foreign investment environment and expand the import of consumer goods, intermediate goods and capital goods. For example, increase the import of oil and gas from Malaysia and Brunei, import of silver, nickel, iron and other minerals from Indonesia and Vietnam, and import of high-end CNC machine tools from Japan and South Korea. The second is to give full play to China's strong supply capacity advantage and strengthen the restructuring of the Asia Pacific supply chain centering on China. We will further give play to China's supply advantages in terms of industrial foundation, innovation, and talent, and hedge the disturbance of cooperation with the strategic coupling of the Asia Pacific supply chain.
Third, firmly promote institutional openness and explore new space for global economic and trade cooperation.
First, relying on the open platform, it is deeply embedded in the global industrial chain innovation chain value chain. Give play to the role of the pilot free trade zone as a bridge in foreign direct investment, and promote the supplement, expansion and strengthening of China's innovation chain. Take platforms such as comprehensive protection zone, free trade zone and free trade port as carriers to enhance China's position and competitiveness in the global value chain and enhance the outward absorption capacity of China's innovation chain in the global distribution pattern. The second is to explore the best global economic and trade cooperation model based on the international economic and trade rules of elevation standards. Relying on the open experimental platform, conduct pilot tests on high standard international economic and trade rules and stress tests on deepening economic opening to the outside world. To provide a practical basis for promoting the negotiation of international economic and trade cooperation rules, take the initiative to establish new international economic and trade cooperation rules, explore the best model of global economic and trade cooperation, and improve the fairness, effectiveness and synergy of global development.
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