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Webinar: The Future of Supply Chains after Covid-19

1 July 2020

On 1 July, the EU-Asia Centre and the EPC co-hosted a webinar on the future of supply chains after Covid-19 with Joerg Wuttke (President, EU Chamber of Commerce in China), Luisa Santos, (Deputy Director General, Business Europe) and Fabian Zuleeg (CEO and Chief Economist, EPC). Fraser Cameron, Director of the EU-Asia Centre moderated the event.

Mr Wuttke said that despite the crisis, 30% of global growth until 2030 would take place in China, locking the country as an essential location for most companies well into the future. On near term, the Chinese supply side has largely recovered from the crisis, but the shock to the demand remains dramatic, with estimated 60-80 million newly unemployed in China. Despite the US-China trade war, increasing labour costs and the corona crisis, currently only 10% of European companies in China were considering moving out all or parts of their operations, mostly due to local issues. In fact, the companies most diversifying the production out of China were Chinese to go around the US trade restrictions. The major concern in China was the US taking its sanctions further, and separating China from the Dollar markets as has happened with Russia.

Mr Zuleeg emphasized that the crisis would have long term structural effects on global supply chains and trade. The crisis had collapsed demand across the board, leaving vast amounts of excess supply. The question is which of the global supply chains will survive as the supply adjusts to the lower demand. The massive government interventions, luxury of states with abundant resources, could determine the outcome to the detriment of countries and regions with less resources. The politicians are currently ambiguous on the reshoring methods and their costs and it could be questioned whether the populations are actually willing to pay the rising costs they may entail. National state interventions continuing too long past the crisis could complicate the EU trade negotiations with foreign partners on subsidies and state ownership – though contrasted to their Chinese equivalents, they would likely be transparent, temporary and involve less state control over enterprises.

Ms Santos concurred that China and other developing markets would remain the centers of global growth, warranting the presence of European companies looking to grow. On short term, she highlighted the need to support European companies currently struggling with liquidity due to the crisis. While re-shoring has become the focus of much of political discussion, there should be more attention to keeping the companies already in Europe. The desired diversification of supply chains could also be impossible for companies struggling to stay afloat. The politicians should be careful not to use recovery plans, particularly green transition and digital transition, to burden companies further with additional costs through regulatory requirements and taxes. Moreover, the EU must be a geopolitical actor and avoid becoming inward looking and protectionist to remain relevant.

The panelists were cautious with expectations for the EU-China investment agreement during the German presidency impeded by the crisis recovery agenda. Mr Wuttke considered the China’s tough position on state owned enterprises and subsidies as one of the main obstacles and the concessions would be needed soon, as the negotiations should not go on much beyond the deadline. Ms Santos emphasized the agreed deal should go substantially beyond the current agreements, particularly on market acceand ss dispute settlement, to be worthwhile. Mr Zuleeg stated that the EU should also be mindful of the public sentiment around trade, as the crisis deepens, the agreement could become contentious as is happening with Mercosur.

The panelists credited the WTO for its work in tracking the trade restrictions during the crisis. Unfortunately, the WTOs ability to ensure states respect their internal commitments remain limited, and the US was still blocking the dispute resolution system. Much will depend on the out come of the US elections, but it is crucial regardless that the EU continues to support the multilateral trading system to avoid global trade devolving further into detrimental unilateralism.

Full recording of the webinar is available here.