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US Should Lean More Toward Regional Supply Chains, Former Official Says

The U.S. should further regionalize its supply chains to reduce dependency on China and other countries in case of future global trade disruptions, some experts said during a virtual conference this week hosted by the Washington International Trade Association. But at least one expert disagreed, saying global supply chains reduce risks, not exacerbate them.

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Nazak Nikakhtar, a former International Trade Administration official, said the U.S. should “think about more regional supply chains.” If certain U.S. supply chains are in East Asia and the region becomes “embroiled in a conflict” -- such as a looming potential Chinese invasion of Taiwan -- then “you're not going to have access to those supply chains,” she said.

“Should a crisis happen, how do we want to have regional redundancies in our supply chain to assure ourselves that we're insulated from the shocks?” said Nikakhtar, a trade lawyer with Wiley.

She also said the U.S. should ensure any new regional supply chain partners are “committed to protecting the supply chain that we rely on.” The U.S. should make sure those partners have a range of trade protection policies, including foreign direct investment screening mechanisms and “trade-remedy type restrictions to make sure that imports don't hollow out the integrity of those industries.” Any regional supply chain partners should also commit to “not put export restrictions on us,” Nikakhtar said, and define essential workers in the “same way.”

“The discussion is nuanced, it's complex,” she said. “We're all going through growing pains, but it underscores why a discussion like this is so timely, because we need to start collectively thinking about solutions for the problem. Because if we don't, we're kind of trending towards chaos.”

But Simon Evenett, an international trade professor at the University of St. Gallen in Switzerland, said trade is already “heavily regionalized” and current supply chains weren’t built to deal with the ramifications of a global pandemic. “How well do you expect supply chains to work when governments are shutting down workforces and economies with orders to stay at home?” he said. “How did you expect these supply chains to work, especially also when you had such excess surges for demand for products?"

He said the U.S. and others shouldn’t be quick to try to further regionalize their supply chains. “The whole idea of sourcing globally is to be able to reduce risks,” Evenett said. “If there are single points of failure, yes, let's try and reduce them. But I find this move towards bringing stuff home and nearshoring and friendshoring deeply worrying, because who is a friend today could well be an enemy tomorrow.”

The U.S. saw from the COVID-19 pandemic “what it means” for a supply chain “to be totally concentrated in one country,” said Jimmy Goodrich, vice president for global policy at the Semiconductor Industry Association. “COVID lockdowns in Shanghai shut down virtually the entirety of the world's electronics supply chains and exacerbated the chip shortage,” he said during the conference. “Imagine what it would be under much more severe circumstances.”

Goodrich called for a more “geographically diverse electronics supply chain,” saying the U.S. should look into other parts of Southeast Asia, South Asia, Latin America and sub-Saharan Africa. “It needs to be a broader conversation around what can the U.S. do with its allies,” he said.