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Italy develops its distinct supply chain policies. Will others follow?

Attitudes to globalization have transformed in the last decade as an increasing number of countries challenge the mantra of free and open markets. Politicians right across the political spectrum have criticised the impact which global trading regimes have had on supply chain resilience – not least in the shadow of the Covid pandemic – as well as globalization’s impact on societies and the environment in both developed and emerging markets. This change has led countries such as the US, India and Turkey, amongst others, to adopt ‘Made in…’ policies, supporting the growth of their own manufacturing industries. Whilst the largest programme of industrial support has been undertaken in the US as part of the Biden administration’s ‘Inflation Reduction Act’, European countries are also starting to follow suit, not least Italy, as we will see.

The ‘Made in Italy’ brand is already well established, promoting Italian manufacturing excellence, especially in fashion and furniture industries. However, the concept has been further developed by Italy’s relatively new prime minister, Giorgia Meloni, who has commented that the brand was "the most precious thing we have, provided we are able to defend and enhance it." Since election in 2023, she has developed a three pillar strategy comprising:

· Fighting counterfeit goods and addressing unfair competition

· Supporting small and medium sized businesses

· Training and enhancing of skills

Indeed, on her first day in office she renamed the government’s economic development department as the ‘Industry and Made in Italy Ministry’, a sign of intent. Self-sufficiency has become an important part of the policy. For example, her government has pledged to make the furniture industry 100% self-sufficient in terms of timber production.

Where her policies are become more controversial is the aspiration to create a portfolio of national champions, backed by a sovereign wealth fund. A law passed in May 2023 aims to facilitate financial support and investment in a network of systemically relevant businesses which would produce ‘excellence in supply chains’, according to Enterprise Minister Adolfo Urso. The €1 billion ‘Made in Italy Fund’, as it has been dubbed, would be allowed to buy stakes in key supply chains (such as the automotive) and support resiliency in the procurement of critical raw materials. There has been talk that Saudi Arabia could be among the first investors in the ‘Made in Italy’ fund.

Amongst the industries to be supported will be semi-conductors, as part of the European initiative, the European Chips Act. A National Plan for Microelectronics will be developed to deliver the objectives of the act, including the encouragement of companies such as Intel to invest in a manufacturing facility in the country.

Meloni has also addressed Italy’s controversial membership of China’s Belt & Road Initiative (BRI), with a clear intention to exit the agreement. Italy was the only G7 country to join the BRI, prompting concern over the depth of its links with China. Instead, formal membership, agreed in 2019 as a solution to Italy’s trade deficit, will be replaced by a ‘global strategic partnership’ between Rome and Beijing. The extent of damage to relations between the two countries caused by the decision to exit is yet to be seen. During a visit to Beijing by Italian Foreign Minister Antonio Tajani his counterpart, Wang Yi, criticised Italy for adopting a policy of alleged ‘unilateralism, protectionism and anti-globalisation.’

Meloni has clearly adopted a policy which pivots foreign relations – and potentially international supply chains – towards the US. This tone is at odds with neighbouring France, whose president, Emmanuel Macron, has called for more strategic autonomy on a European level – a policy security and economic policy aimed at decoupling specifically from the US.

Although she has only been in power for a year, many commentators believe that her initial success could be a model for other right wing European politicians. Populist policies will focus investment on national industries with a goal of self-sufficiency in critical supply chains. Even if this is not feasible, creating resiliency of procurement will become a major strategic goal, de-risking supply chains which involve potential adversaries, such as China.

Obviously, a major difference between Italy and other countries with ‘Made in…’ policies such as India and Turkey, are the constraints placed upon it by membership of the European Union. Whilst India’s prime minister Modi has the autonomy to sign into law a ban on imports of foreign consumer electronics goods in order to support domestic production, Meloni does not have this freedom. Likewise any subsidies or support for Italian companies must comply with European Commission law and not discriminate against other European businesses. This will mean that the tools available to build more localised, nationally based supply chains are limited. However, whilst systemic fragmentation of European supply chains is an unlikely prospect any time soon (or indeed ever), there is a clear direction of travel especially if Meloni’s policies are adopted by other governments in the region.

On a European level, there are obvious differences of opinion over supply chain policy. Macron would like to see more manufacturing re-shored and supply chains developed on a European-basis, albeit with France taking leadership. He sees international trade and security as very much connected, pushing for Europe to take on a more proactive defence role at the expense of NATO. Germany’s Chancellor Olaf Scholz, meanwhile, has gone on record as saying that ‘deglobalization is not an option’ – warning against a ‘multipolar’ world. At stake is Germany’s industrial links with China, into whose economy many of its largest businesses are integrated. And then there is Meloni’s more populist and nationally focused policies, designed specifically to stimulate growth and jobs domestically, whilst looking strategically West to the US rather than East to China.

Meloni’s policies certainly look in keeping with present scepticism over the future of globalisation. They tap into discontent over the perceived inequitable distribution of its benefits especially the loss of manufacturing jobs to China. Security issues have emphasised the risk of reliance on China as a major trade partner and ethical and environmental issues have been highlighted by critics. However, membership of the European Union club means that Meloni’s leverage will be limited and there is no prospect of any Italian-style Brexit. The prime minister has also had to tread a fine line between criticism of the EU and risking the loss of support from the bloc’s Recovery and Resilience Facility, money which is worth about 2% of Italy’s GDP up until 2026. Despite this, there is no doubt that, if she has her way, Italian focused supply chains will become far more localized than has been the case for many decades.

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