De-risking, not de-coupling; ‘precautionism’, not protectionism. Why politicians are devising a new supply chain vocabulary.
The evolving language being used to describe the new global trade environment reflects the sensitivities involved in the increasingly complex and nuanced debate over the future of globalisation. At the heart of the issue is confusion and division over the approach the West should take to counter China’s growing economic and military influence. Whilst Europe and the US recognise the changing power dynamics, their ability to respond more robustly has been compromised by the leverage of China's huge domestic market and by the fact that the West has offshored a very large proportion of its manufacturing capacity to Chinese suppliers. Consequently, messages communicating politicians’ economic, political and security concerns must be balanced with the risks inherent in upsetting the Chinese government. This has resulted in a great
deal of equivocation in the language which they use.
For example, the terms ‘de-globalization’ and ‘de-coupling’ are now regarded as being aggressively anti-Chinese in nature as they are understood to describe supply chain policies which are designed to isolate China from the rest of the world. German politicians have been particularly strident in their rejection of the terms, largely due to the high level of integration of the German economy with China, especially in sectors such as automotive and chemicals. Instead, ‘de-risking’ has been adopted as an acceptable alternative. This term is used in a much more neutral way, suggesting that over-reliance on any single market is unwise, not just on China. Therefore, supply chain risk mitigation such as re-shoring, near-sourcing and ‘China plus’ strategies (all of which play well with electorates) can still be encouraged by Western politicians with less risk of offending China - or at least that is their hope.
As an example, Olaf Scholz is on record as saying, “I am firmly convinced that the deglobalisation that some are currently propagating is a dangerous aberration”, a message obviously aimed at a Chinese audience. However, in a later speech in a different forum at the G7 summit in Japan in May 2023, he seemed to recognise the need to reduce dependency on China by increasing self-sufficiency. "The G-7 has no interest in hindering China's economic rise and at the same time, we are looking closely to avoid dangerous economic dependencies in the future." Later the tone of the messaging changed once again when he said that there was an urgent need for companies to de-risk from China, although not de-couple. Putting to one side the nuances of the language, analysts have questioned whether it is right to divest responsibility for international relations to a corporate level and whether indeed the ambiguities of the diplomatic language which Scholz uses do anything more than obfuscate the important issues at stake.
‘Protectionism’ is another term to be air-brushed. The expression is regarded as having negative connotations, most commonly connected to the value-destroying trade barriers which caused the Great Depression in the 1930s and which successive governments and inter-governmental organizations worked hard to remove in the post-War period. In recent years, however, trade barriers have made a come back, especially since the Covid-crisis.
The difference is, politicians would have us believe, is that these new barriers to trade can be justified by the argument that they are protecting societies and the environment, not business interests. Whether this is true or not, is a moot point. But the term ‘precautionism’ has been devised to describe this new regime in an attempt to convey a positive public policy dimension. Pascal Lamy, a former director general of the WTO, in an interview on France24, used the soon to be implemented European Cross Border Adjustment Mechanism as an example. He believes the measure, which introduces a levy on imports of goods manufactured in markets with lower environmental standards than the EU, can be justified by the beneficial outcome for people and the environment in terms of carbon emission reduction. This is despite the ‘levy’ being the same to all intents and purposes as a tariff or tax.
Does it really matter what terms are being used to describe the new supply chain paradigm? The short answer is yes. After years of economic and commercial imperatives driving corporate strategies (off-shoring for lower labour costs, low inventory etc), the development of international supply chains is now being more influenced by politics and ideology. On one hand, politicians need to show they are listening to the concerns of their electorates, creating economic growth and local jobs whilst mitigating a variety of risks. On the other, they do not want to aggravate relations with trade partners (most importantly China) which would have consequences for business and international relations. In order to square this particular circle politicians are devising a new vocabulary which can be regarded as either navigating through difficult geo-political interests or trying to obfuscate important political issues, depending on your point of view.