Brexit & UK trade, Perspectives

Perspectives: Shortages and supply chain issues come into autumn trade policy focus

Increasingly apparent strains in global and regional supply chains are playing into debates on the extent to which economies should be open or more self-sufficient. We should be wary of where this may lead.

Concerns about international goods trade have been present since the start of the COVID-19 pandemic in the early months of 2020. Back then it was the availability of specialised equipment and impact of the shutdown of factories.

Subsequently we have seen shipping prices rise as well as shortages of key products like chips for car manufacturers. Reports of particular shortages are now becoming increasingly common, particularly in the United Kingdom, but also across Europe or the United States.

It should be said that in general there have not been the widespread shortages that were feared as a result of either COVID-19 or Brexit. In general, we have continued to have all the goods we take for granted, as well as a clear increase in pandemic-specific goods, from facemasks to vaccines.

Nonetheless it is understandable that consumers and politicians ask questions of just how robust supplies are to their country. It is possible that things will get worse and intervention will be needed. After all, the impacts of such economic shocks can take several years to be fully felt.

These burning questions are also part of a longer-term debate. The extent of one’s dependency on foreign countries for goods supplies can feel somewhat uncomfortable. That one of the most important supplying countries happens to be China adds to the concerns. The sheer scale of global supply chains also seems to be coming as quite a shock to many.

Such questions are feeding back into our trade policy. There is an argument to be won for advocates of free trade and by extension the current system.

Complex supply chains: tested like never before

The growth of global and regional value chains mostly from 1990 onwards are well known in trade policy circles. Together with the rise of Chinese production, increased productivity and deployment of technology this has led us to the modern manufacturing and consumption landscape.

This has generally been a positive experience for consumers, faced with unprecedented choice at competitive prices, increasingly delivered directly to where they are. For workers there has been more dislocation, with rising concern about falling wages and left-behind areas.

Such issues were already seeing proposed changes to trade policy in EU and US, and persistent shortages would add to the view of an economy gone wrong. However, an alternate view would be that the global supply chain response to covid could not have come from any individual country, and that lost manufacturing jobs were a function of economic development.

Complicating matters further is that many of the shortages appear to be driven by inadequate numbers of workers in specific sectors, most notably lorry drivers. That seems to be more a domestic than global issue, and may even suggest shortages would have been worse without globalisation.

In the EU and US a reshoring debate

It is still too early to make a reasonable judgement on the performance of supply chains during the COVID-19 pandemic, not least while disruptions continue. Yet the prevailing political mood against globalisation and, increasingly, China in both the EU and the US suggests that any shortages will be used as an argument for reshoring production.

Economically, reshoring is likely to be sub-optimal. However, we can perhaps understand it on the basis of a feeling that globalisation has gone too far, that prices could perhaps rise or choice be reduced, that we need to think again about what has been lost. That societies are dependent on too much complexity.

Such an argument deserves a strong counter, to the effect of being careful what you wish for. It may seem that the EU can intervene in supply chains without the likelihood of too many adverse effects. But this not only puts at risk the success of the swift global supply chain response to the COVID-19 pandemic.

It also draws attention to the country suffering the most shortages, which has already put up the trade barriers: the United Kingdom.

Shortages become another Brexit story

It might have been the closure of some branches of the fried chicken restaurant chain Nando’s, the absence of milkshakes at McDonalds, or the popular bakery chain Greggs lacking chicken bakes. Perhaps it was the reports of a shortage of blood test equipment. What is certain is that the UK is becoming increasingly aware of supply chain problems.

There had been warnings of supply chain problems before Brexit, that raising trade barriers with the EU, i.e. covering 50% of trade, would likely have a cost. To change dramatically the country’s trading basis amidst a global pandemic looked risky. But few had thought that it would be labour shortages that would have been central.

Although many EU citizens applied for and received settled status, it appears that many employed in UK farms, food processing, and haulage have left the country. Replacements have not been found, and combined with COVID-19 isolation rules, there have been numerous reports of business struggling to find people to work for them.

There is a large degree of irony here, for it was repeated media headlines about a flood of EU immigrants that drove much of the sentiment behind Brexit. The government, cognisant of this, does not now want to make a special case and reopen labour markets. But there are already warnings of further shortages, perhaps of Christmas turkeys, if the labour market problems are not resolved.

Although it may be not be immediately visible in the polarised domestic UK politics, the fact remains: actions have consequences. The UK shortages come from imposing one, national, economic shock on top of another, global, one.

It would be strange for the EU to look on and decide to do the same, in a different way, presumably thinking they could limit the damage. For intervening in supply chains would be just this – and this potential EU action remains a strong possibility, whichever way it would be dressed up in public.

But the lesson from the UK would be: Be very careful what you wish for.

 

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David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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