“Australia drank the free-trade juice and decided that off-shoring was okay,” he is quoted as saying. “Well, that era is gone.”
But ensuring supplies can withstand shocks needn’t mean bringing production onshore. It might make it harder.
Stockpiling isn’t that useful
Firms usually talk about managing supply risk in terms of resilience or robustness.
For critical supplies, robustness is the most important, but it hard to achieve for entire categories such as “medical equipment”. There, stockpiling is of limited use.
But when it comes to stockpiling “medical equipment” we might put a lot of effort into stockpiling ventilators, for example, only to find that the next emergency requires something different, or a different type of ventilator.
And it’s hard to stockpile fresh food.
We are exposed at choke points
Face masks and food illustrate the risks.
Australia is one of the most food-secure nations on earth, exporting far more than it needs, but a 2012 department of agriculture report found that many of the inputs, including pesticides and packaging, especially long-life packaging, were made overseas.
We got a taste of that vunerability in March 2020. After drought-breaking rains across the country generated a spike in demand for these essential farm inputs, supply tightened due to coronavirus-related restrictions in China.
Disasters can happen here too
The best way to achieve supply chain robustness is to build supply chains involving more than one supplier, located in more than one national territory.
While worth considering as part of the solution, re-shoring won’t achieve this.
If we do re-shore, it will make sense to continue to use at least one international supplier to ensure diversification. Self sufficiency isn’t the same as robustness.
Building robustness will require a federally-directed supply chain risk diversification strategy.
Self-sufficiency isn’t robustness
Given the extent of our trade with China, the best approach might be China-Plus-One. It could mean one stream of the supply of a good coming through China and another coming through, for example, Vietnam.
Re-shoring can play a role, but we are going to need a top-down assessment of the risks facing supplies of critical goods, and quite possibly the imposition of robustness requirements on firms distributing them.
Those firms can be offered a diversification tax credit.
A robustness strategy would be more likely to be pro-trade rather than anti-trade, but we won’t know until we do the work. It’d be best to start before the next crisis.
- ^ food (theconversation.com)
- ^ medical supplies (theconversation.com)
- ^ defence equipment (theconversation.com)
- ^ economic sovereignty (www.pm.gov.au)
- ^ re-shoring (www.afr.com)
- ^ Robustness (voxeu.org)
- ^ Resilience (voxeu.org)
- ^ oil (theconversation.com)
- ^ maple syrup (www.narcity.com)
- ^ concentrated (theconversation.com)
- ^ far more than it needs (theconversation.com)
- ^ 2012 department of agriculture report (www.tisn.gov.au)
- ^ Don't panic: Australia has truly excellent food security (theconversation.com)
- ^ supply tightened (www.afr.com)
- ^ publically warn (www.afr.com)
- ^ the region that supplies them (www.abc.net.au)
- ^ The US has bought most of the world's remdesivir. Here's what it means for the rest of us (theconversation.com)
- ^ China-Plus-One (content.iospress.com)
- ^ Japan (www.routledge.com)
Authors: Naoise McDonagh, Lecturer in Political Economy, University of Adelaide