Globalization has entered a cycle of partial acceleration. Industrial relocation to Southeast Asia, industrial reflux in developed countries, and changes in the labor structure of various countries are promoting the formation of a new distributed manufacturing landscape. At the same time, the United States intends to “de-risk”, in order to establish a so-called second set of supply chains to take more and more actions.

301131 A cargo ship slowly docks at Qingdao Port, East China’s Shandong province, Aug. 10, 2023 (drone photo). Xinhua News Agency (Photo by Zhang Jinguang)

In the face of great changes in the supply chain, there are two points of view to be wary of.

One is the “quick war theory”, many research tasks are set in 3 or 5 years to achieve. This kind of quick war is often out of touch with reality. It seems that domestic substitution in some areas has ushered in the spring, but there is a long way to go, and a single “domestic substitution” should not be the ultimate goal of industrial development.

The other is “war weariness”, where pessimism prevails. Some people are very pessimistic about the prevalence of reverse engineering, the lack of basic principles, and the absence of Nobel prizes. Such arguments tend to overlook the 301131 enormous dynamism that exists in China’s supply chain.

Despite the current supply chain migration situation, it is still only a volatile starting point. The value of the second set of supply chains will not appear until at least three or five years later, and will not be finalized until ten years later. This means that the battle between the two supply chains has only just begun.

301131 So how do we build resilient supply chains? How to understand the linkage, control and design power of supply chain? And how to deal with the impact of parallel supply chains?

1 relay to resolve the first wave of control

In order to contain China’s development, the United States has adopted a more complex combination of tactics in the supply chain attack. Technological containment outside the “trade war” uses technology export control as a weapon.

301131 Behind the technology control is the mature industrial intelligence system of the United States. Over the years, a large number of industrial base research, so that the United States has a very clear understanding of the global industrial background. Therefore, from the very beginning, the United States put China’s highly scientific and technological enterprises, some universities and research institutes on the control list, cutting off the supply chain and hindering their growth.

In the initial testing phase, the first is the control of the contest. The party in control, with its great firepower, looks like it can easily pull off a lethal move – disrupting the existing manufacturing pattern by cutting off supply.

301131 However, this imbalance only appeared in the early stage. The party under attack, in an unfavorable situation, can still choose to avoid its edge and enter a new battlefield. The super-connectedness of the Chinese supply chain provides a buffer and provides a kind of industry depth defense. For example, Huawei had to give up the manufacturing of most mobile phones after being hit by a series of phone chip supply failures, design supply failures, and manufacturing supply failures. But it has electronic design and automation technology that allows it to tap into China’s rich supply chain and quickly move into electric vehicles. Although this transfer is a passive choice, it will prolong the confrontation for a longer period of time, during which there will be enough changes to change the initially one-sided situation.

301131 For attackers, cutting off supply can also harm their own interests, so they need to be careful to avoid actions that may cause significant damage to their own side. When Japan decided to impose semiconductor sanctions on South Korea, it had a large list to choose from, but ultimately restricted only three semiconductor raw materials – semiconductor cleaning materials, display substrate materials and composition photoresist. None of the three raw materials are high-value products, and South Korea imports just $300 million a year, or 2% of its imports of Japanese electronic parts and materials. The regulatory approach adopted by Japan follows the principle of “minimum self-loss”, both to do business, but also to try to restrict from the smallest incision.

Manufacturing in China is seen as growing on the basis of labor, and with this perception, the supply chain is easily perceived as vulnerable. This is actually a misunderstanding. Walmart imports about $50 billion in goods from China each year, or about one-tenth of all U.S. imports from China, and it has 60,000 suppliers in China. Fast-fashion clothing brands are also highly dependent on China, with Swedish clothing chain H&M having about 800 suppliers in the country, while more than 90 per cent of Uniqlo’s suppliers are based in China. Getting rid of one or two suppliers is easy, but getting rid of all the suppliers in the supply chain is difficult. For products related to food, clothing, housing and transportation, the efficiency of the supply chain is crucial. This is the chain of supply chains nested within each other at work.

The United States, aware of this, no longer seeks a quick and decisive war. It began to change its strategy from “de-Sinicize” to “de-Sinicize.” The mode of action is no longer to fight alone, but to try to form various small circle of coalition forces to contain China’s development. This makes China’s “supply chain offensive and defensive war” need to face a more complex and diversified conflict situation, and a “war of attrition” model has been launched to compete for resilience.