Ranting: Reconstruction of Supply Chain and Globalization 2.0

Covid-19

BLM…

The Covid-19 and Biden-gate case, combined together, inspire us on the following:

Covid-19

1. Our original supply chain, no matter how resilient it seems, cannot cope with a global hazard that requiring isolation as a measure, be it temporary or long-term.
2. Original supply chain focuses on the optimization of total cost as well as per-unit-cost reduction and response time matching accepted quality. Considerations on un-interrupted supplies owing to the above-said matter are inadequate. So are considerations on national security issues.
3. Supply chain issues affect related industry itself, then capital flow chain, and adhered financial and other professional services.
4. No matter the supply mesh or the adhered information, human resources and capital mesh need to reinstate hubs at local locations or at least close neighbor to prepare for the failure of the main chain. Of course, the percentage they take can be lower than the prominent one; yet, they must take a larger portion than they used to be.

And the initiative is expanding…don’t forget Japan-UK FTA

Biden-Gate

1. Biden-gate shows that the divisions of interests between entities profiting from globalization and entities suffering from globalization. Globalization camp consider themselves as the sole future, and believe that the locals are “stones in their shoes”, and must be re-educated to get used to globalized market.
2. Biden-gate also shows that Wall Street and Silicon Valley have been so despaired that they will do everything, including self-censorship and other law-breaking means, to ensure representatives of local interests will not be re-elected. It is more than corruption by China; it is about their core interests and “values” (if any).
3. Last but not least, Biden-gate also reflects a lack of check-and-balance on multi-national Wall Street and Silicon Valley institutions, particularly the latter ones, which enjoy both monetary and informational asymmetrical advantages.

who can imagine after Occupy Wall Street, the next you should occupy is…the following picture:

Ta-da! But occupying them are useless…they don’t need an office to operate…

Wall Street and Silicon Valley Strike Back and Evolution

1. Yet, both Wall Street and Silicon Valley cannot replace real goods production despite their larger-than-real-economy market values nowadays. And, many of these companies are the substantial clients of both Wall Street and Silicon Valley.
2. Thus, the restructuring of the supply mesh, particularly the shifting of production hub out of China, will also shift the corresponding financial and information services out of China.
3. Since the restructuring is to address the concern on valuable redundancy for unexpected situations, whether or not the new hub can share similar values, openness, security measures, political affinity, quarantine procedures, etc., and build up sufficient trusts on each other, are more important than just cost, response time, and TQM.
4. It also means Wall Street and Silicon Valley must follow their clients requirements to re-invent their own structure and process. Or, even if their clients are not enough to drive the changes, the governments or other institutions serving them, or at least the factions that serving them, will induce changes that will eventually affect Wall Street and Silicon Valley.
5. Take Free-Trade Area as an example. Before Covid-19, we still assumed WTO and WHO were enough to promote globalized trade and coordinate global efforts on health issues. Now the trust is broken. Any new free-trade agreements made will not only address commercial (and perhaps legal) issues, but they will also include measures to ensure common health and informational transparency and security. Without common values, and mutual trusts, such free-trade agreements will not realise. Customs will be risen not just for protecting local industries, but for pricing-in risks and disturbances appeared due to values’ and measures’ differences.

Taro Aso proposes a special district inside Japan for building a new international financial center in replace of HK perhaps makes a start…

1. Such additional barriers will also give necessity on services to cope with (or walk around).
2. On the lack of globalized efforts on cross-country check-and-balance on tech giants, governments will also join together to constrain.
3. To both Wall Street and Silicon Valley, after balancing pros-and-cons and interactions with governments and other institutions, including their clients, they will try to find ways out to satisfy new regulations and restrictions, regardless the political environment.
4. In other words, even if, say, Biden won the election, Wall Street and Silicon Valley would not continue the same old route of globalization. Simple re-localization will not work either (or we will face unimagined inflation). A restructuring and reinvention of the globalized network will happen, and globalization 2.0 will emerge, this time may be without some members.

Will see…(to be continued)

David the Financial Walker

Nov 1, 2020