Over the past year, various potential risks to economic globalization have surfaced. From the worldwide spread of the epidemic in China and the ignition of the Cold War between China and the U.S. by the Chinese Communist Party, to the “butterfly effect” of the global chip crisis, to the global container shortage that has caused shipping costs to skyrocket, the unexpected blockage of the Suez Canal, and the boycott of cotton in Xinjiang that has led to the export difficulties of China’s textile and garment industry, this series of events shows that China’s The series of events show that economic globalization version 1.0, with China’s “world factory” as the center of gravity, is no longer the only choice for all countries, and the reset of global supply chain is inevitable.
I. Potential risks of economic globalization
Economic globalization has long been seen as an inevitable trend in the current global economic development. However, few multinational companies and economic experts have ever thought carefully that the benefits of economic globalization are premised on the premise that the world must be in a peaceful environment; if a historical event such as the Cold War between China and the United States, in which half of the world suffered a major shock, economic globalization will be in big trouble. On the other hand, the vast majority of multinational corporations and economic experts have not seriously thought about the fact that the benefits of economic globalization are not unconditional and must be free of major surprises on a global scale; otherwise, economic globalization would be in chaos.
Fortunately, from the 1990s until the beginning of last year, Asia, Europe, and the Americas were largely peaceful environments, and no major unexpected events were encountered, so businessmen largely forgot about the potential risks of economic globalization. However, since the Chinese Communist Party ignited the U.S.-China Cold War in the first half of last year through three military threats (a naval fleet to Midway Island to conduct threatening exercises against the United States, the forcible seizure of international waters in the South China Sea to establish its naval base complex, and the establishment of an intercontinental missile navigation system to carry out precision nuclear strikes against the entire U.S. mainland), the peaceful environment on which economic globalization has depended for the past three decades has begun to become increasingly fragile. Although many in the Western media refuse to accept this reality, and Biden has refused to acknowledge that the CCP has become a strategic enemy of the United States, the reality of the Cold War has forced the U.S. military to begin preparing for war against the CCP on all fronts, while the CCP continues to display its military threat posture, and the smell of smoke is always audible.
The U.S.-China Cold War is not really an accident, because it is inevitable in the mind of the Chinese Communist Party. The Chinese Communist Party’s ambition to “rise” has always been to undermine international law and order, and to threaten the United States in order to dominate the world. After years of military expansion and preparation, the Cold War was finally ignited as it was planned. The reason why the world’s media and experts do not see the inevitability of a cold war between China and the United States is either because of a blind eye or from a closed mind.
In such an international atmosphere, economic globalization has also been hit by a series of unexpected events since last year, for which multinational companies were unprepared, resulting in a succession of economic paralysis and supply chain crises caused by unexpected events. From the epidemic caused by the global economy partially paralyzed, to the global container cycle into chaos, to the global chip crisis and the recent Suez Canal blockage of the Asian and European transport arteries, in showing the economic globalization of the enterprise layout of the dilemma of hasty and passive response.
Second, the “butterfly effect” and the global chip crisis
Among the above-mentioned unexpected events, the global chip crisis can be said to be a typical case of the “butterfly effect”.
Butterfly effect (butterfly effect) refers to a dynamic system, a small change in the initial conditions will produce a long-term and huge chain reaction of the entire system, which is a chaotic phenomenon in physics. The first person to notice this was the American meteorologist Edward Lorenz, who in 1961 used a mathematical model to simulate the flow of air in the atmosphere, and found that the accuracy of the calculation to 3 decimal places and 6 decimal places resulted in completely different air flow patterns; that is, a small change in the mathematical initial conditions, which seems to be very unnoticeable, can lead to unimaginably large changes in the complex chain of This means that a small change in a seemingly insignificant mathematical initial condition can lead to an unimaginably large change in a complex chain. Later in his article he described this phenomenon using the analogy that “a butterfly flapping its wings in Brazil can cause a tornado in Texas a month later”. This is the origin of the term butterfly effect.
The chip supply chain is a typical product of economic globalization, processing countless sand into chips, in the middle of more than two thousand complex processes, no country in the world can complete all the steps independently and autonomously. According to the latest analysis of the U.S. Semiconductor Industry Association (SIA), the design of cutting-edge chip intellectual property and software by the U.S. alone, the key special gas for manufacturing chips from Europe, some of the necessary chemicals produced in Japan, and the most advanced chip manufacturing all in Asia, 92% of which are in Taiwan. In the past year, the chip industry has a series of unrelated accidents, each event is either a local accident, or wrong decision or due to hasty response caused by chaos, but they are superimposed together, it will cause a domino effect in the chip industry chain and the whole industry chain resonance, followed by a global chip shortage crisis.
First, after the global epidemic outbreak last spring, the automotive industry in various countries significantly reduced production, manufacturers canceled a large number of orders for automotive chips in order to save costs; second, after the Chinese Communist Party ignited the Cold War between the United States and China, the United States began to sanction the high-tech enterprises of the Communist Party of China, these Chinese companies rushed to purchase a large number of various chips before the sanctions took effect, taking up the capacity of chip companies, and when car manufacturers began to resume production and place orders with chip companies, the capacity of chip companies had already been reduced. Third, at the end of last year, it was rumored that all chip companies need to use the Japanese Ajinomoto company’s stacking film supply tension, it is said that Chinese restaurants in various countries to reduce their business and reduce MSG orders, so MSG production reduced, its by-products are insufficient, surprisingly affect the ability of chip companies to increase production; fourth, on February 4 this year, Taiwan Taoyuan the Xinxing Electronics Company plant fire, it supplies a number of global chip makers chip carrier board production reduction; fifth, on February 13 this year, the 7.3 magnitude earthquake off Fukushima, Japan, the global car chip market ranked third in Japan Renesas Electronics Corporation in Japan’s northeast coast of Ibaraki Prefecture, a major factory affected by the earthquake was a power outage, production lines suspended; sixth, in mid-February cold snap hit the United States Texas , there was a widespread power outage, several local automotive chip factory was forced to stop production; seventh, March 19, automotive chip maker Renesas Electronics Corporation of Japan, a factory fire, factory shutdown.
Among the seven related reasons listed above, only one belongs to the wrong decision, that is, various car manufacturers cut orders; another one belongs to the result of government decisions; among the remaining five factors, two are natural disasters, namely the Japanese earthquake and the U.S. cold spell, two are fires in Japanese and Taiwanese companies, and one is an unwarranted disaster. These factors are not related to each other, also occurred in different countries, but together led to the chip crisis. Although in the entire field of semiconductors, automotive chips account for less than 10% of the semiconductor market, about forty billion U.S. dollars in annual purchases, but the chip crisis has hit the economies of various countries. Now the chip shortage crisis has been from the shortage of automotive chips led to the suspension of production in many countries car factories, spread to the shortage of cell phone chips affect the reduction of cell phone production, and then further impact to a variety of household appliances made in China due to chip shortages or price increases and price spikes. The semiconductor industry chain and chip users in various industries have never encountered such a serious predicament.
Third, the shortage of containers caused by global price increases
As we all know, the epidemic has caused economic standstill in countries around the world. But the epidemic will cause global logistics obstruction, container shortage, the world’s major companies all did not expect, not to mention the preventive measures. Since the outbreak of the epidemic, due to the world’s epidemic blockade measures, global cargo transportation has been sharply reduced, the shipping companies have suspended routes, and a large number of idle container ships dismantled. Eleven of the world’s 12 largest container carriers cut capacity and reduced the number of vessels; many small and medium-sized shipping companies closed down because they could not bear the economic pressure caused by the long-term suspension of shipping.
During the epidemic around the world ports can not operate normally, coupled with transport stagnation, ship stoppage, preventing the flow of global containers, resulting in a large number of containers stacked in China’s ports; China’s epidemic eased, a large number of containers shipped to Europe and the United States countries, but can not be loaded in time to return to Asia, so a large number of empty containers and backlog in the United States, Europe and Australia, resulting in a shortage of containers in China , global freight flow partially disrupted. Last November, the peak season of consumption in the United States when China faces container “a box is difficult to find”, and the container shipping costs have risen sharply. In early March last year from China to the U.S. per container freight is 1,361 U.S. dollars, while in September, Shanghai exports to the U.S. East, U.S. West per container freight is 4,622 U.S. dollars and 3,848 U.S. dollars, an increase of almost two and a half times.
The bigger problem is that maritime security risks occur as a result. In order to meet customer needs, shipping companies try to sail at full capacity, and as a result, containers are stacked too high. According to Bloomberg, Reid Marine Marine Management Consulting pointed out that the winter in the North Pacific would have had extreme weather and rough seas, when large container ships are best slowed down to overcome hull bumps and the dangers posed by bad weather. But because of the freight rate soaring, customers are pressing, shipping companies will ignore the danger of sailing as fast as possible, hoping to reach the destination port as soon as possible, the result will be frequent accidents.
The Wall Street Journal reported that on Nov. 30 last year, a container ship sailing from Yantian Port in Shenzhen to Long Beach, California, encountered a strong storm about 1,600 nautical miles northwest of Hawaii, and the containers on board collapsed into the water, resulting in about 1,816 containers falling into the sea; on Dec. 31 last year, a container ship of Evergreen Marine lost 40 containers in Japanese waters; on Jan. 16 this year, a container ship sailing from Xiamen to On January 16 this year, a container ship from Xiamen to Los Angeles had 750 containers fallen into the sea; in the same month, there was a cargo ship from South Korea to North America had 76 containers fallen into the sea. According to a report by the World Shipping Council (World Shipping Council) in July last year, between 2008 and 2019, the global average of 1,382 containers overboard each year; and from November last year to January this year, in just three months, the Pacific route alone will have at least nearly 2,700 containers overboard.
Container shortage is still not back to normal, shipping costs have caused price increases in the Americas and Europe, driving global inflation, which is bound to affect the monetary policy of central banks in Europe and the United States. The consequences of poor shipping since the second half of last year have not yet been fully demonstrated. But it is indeed a very alarming problem.
Fourth, the risk of global logistics obstruction
The recent blockage of the Suez Canal has attracted the attention of various countries. In fact, there are three other “most important choke points” for maritime transportation like the Suez Canal, namely the Panama Canal, the Strait of Malacca and the Strait of Hormuz, which is stuck in the Persian Gulf. The Panama Canal and Suez Canal have been widened long ago, but such major accidents have occurred in the Suez Canal, and a large number of ships were stranded in the Panama Canal last winter; the Strait of Malacca is difficult to maneuver ships due to meteorological and geographical problems; the Strait of Hormuz is narrow, and tankers must turn at right angles, and is also a dangerous place, if the tankers are attacked by Iranian missiles or mines here, the oil export The “sea throat” will be blocked.
With the formation of the global manufacturing processing center (especially the “world factory” China), and the main market halfway across the world, in the middle of all rely on shipping to bear the transport of raw materials, fuel and manufactured goods, so the container freighter more and more, also more and more large. 20 years ago can hold 7,000 containers of the ship is called “giant”, and now the large container freighter load is the past three times; 2018 global port use is about 800 million containers, in 2000 it reached nearly 3 billion, one eighth of which is used in Asian countries. In addition to container ships, bulk carriers specializing in iron ore and coal, and liquefied natural gas vessels have also become huge ships.
The accident caused by the “Chang Chi” is a super container ship, 220,000 tons, 200,000 tons, 400 meters long, 60 meters wide, is one of the longest ships in the world. It is a product of economic globalization and a powerful tool to realize economic globalization; unexpectedly, this powerful tool of economic globalization has suddenly become a killing tool of economic globalization. Because it was too big, once it got out of control, it blocked the Suez Canal; and because it carried too much weight, once it got stuck at the shore, neither could it unload 18,000 containers, nor could it expect the tugboats to tow it. At that time, the most pessimistic estimate is that if the ship is stuck, and the heavy containers on board the hull structure rupture, the ship will break into two, the containers on board rolled into the Suez Canal, I do not know how much manpower and resources to spend to salvage the ruptured ship and a large number of containers out of transport.
Maersk (Maersk), the world’s largest container shipping group, said the “Chang Chi” trapped in the Suez Canal, the global shipping industry caused by the chain effect may take weeks or months to resolve. The accident has not only caused so much chaos, but also caused serious economic losses. Merchant ships passing through the Suez Canal each day carry about 1 million barrels of crude oil and 8 percent of the world’s liquid natural gas, as well as commodities that account for at least 12 percent of global trade, including mainly clothing, furniture, and industrial production parts. World insurance giant Allianz Insurance Group (Allianz) estimates that the loss to global trade caused by this canal blockage is about $6 billion to $10 billion and a 0.2 to 0.4 percentage point reduction in global economic growth; while Ana Boata, head of macroeconomic research at trade credit insurer Euler Hermes, believes that a giant ship blocking the Suez Canal The loss of global trade could amount to $10 billion per day.
A large amount of shipping is necessary for economic globalization, but economic globalization is so dependent on global shipping that once maritime transportation is blocked at key points, economic globalization can cause partial paralysis of multinational economies. This also means a more dangerous situation, in the case of economic globalization over-reliance on maritime transport, one side in the cold war may be stuck in the throat point of maritime transport, this non-military means to Europe and Asia will cause huge economic pressure and economic risks.
Fifth, unexpected events should not be taken lightly
From the chip crisis to the maritime transport dilemma, all illustrate a problem, various unexpected events in peacetime may lead to disruption or reduction in production of important industrial chains of economic globalization; no one can foresee the occurrence of unexpected events in advance, much less prevent them.
The lesson of the chip crisis is that the over-concentration of manufacturers of important products has resulted in a single processing point in the global single-product chain, and once a few key manufacturers encounter unavoidable contingencies, the global economy will suffer a sudden blow. Another lesson is that the user manufacturers of important components in the chain, if they overly pursue the reduction of inventory and cost savings, then the supply chain is interrupted by unexpected events or supply reduction, these manufacturers suffer losses, in fact, are to blame, who let them lack of risk awareness. The risk of shipping is a clear indication that the arteries of economic globalization is actually very fragile, even in normal times, in case of war, the consequences are even more unimaginable.
Now the United States, on the one hand, welcomes TSMC’s $100 billion investment in Arizona over the next three years to expand its chip manufacturing capabilities; on the other hand, it is prepared to strengthen chip manufacturing and research by its own companies. TSMC’s construction of a plant in the United States to manufacture cutting-edge products such as 2nm actually belongs to a global repositioning of the most advanced part of the semiconductor supply chain. Over the past few years, chip manufacturing in the semiconductor supply chain has become increasingly concentrated in Taiwan, while the CCP has taken advantage of this environment of close cross-strait economic ties to poach people from TSMC and lay the foundation for the CCP’s chip technology catch-up. If the most advanced part of the semiconductor supply chain has been kept in Asia, and the CCP is putting more and more pressure on neighboring countries, then it will be easier for the future global high-tech and economic lifeline to be in the hands of the CCP and become the capital for its hegemony.
TSMC’s global diversified layout now represents a new trend of industrial chain development, that is, economic globalization must be incorporated into the framework of the Sino-US Cold War, and the supply chain layout of democratic countries must have security considerations, so that key technologies and products involving national security cannot be laid out to a de facto hostile country – China. This is a perceptual breakthrough that can be seen since the second year of the U.S.-China Cold War.
President Trump’s Secretary of State Pompeo said last year that the U.S.-China Cold War was not a 2.0 version of the U.S.-Soviet Cold War because it was harder to handle than the U.S.-Soviet Cold War. What Pompeo did not say is that because economic globalization version 1.0 has become a China-dependent version, if this economic globalization version 1.0 is not changed, it will not allow the United States to achieve the same advantages in the U.S.-China Cold War as in the U.S.-Soviet Cold War. The process of rearranging the global industrial chain can only be gradual. Everything is difficult at the beginning, but we have now seen the first step, which is the layout of the economic globalization version 2.0 of the semiconductor supply chain represented by TSMC.
Japanese companies are also highly dependent on the Chinese supply chain, and the Japanese business community is preparing to enter the layout of Economic Globalization Version 2.0. Recently, the Nihon Keizai Shimbun conducted a “questionnaire survey of 100 presidents”, and the results showed that 80% of the companies with factories in Japan have started to adjust their supply chains. Among them, Takahito Tokita, president of Fujitsu Japan, said, “Although it is impossible to reduce all the risks that occur in the world to zero, it is necessary to plan ahead to improve the ‘resilience’ in case of a situation.” His words are typical of the calm thinking of Japanese entrepreneurs after the risks shown by economic globalization version 1.0.
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