Interview, Other
How countries and companies are reshaping their supply chains
- Global supply chain restructuring is driven by a cumulative effect of disruptions: the COVID-19 pandemic, natural disasters (e.g., 2011 Fukushima earthquake, Thailand flooding), and escalating U.S.-China geopolitical tensions.
- Andrew Tilton (Goldman Sachs Research) notes that while traditional globalization (goods trade, capital flows) is slowing, data flows are accelerating; the trend is a "slowing rate of globalization" rather than a full reversal.
- Trade diversion is evident but not a total decoupling; U.S. imports from China remain at roughly $500 billion annually, with Chinese exports increasingly routed through Southeast Asia (e.g., solar panels assembled in Vietnam) to circumvent tariffs.
- The dominant investment strategy for multinationals is "China plus one," prioritizing supply chain resilience and diversification over pure cost efficiency, leading to increased inventory holding and broader sourcing options.
- Government policies are actively incentivizing domestic production:
- U.S. CHIPS Act provides tax benefits and subsidies for semiconductor manufacturing.
- U.S. Inflation Reduction Act offers tax credits for green investment.
- India's Production-Linked Incentive (PLI) scheme attracts manufacturing capacity.
- Indonesia enforces onshore refining of ores and metals to retain value locally.
- Asia-Pacific region is expected to benefit overall from the shift, with trade share gains in broad set of Asian economies; specific beneficiaries include:
- Vietnam: Saw increased bilateral trade with China and exports to the U.S. in electronics and solar.
- India: Attracting material new investments in hardware technology, though still at an early stage relative to its economic size.
- Luke Bars (Goldman Sachs Asset Management) identifies supply chain domestication as a primary driver of corporate and government capital investment over the coming decades, labeling it an enduring trend rather than cyclical.
- Three key catalysts for enduring supply chain shifts:
- Pandemic exposure of vulnerabilities in single-source dependencies (especially China).
- Heightened U.S.-China geopolitical tensions driving need for direct control over critical technology supply chains.
- Russia-Ukraine conflict forcing Europe to restructure resource security, particularly regarding energy and raw materials.
- Resource security trends include a shift toward renewable energy and critical minerals (copper, lithium, cobalt, rare earths), where China currently dominates supply; Western nations are exploring new sources in the U.S., Canada, and Saudi Arabia to reduce dependency.
- Investment implications include a "picks and shovels" opportunity in semiconductor capital equipment, automation, and robotics, as companies invest to build domestic capacity regardless of ultimate success in matching Taiwan's leading-edge yield.
- TSMC's construction of facilities in the U.S. is cited as evidence of industry adaptation, though long-term U.S. self-sufficiency in leading-edge chips faces skepticism regarding cost and scale.
- Mexico is a beneficiary of U.S. nearshoring, driving domestic demand in consumer and banking sectors linked to U.S. corporate expansion.
- China's strategic response involves accelerating domestic investment in high-end technologies and green sectors to pivot from light manufacturing to a middle-income, technology-driven economy, mitigating potential export declines.
- Richard Hill (Marvell Technology Chairman) argues that achieving U.S. semiconductor self-sufficiency to match Taiwan's scale is "not feasible" due to:
- A lack of qualified workforce with necessary math and discipline skills.
- Atrophied education infrastructure for semiconductor operators.
- The absence of a local ecosystem for critical materials and equipment, which requires decades of iterative global partnerships China lacks.
- Hill predicts the CHIPS Act subsidies (amounting to one-fifth of the $250–$300 billion TSMC spent on process development) are insufficient to ensure economic viability of new U.S. fabs, particularly given restrictions on selling to China.
- Hill warns that policy-driven supply chain changes will likely result in higher consumer costs due to the loss of efficiency gains from global specialization, rather than a successful redirection of supply.
- Long-term growth forecast for Korea: Potential for a 0.3 percentage point annual increase in growth driven by an expanded role in the U.S. electric vehicle supply chain.
- U.S. short-to-medium term opportunity identified in onshore LNG production capacity and infrastructure (liquefaction, gasification, grid) to substitute for Russian natural gas, with Europe as the primary destination for contracts.
- Goldman Sachs forecasts that dispersion in stock-level returns will increase significantly as investors navigate the complexities of reshoring, cybersecurity investments, and national security-driven capital allocation.