In 1817, the economist David Ricardo introduced the concept of comparative advantage in his book On the Principles of Political Economy and Taxation. Briefly stated, this is the theory that it is in countries’ best interests to trade with others by exporting the goods they have a relative advantage in producing cheaply, and importing from others the ones they don’t.
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For the past 200 years or so, the growth of the global trading system has provided a good illustration of this theory, with increasingly open economies searching the world for partners that can provide goods or services at lower costs. In recent years, this has boosted China’s manufacturing industry, thanks to the relative cheapness of its labour in comparison to that of trading partners, particularly in Western countries such as the United States. As countries across the globe began to outsource more and more manufacturing tasks, China came to assume the mantle of “the world’s factory”.
Then the coronavirus struck. Suddenly, with the world struggling to get its fix of Chinese goods, it realised it was addicted. As China went into lockdown, its supply of goods dropped drastically. This disrupted supply chains worldwide and countries across the globe began to question the wisdom of relying on a single source for the production of goods.
This is the big picture. In fact, such trends were beginning to emerge before Covid-19. De-globalisation (visible some say in Brexit and the election of Donald Trump in the US), the advent of artificial intelligence and automation and the disruption of old business models had all got the ball rolling. But Covid-19 accelerated the rate of change and has robbed countries of the luxury of time in restructuring their economies.
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Face mask shortage amid coronavirus pandemic reminds world of China’s manufacturing dominance
Face mask shortage amid coronavirus pandemic reminds world of China’s manufacturing dominance
BACK TO THE FUTURE
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Clearly, action is needed, and quick. Thankfully for Singapore, the city state is in a better position than most when it comes to re-embracing manufacturing, an industry it has a long and proud history of even if it has shown some signs of neglecting it more recently.
