UK Manufacturers to Bring Work Home After Coronavirus Exposes Flaws in Global Trade

Summary

  • The pandemic has exposed the vulnerabilities of the global trade, which has undergone an enormous stress test in the recent months
  • Covid-19 took the world by surprise and has stamped the concept of globalisation as a failure
  • Twenty per cent of businesses in UK are likely to reduce dependence on European Union for industrial supplies

Most of the businesses in UK are likely to bring work back home in the post pandemic era over the course of next few years, according to the trade body MakeUK. Nearly 50 per cent of the companies surveyed by the apex trade body were in favour to bring manufacturing set up back home after the pandemic exposed the market vulnerabilities no one knew existed.

The pandemic has exposed the vulnerabilities of the global trade, which has undergone an enormous stress test in the recent months. As the coronavirus pandemic washed up the shores of most of the countries, nations rushed to limit travel and hoard medical supplies as critical supply chains witnessed disruption. The world might need a rerouting or a reset of global supply chains for an interconnected global economy.

Globalisation has fostered deep interdependence between countries and businesses which makes them more vulnerable to unexpected economic shocks such as the rapid spread of the coronavirus pandemic. The deadly virus has exposed the credibility of the global supply chains by putting countries and businesses under the pump in the wake of the novel coronavirus.

Resources are limited and every country has different kind of resources. To optimise the utilisation of these resources, countries share these resources by means of globalisation as many countries lack the expertise required to harness and utilise these resources for economic prosperity.

Now some people might argue that instead of sharing these resources, these countries can share knowledge and expertise. Getting excess to each other resources for countries is lot cheaper than to set up things from the beginning. Over the years, the world has moved towards a more centralised approach, when it comes to manufacturing due to cheaper labour costs.

With globalisation, the world has eliminated redundancies which generated a lot of wealth for the businesses over decades. However, the pandemic took the world by surprise and has stamped the concept of globalisation as a failure. Major economies have been sitting ducks against the pandemic. The fact that everything in the world is so connected has made us more vulnerable to economic shocks.

As major flaws in the global trade comes to light, most of the manufacturers in UK are likely to make a paradigm shift towards indigenous supplies in the post pandemic era. Due to the economic impact of the novel coronavirus, UK has witnessed a lot of job redundancies and furloughs. Focus and investment in bolstering domestic supplies would take care of the surge in unemployment and would boost the economy to some extent.

Most of the economies were heavily reliant on China for automotive spare parts. The coronavirus pandemic brought the automotive industry to a screeching halt due to chaos in global supply chains as factories around the world were forced to shut. The world was not able to tackle this disruption as the supply chain and distribution networks have been consistent in predicting the flow of parts for decades.

United Kingdom has been facing strong headwinds in terms of supply chain due to uncertainties with respect to Brexit and coronavirus pandemic. In addition, heightened trade tensions between US and China during the unprecedented crisis has worsened the trade further. This kind of trade war disrupts the wider trading environment. It is not just the United States and China getting implicated by this trade war. There are also British companies, which are getting caught in the crossfire. British economy also faces the heat when either of the two countries increase the tariffs. A full-blown trade war could also disrupt global supply chains impacting countries that play key roles.

Also read: US-China Row Jitters the Businesses Across the Globe

According to MakeUK, 20 per cent of businesses in UK are likely to reduce dependence on European Union for industrial supplies. Nearly 30 per cent of the businesses would reduce dependence on incoming supplies from the Asia Pacific region.

During the unprecedented crisis, the National Health Service (NHS) faced severe hardships in procurement of vital protective equipment such as gloves and gowns due to disruptions in the global supply chains. During the critical hours, UK’s defence sector companies such as BAE Systems (LON: BAE) stood up and ventured into making ventilators. Many other domestic businesses ventured into making PPE kits for the healthcare staff. The domestic businesses would need protection from government to flourish and become more price competitive in comparison to the world.

According to a recent report by MakeUK, the industrial output is expected to decline by 9.7 per cent this year (2020). In addition, the investment in the manufacturing sector could decline by up to 10 per cent in 2020. Brexit uncertainties and trade wars could really worsen the carnage caused by the deadly virus.

The manufacturing sector is an important cog in the wheel when it comes to economic recovery and transition to digital, global, and green future. The manufacturing sector has been through the various stages of the revolutions and is no stranger to challenges and structural changes. However, the challenges we face today have evolved in a much shorter period than expected due to the coronavirus pandemic. The domestic sectors need capital infusion and backing from the state to allow a swift transition from existing supply of goods & services to indigenously developed products. In addition, the British Government needs to protect its companies against takeover by foreign companies.


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