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“The protectionist craze continues… empty talk about the post-China supply chain”


The manufacturing supply chain, from raw materials to refining and finished products, is fluctuating in conjunction with each country’s trade policies. The protectionism sparked by the United States has spread around the world like wildfire, and trade policies based on political and economic logic are changing day by day.

In particular, domestic industries with leading manufacturing bases such as batteries, semiconductors, and smartphones are also busy calculating profits and losses while paying close attention to global trade policies.

Vice President Kwon Il-myeong, who has extensive experience in the trade field, including as managing director of Samil Accounting Corporation (PWC) and IBM Korea Global Business, analyzed that protectionism is a problem that will continue in the future. In line with this, a warning was also delivered that a merciless trade frenzy was blowing through the domestic industry.

The following is a Q&A with Kearney Vice President Kwon Il-myeong.

Kwon Il-myeong, Vice President of Kearney

Q. The supply chain crisis due to protectionism is severe. The most talked-about topic is by far the announcement of the U.S. Foreign Concern Group (FEOC) guidelines. What do you think will happen with the FEOC, which has been postponed several times?

“It is a difficult issue to say definitively. This is because trade issues are not issues that can only be dealt with over the next 5 or 10 years. Some predict that the United States will make another deal with China behind the scenes. The United States and China will form a value chain. “The general consensus is that it is difficult to speak definitively about the direction of FEOC as long as it is connected.”

Q. Does that mean that the post-China supply chain is empty?

“China has held the lead in the field of refining and refining, including raw materials, in the past, and this power itself is expected to continue in the future. However, in Korea, many new mines that mine nickel, cobalt, lithium, and manganese are being secured. China’s There are still many mines around the world that can be mined that are beyond the reach of refining. Although there will be competition, it is important how we respond to this in the future. Strategies to secure raw materials and other materials from abroad include securing shares or long-term contracts. It is expected to change flexibly depending on the market. In other words, diversifying refining and mining is a factor that acts as a burden on developed countries, so it is expected that the supply chain pattern centered on emerging countries such as Indonesia will be maintained.”

US President Joe Biden (Photo = White House website)

Q. A protectionism craze is blowing from the United States to Europe. Do you think it will last?

“It will continue. The reason the world is currently moving towards protectionism is that economic growth will increase as consumption continues to increase. In fact, this is a mechanism that works well in the era of ‘globalization’. However, there is currently no way to increase consumption. A lot of surplus capital has been accumulated and the product market is not growing. China is a representative example. If the markets of individual countries shrink, the hegemony of ‘let’s make a living alone’ will not be activated. “It cannot be done. Unless supply is drastically reduced or explosive demand occurs, protectionism has no choice but to continue.”

Q. Friend-shoring (supply chain solidarity with allies) appears to be a U.S. trade policy, but unlike Japan, Indonesia has not received status equivalent to an FTA signatory under the IRA.

“Friend Shoring, in other words, means that there are no standards. The reason why Japan was granted a status equivalent to concluding an FTA even though it has not concluded an FTA is because it is America’s number one military ally. On the other hand, Indonesia has political and military interests with the United States. “It is not an intertwined country. The same goes for other Southeast Asian countries, such as the Philippines and Taiwan. The key thing going forward is how much Indonesia shares its military interests with the United States.”

Q. ‘Altasia’, an alternative Asian supply chain including Indonesia, is emerging. How do you see the form of the supply chain that will be reorganized?

“When looking at the past market, countries with extremely abundant production resources and where manpower and resources could be procured at low prices were preferred. However, it is difficult to understand the current trade environment in this way. Altasia serves as a production base in the market. However, it also acts as a sales source. For example, the reason why Hyundai Motors is investing in Indonesia is clearly because of its role as a market and the purpose of sales. In that case, Indonesia, which has a domestic market of over 200 million, as well as Vietnam, the Philippines, etc. “It will emerge as a major market. This means that if emerging countries were viewed with a focus on production efficiency in the past, they will now be viewed as markets as well.”

The semiconductor factory construction site in Taylor, USA, revealed by Samsung Electronics’ DS division president Kyeong-hyun Gyeong on social media (Photo = Gyeongyeon SNS)

Q. In contrast, the domestic industry is weak in terms of supply chain. Protectionism is a problem that will continue, but what do you think is the critical risk to the domestic industry?

“With an export-oriented industrial structure and a small demand market, we are bound to be the underdog. In practical terms, there are two supply chain risks: first, regulations in the consumer market, and second, supply risk in the raw material market. The first is already Many domestic companies are doing this. They are approaching the sales market by building a joint venture factory in the U.S. The problem is that the supply of raw materials is slowing, and a situation arises where even if you want to buy it, you cannot. To solve this problem, new mines are being developed. Profitability may drop. To overcome this, some companies make direct equity investments in mines, but if they do so in the form of pre-sale, they cannot predict the future demand for raw materials and predict how the raw material market will flow. can not do.

“The private and public sectors need to think deeply about how to flexibly lead this raw material sector.”

Q. I will try to broaden my horizons again. As former President Donald Trump emerges as a leading opposition candidate, he calls for the complete abolition of the IRA. Do you think it is realistically possible?

“The United States’ domestic protection policies, such as the IRA, will come up under any name. ‘Simply put, companies create capital by producing in the United States’ is Trump’s basic line. In other words, although the nature and form may change, protectionism like the IRA “It is expected that the policy of caution will become even stronger. The fact that President Joe Biden has inherited the form of protectionism practiced by Trump in the past is a proof of this.”

A lithium-ion battery plant being built in Ohio, USA by Ultium, a battery joint venture between LG Energy Solutions and GM. (Photo = Ultium video capture)

Q. Do you agree with the point that the external trade environment is harsh for the domestic battery industry, which is the future growth engine?

“China’s technological prowess and cost competitiveness are considerable. The moment the lock on China is lifted in a demand market like the United States, the price competitiveness of domestic companies will drop significantly. There is also ample room to cleverly evade the law like CATL-Ford did in the past. . This is because due to the nature of the language, not all of the intention of the bill can be included in the bill. Putting it all together, the trade environment for the domestic battery industry is extremely harsh.”

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Q. How do you think China will respond to the expanding post-Chinese supply chain strategy centered on the West?

“China has two things. It has materials, parts, and capital. It is strategic by leveraging these two things. However, the economic situation is not easy as China is the only country with negative prices. Domestic perspective. China can be a partner in terms of supply chain, but it cannot give up in terms of demand market. Semiconductors and batteries have become hot topics, and people are calling for a departure from China, but it is not an issue that can be easily discussed. So, the discourse on leaving China also needs to be examined one by one for each industry. there is.”

Tags: protectionist craze continues .. empty talk postChina supply chain


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