Decoupling: giving the tools the global supply chain needs
WRITTEN By Daniel Hilpert, Managing Director, Equicap
The proverbial butterfly flapping its wings in China causing a tornado on the other side of the world has become a reality. The effects of the coronavirus are ripping through the global supply chain, destroying supply and demand simultaneously.
Supply chain disruptions that started in China have infected corporate balance sheets in Europe and the U.S. Companies are drawing down on credit lines, putting pressure on the global financial system, all the while consumers and workers are hunkering down in an economy that relies on consumer spending.
Where politicians failed to decouple China from the West and bring jobs and factories back to the West, mother nature is succeeding. Some elected officials are quick to respond and encourage deglobalization. Primitive protectionism and nativism have replaced neo-liberalism.
Neo-liberalism and free market capitalism dominated in the years after Reagan. While an argument can be made that free markets have left some behind, as an economy, the U.S. has enjoyed an unprecedented period of prosperity driven by policies of deregulation, globalization, free trade and economic liberalization. Reverting to mercantilist ideals would be a significant paradigm shift.
Today’s protectionists, while on one hand pursuing the virtues of free markets domestically, in matters of international trade, champion a power based, managed trade going back to a discredited mercantilist mantra: sell our goods to other countries while buying nothing in return.
Isolationism is not an option. We live in a highly interconnected world and as such must manage our international relations, both economic and political, better than we have in the past. In the coming days and weeks, all eyes will be on central banks and their coordinated effort to stimulate the global economy, lower rates and inject liquidity into the banking system to prop up confidence. Socially, companies and people must band together, vying to not cause panics, and to help move towards a solution to the problem.