Over the past 20 years, as China’s dominance was steadily built by an insatiable demand for cheap foreign labour and manufacturing capacity, the global trade environment continued to stack an inordinately large amount of supply chain reliance into a concentrated region. China has worked hard to supplement its industry with a view to propelling the largest ever population of poor, into the middle-class. They have done a magnificent job of achieving their stated goal, and China is truly one of the greatest stories of modern day industrial revolution and enterprise building wealth for the populous. Although, as with all major feats of enterprise, there are often lingering dangers, and China has fostered some of the greatest.
The French economist, author and statesman, Claude Frederic Bastiat seems to have, some 200 years ago, penned a note which paints a warning to future generations of the very dangers which global trade faces at this time. Readers simply have to replace references to ‘Paris’ with China and/or the Yangzhe Delta, and a terrifying scenario is laid bare.
“On coming to Paris for a Visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sons did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without cooperative planning or mutual arrangements, to keep Paris supplied. How does each succeeding day manage to bring to this gigantic market just what is necessary—neither too much nor too little?” As
we consider the impacts of the COVID-19 “pandemic” on global economies, the glaring similarities between the Parisian metropolis of the 1800’s, and today’s globalised economy, centralised around the manufacturing behemoth of China are evident. We would expect that Paris of the 1800’s, today’s Globalised economy, and ancient mesopotamian cities would all neatly fit into similar categorisations. History doesn’t repeat, although it rhymes, as Mark Twain wrote, and it seems increasingly likely that the history of the folly of centralised supply chains is about to be tested like never before.
Global trade has been severely impacted by the recent COVID-19 outbreak, although the recovery of the world’s manufacturing base of China was, by all accounts, extremely swift. The Chinese authorities acted with military precision, and force, to hard-lock entire cities, reducing the spread of the infection to other major manufacturing hubs outside of the proposed ‘patient-zero’ location of Wuhan. Critics suggest China’s lackadaisical approach in early stages, in concert with the WHO, allowed the spread of the infection internationally, just as China was ruling with an iron-first to avoid spread internally.
Looking at the considerable interruption to global trade as a result of the relatively minor production impacts caused by COVID-19 within China, a significantly more concerning threat is developing within China, and specifically the critical Yangzhe Delta. The 3-Gorges Dam is, some critics say, at risk of failure. We have outlined the topic earlier here, Unimaginable Disaster if 3 Gorges Dam Fails and follow up with a specific outline (courtesy of The American Mind) as to the centralised and dangerously concentrated global supply chains which reside in a critically endangered region. If indeed the 3-Gorges Dam fails, as many have suggested is imminent, Frederic Bastiat’s musings will have a terrifyingly prescient application to what would be regarded as truly one of the greatest humanitarian disasters of modern time.
Let’s hope that the suggested 1 METER of rain, within the Dam’s catchment area forecast for the next 7-10 days doesn’t see the failure of the world’s most critical piece of infrastructure. The author of the linked article “The Huntsman” @man_integrated – has penned a thread on Twitter which outlines the threat in beautiful, albeit ghastly detail. Read more…
Chart of the Day
Yahoo Finance’s Brian Cheung breaks down the latest FOMC meeting and the comments from Fed Chair Jerome Powell regarding monetary policy and the economy.