Geopolitical Supply Chain Rundown – May 21st 2021

Businesses caught in the geopolitical crossfire as EU calls China’s bluff.

The European Parliament has decided to halt the ratifying of a seven-year EU-China investment agreement signed in December. It is another sign of the deteriorating relationship between the EU and China but not surprising to us. 

It is becoming more difficult for Beijing to wield its economic power to get elite interests in Europe. On Wednesday, Chinese foreign ministry spokesperson, Zhao Lijian, probably in a bid to influence the parliament, enjoined the EU to “make in-depth reflections and immediately stop interfering in China’s internal affairs.”According to him, “The CAI is a balanced and win-win deal that benefits both sides, rather than a ‘gift’ or favor bestowed by one side to the other. Early ratification of the agreement is in the interests of both China and the EU.

The parliament didn’t hold his word much as the next day, 599 votes supported canceling the deal, 30 votes against, with 58 abstentions. The cancelation is in line with the EU’s decision to become more autonomous and reduce its reliance on China, but some members still believe that as the EU’s biggest trading partner, China, can’t be pushed away so quickly. 

Let us take a look at the implications of this decision on businesses. 

Many businesses in Europe have been looking forward to this deal because it meant they would receive access to the large Chinese markets. This new law would affect that projection. Many European businesses hit hard by the pandemic would have been hoping to use part of the revenue gotten from the Chinese markets as a buffer for the loss in the previous year. For China, securing this deal would have been great for his ego, since it has been having an ongoing battle with the US.

According to a report, businesses like Burberry, Addidas, and Nike, who had released statements after the allegations around forced labor in Xinjiang stating that they would stop sourcing from the region, received backlash from Chinese consumers. Businesses will never be able to totally remove themselves from the consequences of these geopolitical crossfires, so mitigating, planning, and building up the resiliency of your organization is key.

 

China – U.S investment drops to the lowest level since 2009.

Two-way investment between China and the US has dropped to the lowest level since 2009 as a result of the political tensions and the pandemic. This drop is driven primarily by the U.S with U.S investment in China in 2020 declining by almost a third from the previous year. 

According to the report, U.S investors have slowed down in acquisitions with only a handful of medium-sized takeovers in consumer products and financial services. On the other hand, Chinese investment in the U.S increased slightly, but the figure is still far below the investment at the peak of 2016.

Will the trend continue? Or will the growth of both economies amount to an increase in investment? Probably, but we may not see anything spectacular as the U.S has been trying to decouple its investments and reduce reliance on the Chinese economy. 

Blinken and Lavrov meet face-to-face for the first time

The talks happened during the Arctic Council Ministerial Meeting in Iceland. As expected, this conversation was the highlight of the meeting as the U.S has pushed back against Russia on several fronts since Biden took over the Presidency. 

According to the U.S Secretary of State, Anthony Blinken, “There are many areas where our interests intersect and overlap, and we believe that we can work together and, indeed, build on those interests.”  Two of those areas are the pandemic and climate change which the U.S is passionate about. 

Following the results from the meeting, Kremlin spokesman, Dmitry Peskov, told reporters on a call that the talks were “constructive” but added that “a lot of problems have accumulated” between Washington and Moscow.

This high-level meeting between the U.S and Russia will not make all the problems go away. Just recently, a Russian criminal cybergroup known as DarkSide attacked U.S critical infrastructure, and while there is no evidence that it was in partnership with the Russian government, Biden mentioned that there is evidence that the Darkside is in Russia, so they have some responsibility to deal with this. 

 

Facebook Comments Box