- the Covid-19 situation will accelerate the push towards regional supply chains
- contractors must quickly adapt to new national and continental tariffs and barriers
- the US elections will have a considerable influence over the global market for fiber optics
The situation with Covid-19 continues to unravel – with imposed restrictions on movement, transport, and logistics worldwide. Presently all kinds of businesses start to experience serious difficulties. But probably the most massive burden of all rests on the global supply chain network. To have a 100% finished product in many walks of the manufacturing world, you need 100% of all the necessary parts to construct it. Moreover, even when ships start to sail, and trucks begin travelling the globe, it takes weeks, even months, to get everything back to normal. For example, when the 2011 tsunami hit Japan, it also destroyed the one plant in the world that makes a single ingredient for car paint. It took months for the entire automotive industry to recover from this single blow.
The Covid-19 crisis is bringing over millions of smaller but equally disastrous hits on the world economy. According to Accenture, 94% of Fortune 1000 companies see supply chain disruptions from COVID-19, and 75% of companies have had negative or strongly negative impacts on their businesses.
As a result, governments and global industries are trying to shift their production and reroute their supply chains to make them more regional and less vulnerable to the pandemic. Consequently, all industries will suffer from this change, and the most adaptive will thrive, as they will be able to serve their clients and customers in a reliable and trustworthy fashion. Consequently, companies such as NBG will benefit from such change. Their clients are predominantly clustered within the European and North American markets, close to the manufacturing facilities, which means they can answer any sudden spikes in demand.
A survey of about 150 manufacturing executives made in September by the National Law Review confirms that the current trends of shortening the supply chains will shape the future economy long after Covid-19 is gone. For example, 43% of their respondents have already withdrawn some of their production from China or are considering doing it in the immediate future. Seventy percent of them agree that the companies will reduce their focus on sourcing from the lowest-cost suppliers in favour of higher chain resiliency due to the pandemic. A similar percentage (62%) agrees that JIT (“Just in time manufacturing”) methodology will most likely decrease in the future, as companies will scramble to diversify their suppliers and start to build their stockpiles.
No more tolerance towards unlawful Chinese practices
Moreover, after Europacable brought a complaint on behalf of the European producers to the EU commission, tensions are higher than ever, after revealing that 1.2 million kilometers of fiber were installed in Europe last year with 15-20% coming directly from China. According to Europacable, Chinese imports also increased by 150% between 2016 and 2019.
The issue raised to the EU commission comes when Chinese trade practices start to face serious opposition. In 2017 the EU singled out China as “a distorted state-run economy” in a special 500-page report, setting out new guidelines and vision in dealing with the Middle kingdom. It changed how the EU sees China and imposed a firm approach with fast procedures and high tariffs to penalize future excesses.
Currently, the EU Commission is about to launch an investigation to determine if the price of Chinese fiber on the European market is artificially low. Usually, such an investigation could take up to 15 months, but provisional duties could be put in place within eight. Final tariffs, if imposed, could stay in place for up to 5 years. At the moment, the commission is also investigating China for antidumping practices of additional 18 products. However, with the strong case for this one, new tariffs on Chinese fiber sold in the EU can be a reality as soon as January 2021.
For example, in August 2020, the EU Commission started a case for artificial prices of Chinese aluminium. And by October, there was already a decision to put a 48% provisional tariffs on aluminium in Europe.
Protectionism is the new norm.
The EU is not alone in its fiber issues with China and will likely support its efforts. The US has also imposed tariffs on aluminium, and the current presidential administration is actively seeking to create barriers for Chinese fiber in the US. A government official has revealed to the website NextGov, that China is currently flooding the world market with products crucial for developing 5th generation networks – such as steel, aluminium, and optic fiber. The upcoming elections in the US are likely to produce a new answer to this threat, which will boost the confidence in European optical fiber preform manufacturing.
Even before the Covid-19 crisis, there was a strong case for growing economic nationalism and protectionism. In a research paper from August 2019, Monica de Bolle and Jeromin Zettelmeyer have found that “parties in advanced economies have become more nationalist with respect to immigration and trade since the global financial crisis, while parties in emerging-market economies have become more nationalist in industrial policy.”
For example, Washington’s current administration has put a firm approach in denying Huawei’s 5G expansion across several western countries. The so-called “Clean network” initiative was introduced by the US, as countries from the EU and NATO lined up to the US to confirm that they would not use Chinese equipment to develop their 5G infrastructure. Huawei was chosen by the UK to build its 5G infrastructure, but it made a complete U-turn for the past year, as in September, the government banned using Chinese equipment and created a deadline to remove it all by 2027. On October 28, British Telecom signed a deal with Ericsson to develop its 5G infrastructure further.
Some of the most recent initiative participants in October 2020 include Bulgaria, Italy, North Macedonia, and Kosovo. Traditionally big Chinese contractors use predominately Chinese suppliers. So the fact that they will be kept away from the development of 5G networks is undoubtedly good news for European and American optical fiber manufacturers.
The consequences of the US elections
On Tuesday, November 3, 240 million Americans will decided who will be the next president. Their decision could have enormous consequences for the entire world for the next four years.
In particular, the future of the fiber optics industry is in the present moment on the crossroads. China wants to use its industrial capacity to flood the world markets with cheap and low-quality fiber. Should they succeed, western companies could find themselves unable to resist the blow and could go bankrupt. As a result, China will have colossal leverage to dictate telecommunications’ future for decades to come.
Most experts are confident that the current trajectory – of seeing China as the biggest threat to the west, set out by Trump’s administration will most certainly continue. In an article by the Atlantic, Poling, of the Asia Maritime Transparency Initiative has said, “There are far fewer doves left, even on the left.”
Should Donald Trump win the elections, this will most certainly mean that he will continue the US’s current one-sided policy, issuing tariffs on strategic goods and products when his demands are not met. The European Union may not be the most adamant of Trump supporters, but most certainly will follow closely behind with similar barriers.
Biden, on the other hand, represents the traditional approach. Anne-Marie Slaughter for Gzero podcast is confident that Joe Biden will eventually return to the conventional American foreign policy system, relying on global alliances and institutions – such as the World Trade Organization and the World bank.
Both of these scenarios have their ups and downs, and we shall see very soon, which will be the one the fiber optic industry will take.