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Tuesday, February 11, 2020

Recent Real World Example of Efficiency vs. Resilience

I'm not a very good libertarian because I don't support unlimited free trade. One reason is that unrestricted free trade tends to concentrate manufacturing of given products in a small number of countries. That's very efficient, of course, because of amazing economies of scale. But what if something happens to one of those massive manufacturers? For example, in this post I wrote:
As a roboticist, I have almost a fetish for electric motors and actuators and the production thereof. While I’ve never visited their factory in China (Hong Kong area), some colleagues that have visited it describe Johnson Electric[johnson] as one of the most awesomely efficient motor production facilities in the world; in one end goes copper ore and other raw materials and out the other end comes millions of motors per day. It’s a shining example of economies of scale and efficiency. Their specialty is automotive electric motors (for power windows, for example) and they produce a significant fraction of all motors worldwide in that niche. If trade restrictions and tariffs were further reduced, no doubt they would have even a larger share of the market and be even more efficient and be able to produce and sell the motors at a somewhat lower cost.
I imagine that part of the appeal of free trade is that there would be many extremely efficient companies like Johnson Electric, each thriving in a specific niche with tremendous volumes, yet with enough competition from a handful of other companies to drive relentless innovation, quality improvement, and cost reduction.
However, there’s potentially a downside to such a scenario. What happens if something happens to Johnson Electric? What happens if there’s political unrest (war), a fire, or a natural disaster?
To war, fire and natural disaster we can now add epidemic. China's latest coronavirus problem is causing economic turmoil beyond the epicenters of the epidemic:
The coronavirus outbreak in China has generated economic waves that are rocking global commodities markets and disrupting the supply networks that act as the backbone of the global economy.
Some of this would happen if there is any international trade at all. But the more free trade there is, the more susceptible we all are to the economic disruptions that have been (and will be) caused by the virus. Having multiple sources for those things manufactured predominantly in China would be less efficient in the general case, but more resilient in the face of issues in one part of the world.

My company has been adversely affected (but not badly) by these disruptions. We have most of our electronics boards manufactured in China and we had to scramble to move that production elsewhere because the factories we normally use have been shut down due to quarantines.

Nobody twisted our arms and told us we had to manufacture in China, but in a world with minimal tariffs and minimal trade restrictions, that's simply what naturally happens. If China hadn't taken over manufacturing small quantities of boards, domestic companies would develop and while they wouldn't be as inexpensive and efficient as China was before the coronavirus outbreak, I believe it would be close enough to not matter much. In other words, less efficient, but not terribly less efficient.

Somewhat less efficient but more resilient.


Hey Skipper said...

FedEx has a Hong Kong pilot base.

Quarantine restrictions are creating an unprecedented merde-show for scheduling.

Packers Movers Chennai said...
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