In any case, political leaders in both China and the West are escalating tensions before Western countries become financially resilient enough to withstand the consequences. Companies are trying to do more onshoring, nearshoring and friendshoring of production, but it is not proving easy. In a recent interview with the Financial Times, Tony Danker, director general of the CBI, said the UK would need to find new trading partners and rekindle old ones – for example the EU – if the West cut ties with China . “If the political experts and the security experts are right, we will all need to be good friends again,” he said. In preparation for geopolitical upheavals, companies are forced to do something that is commercially irrational, doubling and adding to supply chain costs. However, it is also a completely realistic answer. Putin has dramatically demonstrated the economic dangers of having all your eggs in one basket. This uprooting of established trade patterns is a huge change. Trade policy has so far tended to focus on boosting exports, rather than guaranteeing supply. However, the shift in priorities to more protectionist mindsets is being pursued without much regard for the possible consequences on higher inflation. We are on the cusp of one of those great turning points in economic history. Western political and commercial elites have kept the masses compliant with what the Romans called “bread and circuses,” or in today’s terms, the promise of low-cost consumption. The devastating effects of this opioid are seen in all walks of life. Britain’s once leading telecommunications equipment industry has blithely sacrificed itself to cheap Chinese alternatives in order to support ever-decreasing mobile phone charges. Centrica’s Rough North Sea natural gas storage facility, with capacity for a three-month supply, has fallen into disuse for fear of adding its maintenance costs to bills. Large parts of UK food production have been put out of business due to relentless pressure from the big supermarket chains for lower prices. I could go on. The unbridled pursuit of just-in-time efficiency has put everyone at risk. Adjusting to the new world order will be long, painful and politically challenging.
