Cross Border Journal

Healthy Global Supply Chains = Healthy Global Economy

Whether the global economy has hits a downturn or is in an upswing, I believe the above equation holds true. Thus, it pains me to see the U.S. Government about to pass a so-called "economic stimulus" package that appears to do very little to immediately boost the fundamental health of U.S. supply chains in the private sector, and by extension, global supply chains.

Once the so-called economic stimulus package is passed (the Democratic Congress will pass something, no doubt), I plan to go through it in detail to see what percentage of it will directly aid the health of supply chains in the short-term and long-term, in addition to what percentage does little or nothing at all. My look at this will focus on each of the supply chain architectures--physical, financial, informational, relational, innovational, and human--so as to breakdown the stimulus. Obviously, financial architecture will be the focus but not the only point of discussion. Lastly, I will try to segragate what is directed towards services industries and goods industries, where possible.

Speculation on Obama's Grand Strategy for the Asia-Pacific, Part I

Yesterday I discussed the current transition of the Obama Administration and the implications for the Asia-Pacific region. Although I want to discuss the key leaders in the Obama Administration most likely to shape a grand strategy for the Asia-Pacific, it is perhaps best to first take stock of what already has been built by the Bush Administration.

The Bush Administration was never a good communicator of its strategies, even when the ones it developed were excellent. As participants in a democracy as strong as that in the U.S., we should demand leaders who can not only create and execute a grand strategy, but who can also communicate that strategy in terms we can understand and relate to in our everyday lives.

Since I believe that American success in the Asia-Pacific will be largely a function of success in the U.S.-China relationship, I want to highlight a program that probably few reading this have heard of in its formal language: U.S.-China Strategic Economic Dialogue. This program was spearheaded by the Treasury Department (i.e. China-friendly Treasury Paulson) and is described as follows:

"Established by Presidents Bush and Hu, the SED is a focused and effective framework for addressing issues of mutual concern. By prioritizing issues in the broader context of our bilateral economic relationship, the SED gives direction and creates momentum for the many existing bilateral mechanisms we use to foster cooperation and resolve concerns across the spectrum of economic issues."

Since 2006 there have been approximately six meetings and records of those meetings can be found at the above link for the Dialogue. One sub-set of this dialogue included "EcoPartnerships" and for a clear sense of what this entails, the first set of partnerships created in December 2008 are described below:

"At the Fifth US-China Strategic Economic Dialogue in Beijing, China, in December 2008, the US and China welcomed the creation of seven EcoPartnerships: 

• DDenver, Colorado / Ford Motor Company and the City of Chongqing / Chang’an Motors: Focused on implementation of electric and plug-in hybrid vehicles, this partnership has the potential to significantly advance the global development of electric and plug-in hybrid vehicles.
• Greensburg, Kansas and Mianzhu City, Sichuan:  Greensburg, Kansas was 95% destroyed by a tornado in May 2007 and made a commitment to sustainable redevelopment. Mianzhu City was one of the most heavily devastated areas of the May 2008 earthquake in Sichuan province. The EcoPartnership represents an opportunity to demonstrate new models for comprehensive, eco-friendly sustainable development and is focused on economic revitalization in rural America and China.
• Energy Future Holdings Corp. (U.S.) and China Huadian Corporation (China):  Both companies are pursuing the development of a sustainable business models for “clean energy” in the United States and China, particularly in the area of clean coal.
• Tulane University (Louisiana) and East China Normal University (Shanghai):  The two universities will work together to develop a global model for the sustainability of costal cities, focused on restoration, conservation and enhancement of environmentally sensitive wetland areas.
• Port of Seattle (Washington) and Dalian Port Corporation (Liaoning):  The partnership between two of the world’s largest sea ports aims to develop a global model for energy efficient and environmentally sustainable ports.
• Wichita, Kansas and Wuxi City, Jiangsu Province:  The partnership is focused on demonstration and implementation of advanced technological solutions for clean air and clean water.
• Floating Windfarms Corporation (U.S.) and Tangshan Caofeidian New Development Area, Hebei (China):  Floating Windfarms Corporation is developing clean energy technologies for the Tangshan Caofeidian New Development Area, focusing on offshore wind farm technology."

Obviously, these types of organizational and community ties between the U.S. and China are important going forward and will be at the forefront of developing new technologies, sharing best practices across communities and enhancing overall innovation in the area of sustainable economic development in the face of a variety of environmental challenges.

Stepping back, this feeds into a broader Asia-Pacific strategy initiated by the Bush Administration called the "Asia-Pacific Partnership on Clean Development and Climate." The project is described as follows:

"APP partners Australia, Canada, China, India, Japan, Korea, and the United States have agreed to work together and with private sector partners to meet goals for energy security, national air pollution reduction, and climate change in ways that promote sustainable economic growth and poverty reduction. The Partnership will focus on expanding investment and trade in cleaner energy technologies, goods and services in key market sectors."

This was initiated in 2005, illustrating how the Bush Administration evolved into some of these approaches rather than having them at the outset.

Military exchanges outside of our formal agreements with long-term allies, especially with regards to the U.S. and Chinese navies, have also expanded under the Bush Administration. There seems to be some regularity to these exchanges, but no larger framework agreement. Until that happens, these will continue under time-based or conditions-based reviews. Such exchanges can only help in developing a mutual understanding of our nations' common interests in maintaining peace and security in the Asia-Pacific. Former Secretary of State Rice argued for a Maritime Security Regime for Northeast Asia in 2006, but that has yet to materialize. A formal commitment to the above exchanges outside of relationships with traditional allies would have to part of the foundation of such an agreement.

The benefit for the Obama Administration is that they can choose to take these initiatives and re-shape them for a new strategy, or scrap them altogether.

******************************************************************************************************************

Overall, it is obvious that the Bush Administration's strategy for China revolved on stable economic ties that could then be leveraged in other areas, such as regional security and military affairs, environmental sustainability, and conversations on human rights abuses. It is no secret that almost every other country in the Asia-Pacific takes the same approach. The Bush Administration was also fairly adept at managing the fine line between appearing confident and appearing arrogant when dealing with Asia-Pacific nations, especially China (excluding North Korea). The Obama Administration must be careful to manage this line while attempting to make its own stamp on Asia-Pacific policy. The first few official exchanges will indicate how well they have prepared.

The new Obama appointees are already making headlines with talk on China, so I look forward to highlighting their roles (as mentioned in my previous post) over the next few days in distinct parts.

Viewing Current Affairs from Down Under

It is taking some time for me to adjust to the new Australian prism through which I am viewing current affairs. The surrounding environment here is dramatically different from Japan and the rest of Northeast Asia. At the same time, I am strangely still officially part of the Asia side of the Pacific and the influence is visually obvious in the mix of faces, restaurants and businesses here in Melbourne. The influence also comes across in general Australian awareness of Asia. Of course, this is very gratifying and blunts the impact of culture shock.

Being here simultaneous with the inauguration of President Obama provides a glimpse into the political opinions of Australians, and most have welcomed the new President with excitement, viewing it as America making a significant leap of progress in society. I believe most also assume this will translate into an equally significant leap in political progress, attitude, and approach towards interaction with other nations. Of course, much of these expectations are based in negative opinions or interpretations, rightly or wrongly, of President Bush's attitude and approach the past 8 years.

From having spent most of the last 4-5 years in Northeast Asia, I can say from the confidence of personal experience that the Bush Administration handled the Asia region mostly with success, leaving stronger relationships behind with China, Japan and South Korea than what had existed at the end of the Clinton Administration. However, the North Korea problem still persists and our relations with Russia have stagnated considerably. The clear success of establishing a multilateral process in the 'Six-Party' framework for handling the North Korea problem increased our political capital with China in particular, and in this sense, has increased pressure on North Korea via that channel. Unfortunately, the essential state of North Korea has been little changed, with no believable transparency into its scheming around nuclearization and stringent state controls.

Regarding tensions between China and Taiwan, these have been reduced primarily due to changes in the Taiwanese Government and its approach to building ties with the Mainland. However, I feel the stability in the China/US relationship has provided a positive backdrop for this to develop. Around the rest of the Asia-Pacific, relations have been maintained or improved upon with Vietnam, Australia and, in general, the rest of Southeast Asia. Now with the global economy side-swiped by the credit crisis, and in only the very early stages of regaining its footing, we are all looking outward and inward in an effort to find solutions to the issues at hand.

The impact the new Obama Administration will have on our economic and diplomatic links with Asia is soon to be seen, and flow forth not just from the President, but also from those in a few key positions. Under the title of "Renewing American Diplomacy", the new administration has opened with the following:

"Seek New Partnerships in Asia: Obama and Biden will forge a more effective framework in Asia that goes beyond bilateral agreements, occasional summits, and ad hoc arrangements, such as the six-party talks on North Korea. They will maintain strong ties with allies like Japan, South Korea and Australia; work to build an infrastructure with countries in East Asia that can promote stability and prosperity; and work to ensure that China plays by international rules."

Basically, this can be interpreted as follows:

1. We want a grand strategy for approaching the region.
2. The approach of signing bilateral free-trade agreements, such as with South Korea, will be questioned, if not scrapped.
3. We don't believe the Six-Party Talks were of any serious, formal value.
4. We want to reassure our traditional allies of our strong relationships.
5. We want to expand positive links between East Asian economies.
6. We plan to be more antagonistic with China via the WTO and other international bodies of which they are a member nation.

What must be understood in regards to the Asia-Pacific is that almost everything will be a function of the U.S.-China relationship.

The Obama Administration must get this right first, and all else will follow; a reason for me recommending last year that China be the first country President Obama visits on his first official trip outside the United States.

This is why #1 in the above list is extremely important and must be in place prior to anything else on the list, especially #6. Although I have my doubts about #2, if it is superceded by a grand strategy that stresses the importance of economic connectivity over the introduction of progressive labor standards, I believe it could be positive in the long-term. On #3, the Obama Administration must be careful not to completely throw away this framework; rather it would be best to study it, take what works, and enhance the relationships that were developed. They must not underestimate any framework that is able to seat China, Russia, Japan, South Korea and North Korea at the same table on a somewhat regular basis. As for #4 and #5, there is nothing new or creative and are hard to disagree with.

Over the next few posts, I will profile those in the following offices as I believe they will be critical in the Obama Administration's execution of any grand strategy relating to U.S. links with the Asia-Pacific:

• Council of Economic Advisors
• US Trade Representative
• Secretary of Treasury
• Secretary of State
• Secretary of Defense

As I have stated before, a great 'grand strategy' means nothing if you do not have the means to execute it.

Since some of the nominees for the above positions are not yet confirmed, I will begin with those that are and continue as they are filled. These posts will try to clarifyexplore the larger economic and political context within which supply chain logistics managers will do business in the Asia-Pacific over next few months and years.

Happy New Year

I hope that everyone's 2009 has started off on the right foot.

As for myself, I have transferred to the Melbourne office of Manhattan Associates for a great opportunity to work with a new client, new product and new people--and yet within the same company.

At the moment I am busy searching for a new apartment prior to my wife's arrival, and the logistics of it here in Australia are a bit different than in the U.S., although much more straight-forward than Japan.

Officially still part of the Asia Pacific, I still look forward to commenting on the region from my new location, and on global supply chain management in general. All in all, I look forward to a 2009 full of some great blogging.

Cheers!