There's a hole in your budget, dear Labor, page-172

Great point MS.... I wasn't aware of this and couldn't find it on IMF site so this analysis from Lowy will have to serve....

much more detail in the discussion on the linked page.


As already noted here, the International Monetary Fund made a strong case for more diversification and substitutability rather retreat to domestic manufacturing in its latest World Economic Outlook. It argues: “Trade was fairly resilient in the pandemic – falling sharply initially, but then recovering rapidly in line with economic activity and demand, despite significant bottlenecks in trade logistics.”

So, it argues the moves to reduce dependence on foreign suppliers that has taken hold in several major countries including the United States since the pandemic may be premature and even result in less resilience given the rear vision view of the pandemic period. It cites Toyota’s response to the Fukushima tsunami as a benchmark for reducing supply chain risk through standardising components, better understanding suppliers’ inventory and regionalising supply chains rather than relying on one location. But some of these ideas were already in the Productivity Commission reports to the government last year. And the government has increasingly arguably devoted more attention to diversification than reshoring.

Friends in need

This is all fairly predictable IMF thinking. The more interesting intervention into this field in recent weeks was United States Treasury Secretary Janet Yellen’s elevation of “friendshoring” from new buzzword to Biden administration policy. Yellen told the Atlantic Council:

I think we’ve all recognised, in the aftermath of the pandemic, that our supply chains, while having become very efficient and excellent at reducing business costs, have not been resilient.

Her proposed response in more friendshoring would involve having a “group of countries that have strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system, and we need to deepen our ties with those partners.”

Australia has already gone down this path, at least at the announcement level, with the talks on supply chain cooperation with India and Japan, which may be helped by the conclusion of an interim trade agreement with India. But Yellen’s specific reference to critical minerals being a specific field ripe for friendshoring is particularly relevant to Australia’s efforts to make itself the starting point for a rare earths supply chain that avoids China.

https://www.lowyinstitute.org/the-interpreter/economic-diplomacy-trade-shifts-challenge-new-government