Inside Out | Don’t blame China for monopolies that threaten economic security

One of the most alarming lessons from the Covid-19 pandemic and Russia’s invasion of Ukraine is that even modest supply-chain snarls have exposed extraordinary vulnerabilities in surprising places, triggering global concern over national economic security. Some of this concern has been driven by paranoia, but some is wholly legitimate and needs to be addressed.

Yes, supply chains need to be shortened and simplified, and many can be made more local. Companies should seek to diversify wherever possible to ensure they are not reliant on a single supplier for key inputs. Resilience also implies compromise on “just-in-time” models, and a realisation that building “just-in-case” capacity is likely to add to costs for companies and their customers.

But, as Rana Faroohar wrote in the Financial Times last week, much of the freshly discovered vulnerability arises from a creeping concentration of corporate power both within and between economies. Much of it is the result of several decades of lax application of anti-monopoly laws.

There will undoubtedly be lots of cases – including “natural monopolies” where extraordinary concentrations of producer power might appear inevitable – where the rule of four cannot work. But the simple, consistent practice of scrutinising our supply chains in terms of the rule of four would provide valuable early indicators of dangerous or unacceptable vulnerability.

As concerns over national economic security have exploded, it has become fashionable to blame China for our most serious vulnerabilities. Who would not be worried that China is home to 76 per cent of global electric vehicle battery production capacity and 60 per cent of global rare earth mineral production?