Chip shortage, manufacturing disruptions and inflation.

I’ve been looking at the the delivery times of computers – I was shocked at how much the chip shortage has really hit the sector. For example, if you jump to Apple and check out their shipment dates then for the MacBook Pro has a 7-9 week lead time, a build to order (BTO) iMac will take 7-9 weeks but if you take a standard model then it is available to ship immediately. In the PC world things aren’t too much better with Dell’s lead time being around a month although they have the legitimate excuse that they are dependent on the 12th Gen Intel SoC which is a relatively new chip when compared to the situation with the MacBook Pro which was released in October 2021 (link) and still suffering from high lead times. It’ll be interesting to see whether Apple also start pushing their production outside of China because part of the delays whereas Dell has assembly facilities in Taiwan, Brazil and other countries which insulates them to a certain extent from the cycle of city lockdowns that are taking place in China.

Springboarding off that into the bigger issue of inflation, the frustrating thing has been the way in which the issue has been politicised where those parties out of power try to blame the party in power all while ignoring that the biggest factor is outside of their control such as supply chain disruptions or that the solutions require long term investment not buzz word laiden press releases – see National and ACT talk about ‘value for money’ and ‘reduce waste’ but never give specifics. The other problem is that both parties are beholden to the same neoliberal ideology meaning that for them to do a proper diagnosis it would require them to admit that their assumptions made about trade haven’t panned out – that would create a more open, liberal and eventually a democratic China.

The reality? well, the reality has been that China has gone backwards rather than forwards, that given the dependency that many countries have on trade with China that access to the Chinese market is being used as leverage, that there has been an emergence of a cult of personality around Xi along with the ‘wolf warrior diplomacy’. The greatest issue though has been the creation of China as the ‘workhouse of the world’ which has driven down the cost of living (at the expense of the environment, health and welfare of workers in China) but at what cost? it has created not just a dependency but single point of failure within the supply chain, when there is a lock down in China the consequences reverberate through the global economy.

What is the solution? reduce ones dependency on trade when it comes to core or strategic essential products or commodities where possible, trade compacts with countries of like minded values and most importantly a focus on an economy that is centred around resilience rather than simply centralisation at all costs for the sake of economies of scale. Take the US meat processing market – heavily centralised meat processing plants resulting in a situation of one person getting sick then it spreads like a contagion through the abattoir only to find it is closed down and now the supply chain for meat is disrupted. The result? limited inventory is then bidded up resulting in inflation – supply based inflation not demand based inflation, something that isn’t going to be fixed by jacking up interest rates. The argument regarding demand based inflation would make sense if there were low rates of personal debt but given that any money injected into the economy is used to pay off debt, it isn’t a situation of people are flush with cash and the vast majority of people are ‘living it up’ because if it were the case then how do you explain 12 years of low inflation numbers even while running large deficits with most of it being monetised (or as the kids say these days ‘money printer go brr’)?.

Yes, we can do things in the short term such as half price public transport (I’d prefer it to be permanent but that’s just me I guess) but longer term there needs to be a plan to make the economy less dependent on oil, to ask what appears to be the blatantly obvious which is, “is it really all that smart to catch fish in New Zealand, ship it to China for processing and then importing it back to New Zealand?” putting aside the carbon miles associated with the whole process, does it really make sense at least from a food security point of view? losing the capacity to manufacturer our own food all for the sake of saving a few cents?

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