**London**: A new era in global supply chains is emerging as businesses transition from cost efficiency to geopolitical considerations. This transformation, termed ‘short-chaining’, highlights Taiwan’s crucial role in semiconductor production and the contrasting strategies of the US and China amidst evolving market dynamics.
In recent years, a significant transformation in global supply chains has been observed, driven by a shift in focus from cost efficiency to geopolitical considerations. The trend, characterised as “short-chaining,” involves enterprises prioritising local or regional production over traditional global supply networks. Factors such as regional conflicts and rising nationalist sentiments have played pivotal roles in this change, compelling businesses to rethink their production strategies.
The semiconductor supply chain offers a noteworthy example of these dynamics. Taiwan, particularly through Taiwan Semiconductor Manufacturing Company (TSMC), has established dominance in advanced manufacturing processes. This dominance has resulted in strategic vulnerabilities that the United States and European Union recognise as critical challenges. While short-chain production aims to mitigate geopolitical risks, it has introduced additional challenges, including increased production costs, varied environmental regulations, and difficulties in fulfilling large-scale market demands.
Recent analysis highlights the importance of supply chain restructuring and green transformation for the United States and the European Union, emphasising that these developments are influenced not only by US-China competitive dynamics, but also by the dual goals of stability and sustainability in the supply chain realm. The Global Supply Chain Pressure Index (GSCPI), released by the Federal Reserve Bank of New York, indicates that supply chain pressures have decreased significantly, falling from an all-time high above 4.0 in 2022 to around -0.31 by January 2025, signalling improved logistics and lower transportation costs.
In tandem with this reduction in strain, KPMG’s Supply Chain Stability Index reported a drop from 2.34 in January 2023 to 1.12 in December 2023. Despite these improvements, the United States continues to navigate residual market volatility, compounded by influences such as US port strikes and unrest in the Red Sea that disrupt maritime trade. The country’s strategy of “selective decoupling,” encapsulated in the “small yard, high fence” approach, seeks to restrict China’s access to critical technologies such as advanced semiconductors. This policy involves stringent export controls and investment reviews, particularly for sectors with national security implications.
On the other hand, China is pursuing a strategy of “asymmetric decoupling,” aiming to lessen its dependency on Western nations while increasing their reliance on Chinese products, especially in sectors involving mature process chips. To achieve this, China has initiated self-reliance policies and market expansion, particularly targeting developing countries.
The contrasts in policy approaches between the United States and the European Union are notable. While the US benefits from a first-mover advantage in supply chain adjustments, the EU is at the forefront of green transformation initiatives. The US’s California Transparency in Supply Chains Act exemplifies its focus on supply chain transparency, adopting a largely voluntary approach to corporate disclosures. Conversely, the EU’s Corporate Sustainability Reporting Directive (CSRD), implemented in 2023, mandates detailed ESG (Environmental, Social, and Governance) reporting for large companies, indicating a proactive stance on sustainability.
Despite being a primary player in this global landscape, Taiwan has adeptly positioned itself amid these evolving dynamics. Taiwanese companies have been redefining supply chain strategies to enhance resilience through international alliances. As the island seeks to maintain its technological edge, it has effectively become a key player in “trusted networks” of supply chains, collaborating with partners in the US and Europe on technology sharing and oversight mechanisms for supply chain security.
The increasing adoption of digital technologies, including real-time monitoring and analytics, has emerged as a critical strategy for optimising supply chain management. Leading firms like Cisco Systems and Schneider Electric illustrate how engagements in green transformation can enhance supply chain restructuring. Cisco, for instance, aims for nearly complete recyclability of its materials, while Schneider’s innovative programmes focus on promoting sustainability and regional influence.
As global tensions and trade relations continue to evolve, Taiwan’s role is expected to expand beyond manufacturing to encompass broader expertise in supply chain management and technology development. Recent collaborations focused on supply chain security, technological standards, and environmental protection illustrate Taiwan’s strategic adaptation in a landscape marked by competition and cooperation.
The changing paradigms of supply chains, characterised by the US-China contest and the shifts in US-EU relations, signify a transition toward regional production systems, necessitating a balance between technological leadership, supply chain security, environmental sustainability, and international collaboration. Taiwan’s efforts in navigating this complex environment shed light on the intricacies of modern supply chain dynamics and their implications on a global scale.
Source: Noah Wire Services
