China's Manufacturing Dominance & Western Strategies

Mehmet Demirci is the Senior Vice President of global presales solution consulting company e2open, a connected supply chain software platform, which helps businesses manufacture their products and services. 

e2open’s SaaS platform predicts problems and opportunities which allow businesses to reduce waste and perform to the highest level and Mehmet tracks tensions which could impact the manufacturing sector. 

The interplay between China's EV manufacturing dominance and Biden's policy initiatives

One thing Mehmet is focused on is how China's manufacturing initiatives could contradict President Biden's efforts to restrict the inclusion of Chinese materials in EV batteries.

“China's dominance in the global EV supply chain poses a significant challenge to President Biden's efforts to restrict the inclusion of Chinese materials in EV batteries,” he says. 

China controls almost all stages of the EV supply chain. The country's initiatives, such as heavy investment and subsidies in EV-related manufacturing, have made it a world leader in the sector. 

“President Biden's proposed rules to cut subsidies for vehicles containing Chinese-made battery components could create inefficiencies and increase costs for the US EV industry. If not enforced carefully, these measures may hinder the competitiveness of the US EV market internationally and fail to provide the same value for money to customers,” Mehmet explains. 

Geopolitical competition for strategic raw materials and technologies adds another layer to the challenge. While President Biden's intentions may be to protect domestic interests, macroeconomic theory suggests that protectionism, without accompanying innovation, can lead to inefficiency. 

“The overcapacity situation in both the US and China's EV markets further complicates matters. China's surplus supply, fueled by domestic investments, could put pressure on US and EU-based auto manufacturers to offer lower-cost alternatives for consumers,” he says. “Balancing the power dynamics in the EV sector becomes crucial for the US to lead, as internal demand alone may not be sufficient for American manufacturers in the face of China's dominance.”

The evolving dynamics of global manufacturing

The recent warnings from the US and EU have escalated regarding China's overcapacity and its impact on their respective supply chains, which Mehmet says has significantly escalated concerns. 

“Given the interconnected and complex nature of these supply chains, it’s challenging for Western economies to rapidly reduce their dependency on China,” he says. 

Over the years, companies had built a reliance on Chinese suppliers and contract manufacturers, which provided a stable and predictable supply of goods. However, the current reality has shifted, with supplier reliability becoming the exception rather than the norm. 

“The global supply chains are facing instability due to trade route uncertainties and the imposition of new barriers by nations, leading to a trend of nearshoring, friendshoring, and, in some cases, reshoring,” he says. “China's strategy of moving up the supply chain and focusing on higher-value, higher-technology industries is contributing to its increasing market share in global manufacturing.”

The country's emphasis on advanced manufacturing sectors, such as EVs and batteries, has led to tensions with the West. The overcapacity issue is evident in sectors like solar panels, where China's dominance has grown substantially. 

“The EU and the U.S. previously had significant market shares, but Chinese government subsidies and the 2008 financial crisis shifted the balance,” Mehmet continues. “In response to these challenges, Western nations are diversifying their imports away from China, seeking alternative manufacturing sources in other economies like Vietnam and Mexico.”

In February, manufacturer TT Electronics, announced it was opening a new facility in Mexicali, Mexico, a nearshoring hub for global manufacturing supply chain solutions. 

Meanwhile, BMW is continuing to branch out in Vietnam, in its partnership with Truong Hai Auto Corporation (THACO). 

“We have cultivated a strong relationship with the THACO team and their experience and commitment to growing the brand is evident,” said Lars Nielsen, Managing Director, BMW Group Asia.

“In navigating this changing landscape, local subsidies and technological advancements will play a crucial role,” Mehmet adds. “Subsidies can offer a short-term buffer for organisations to adapt to the new reality, while technology, including automation and supply chain optimisation, will be essential in offsetting the higher indirect costs in the Western world's profit and loss statements. The US and EU are actively pursuing diversification strategies and increasing trade between them as they grapple with the evolving dynamics of global manufacturing and the challenges posed by China's overcapacity.”

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