The supply chain disruptions precipitated by the COVID-19 pandemic have led to renewed calls for industrial reshoring across advanced economies, and the Ontario government is no exception. What policies could the Ontario government deploy to strengthen capacities? And should the government’s goal be to reshore, or pursue more resilient supply chains?
Today’s policy brief is entitled, Homeward Bound: A Reshoring Strategy for Ontario, by Ontario 360’s co-directors Drew Fagan and Sean Speer and Munk School alumni Saif Alnuweiri. In it, they set out a conceptual framework as well as policy recommendations to guide provincial policymaking on questions of reshoring, “friend-shoring” and supply chain resiliency.
Issue
The supply chain disruptions precipitated by the COVID-19 pandemic have led to renewed calls for industrial reshoring across advanced economies. Governments around the world have increasingly articulated the need to rebuild certain strategic productive capacities such as medical equipment within their borders and some have even set out policy strategies to hasten this trend.
The Ontario government is no exception. Its spokespeople have at different points over the past two years conveyed the importance of domestic manufacturing in general and the need for industrial reshoring in particular. Early in the pandemic, for instance, Premier Doug Ford said the following:
“
[We can no longer be]
beholden to countries around the world for the safety and well-being of the people of Canada. We have the technology, the ingenuity, the engineering might, the manufacturing might. There is nothing that we cannot build right here in Ontario.”
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While the government has since announced a new provincial fund, in partnership with the Canadian Manufacturers and Exporters, to support an “Ontario Made” campaign, it is fair to say that it has yet to put forward a comprehensive strategy to bring expression to the premier’s reshoring or supply chain ambitions.
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The basic idea of reshoring is simple enough. It refers to the process of returning domestic manufacturing from foreign markets to the home country where the business’ products are sold. In practice, though, it is far more complex. Policymakers must account for considerations such as the costs and benefits of attempting to reshore certain productive capacities, how to determine which capacities to prioritize in the first place, and whether the ultimate goal ought to be reshoring itself or more resilient supply chains along a regionalized basis or among allied countries.
The context for such emerging policy questions is that globalization of manufacturing production took off over the past 30 years. Consider, for instance, that global trade jumped from 39 percent of global GDP in 1990 to 58 percent in 2019.
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These trends have been driven by various factors, including sectoral and firm-level responsiveness to marginal production costs.
Advanced economies like Canada experienced significant declines in their manufacturing footprint as production shifted to lower-cost jurisdictions such as China and Vietnam.
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These employment losses have been offset by an overall increase in global production as well as lower business and consumer prices. This trade-off is the subject of political debate (particularly for some regions, communities, and workers) but on balance economists generally agree that the net effects have been positive in overall terms.
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The pandemic-induced supply chain disruptions, however, have renewed the debate about the efficacy and risks of these global supply chains. Bottlenecks and shortages have caused even the most vociferous free traders to question whether there is a role for public policy to support certain strategic domestic production capacities or to improve supply chain resiliency.
This would not represent a full reversal of globalization. Markets would still, by and large, dictate the distribution of production for most manufactured goods. But there may be so-called “strategic” or “critical” manufactured goods – including, for instance, vaccine production – where national or sub-national governments may be prepared to use policy levers to ensure that they maintain certain productive capacities within their borders or among regionalized partnerships.
The key questions in this context are: (1) What policy instruments could the Ontario government deploy to strengthen the province’s productive capacities or improve its access to strategic or critical supplies? (2) What productive capacities or supplies are indeed strategic and critical? (3) Should the government’s goal be to reshore these productive capacities or to pursue more resilient yet still globalized supply chains?
