It was only eleven days ago when I wrote about whether comparative advantage was still a useful concept post-Ukraine, and suggested:

Free trade amongst smaller numbers of cross-border ideologs might become a new normal. Mike G.

Well, on Anthony Albanese’s first day on the job as Australian PM, U.S. President Biden and 12 other countries announced a 13 country supply chain and trade cooperation initiative, called the Indo-Pacific Economic Framework (IPEF).

The founding members of IPEF include Australia, Brunei, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, United States and Vietnam.

It comes comes after Trump’s failed phase one trade deal with China that will likely remain in the dumpster, and it’s definitely not a new game of whack-a-mole based on tariffs and extracting access.

No. The game appears to have completely shifted off the old playing field of direct foe versus foe, and onto a new one of regional alliances versus foe.

IPEF is focused on U.S. Indo-pacific interests and based on cooperation between similar ideologs in areas of trade, supply chains, clean energy and infrastructure, and tax and anti-corruption.

Countries that share the same goals and interests are welcome to join. It is not overtly mercantile in the sense that it is not founded on compulsory access to markets. But it is overtly anti-China.

Questions abound. Will Taiwan join? Will Modi use it to flex his demographic muscles away from China? Will there be a quid pro quo that Modi withdraw any support of Russia? Will the financing of infrastructure be able to keep up with financing under China’s Belt and Road? How will Europe react?

I note in the mainstream press that China has already labelled it divisive and doomed to fail. And whether it gains serious traction or not is the subject for another day.

But all of that aside, what is interesting is the focus on what I think might be akin to creating supply chain ‘twins’.

In other words, the framework suggests an environment where the 13 countries can back-stop or stop-gap one another so that if manufacturing or production stops in one country, another can take up the slack.

Here’s what the IPEF Fact Sheet (linked below) says:

We will seek first-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy and guard against price spikes that increase costs for American families. We intend to do this by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts. IPEF Factsheet

If that works it would mean that not everyone would have to duplicate an ‘out of China’ supply chain.

So, going back to my article, here’s how I ended it:

Perhaps the answer is that the rising beta of dealing with certain countries and ideological blocks will accelerate the shift to de-globalisation, re-shoring and regional free trade zones - and comparative advantage outside of those free trade zones may be ignored despite demographics and economics, until common sense returns to a fast fragmenting world.

This is probably why the re-shoring and re-tooling of industry and supply chains in many parts of the world represents a massive opportunity. Free trade amongst smaller numbers of cross-border ideologs might become a new normal.

It’s an opportunity for countries that are smart enough to see it, and governments which are brave enough to support it with fiscal spending and ethically aligned bi-lateral trade deals.

Plenty of food for thought when you next consider which muppet you’re going to elect.

Well played President Biden, I get it, but I do hope our New Prime Minister is no muppet and understands what’s at stake here - not sure our last one did.

Mike