Weeks before the coronavirus outbreak was labeled as a global pandemic by the World Health Organization, Alberta manufacturers were feeling symptoms.
As Wuhan, capital city of the Chinese Hubei province, endured a horrific COVID-19 outbreak, many Alberta manufacturers saw their once-reliable supply chain wobble. Wuhan’s key industries include optoelectronics, steel manufacturing, petrochemicals and pharmaceuticals. Companies like Honda, Citroen, Shanghai GM and Renault all have significant operations in the city. In 2016 Wuhan hauled in an estimated USD$22.45 billion in foreign direct investment.
Wuhan eventually shut down completely and the effects were felt around the world. A similar scenario played out when Italy began to fail under the weight of the pandemic, albeit to a lesser extent.
The COVID-19 pandemic shines a bright light on the extent to which Canada is exposed to global supply chain disruptions. In a prescient blog post published more than a year ago, Toronto Doctor Iris Gorfinkel raised an alarm around Canada’s reliance on China for most of its active ingredients in Canadian drugs. She points out that the last penicillin manufacturer in North America closed its doors in 2004. Local drug manufacturers simply couldn’t compete with state-owned and highly-subsidized Chinese operations.
One of many bright lights shining through this catastrophe is that once we’re through to the other side, governments and manufacturers will be taking a long, hard look at reliance on foreign manufacturers. But this inevitable conversation is fraught with danger. There will be knee-jerk calls for extreme forms of protectionism that, if reciprocated by our global competitors, would hammer our local exporters. The benefits of free trade generally outweigh the risks.
There is a compromise as we move toward economic recovery. Albertans and their policymakers should reflect on how exposed we truly are to global supply disruptions. When it comes to public procurement, we need to look at how chasing the lowest bid possible undervalues the long-run value of strong local supply chains. For example, The City of Edmonton might have saved a couple percentage points on the Walterdale Bridge with the builder using cheap Korean steel, but the project was a fiasco coming into service two years late with massive cost overruns.
Alberta companies also need take an honest look at their procurement practices and determine if the “lowest bid wins” is always the best policy in the long term. They may find that a little extra investment up front in nurturing a local supply chain pays off in consistent dividends down the road.
The Edmonton economy will be focused on restarting over the next few months, but eventually the dissection of our crisis response and how future crises can be prevented will begin in earnest. We must resist the temptation of protectionism and embrace the benefits of global trade and competition while, at the same time, reassessing the value of strong local supply chains.
Canadian Manufacturers & Exporters (CME) is the voice of Canadian manufacturing. CME represents more than 2,500 companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.