The Influence of Politics on Automotive Supply Chains

The worldwide landscape of automotive supply chains has been greatly affected by the increasing political involvement in trade relations. What was once primarily driven by economic considerations is now being influenced by political factors, leading to the resurgence of protectionist policies and national industrial strategies. These changes have significant implications for automotive manufacturers, who heavily depend on international markets and global value chains for their operations.

For example, President Biden’s Inflation Reduction Act (IRA) is a prime illustration of this shift towards nationally focused subsidy policies. The act provides tax credits for electric vehicles (EVs) manufactured by large automotive companies, with the requirement that the final assembly must take place in the US. Additionally, a specific percentage of North American content is required for the batteries, with future plans to eliminate foreign mineral content from countries such as China and Russia. These requirements have the potential to significantly impact the global automotive industry, causing disruptions in international trade and supply chain operations.

Moreover, countries like Japan are also taking steps to reduce their dependence on China by investing in restructuring their supply chains, with the Japanese government creating a substantial fund for this purpose. On the other hand, tensions between Europe and China have been increasing due to various factors such as security concerns, human rights issues, and shifts in global influence. This has led the EU to consider the concept of ‘strategic autonomy’, which has implications for trade and industrial policy within the region.

Amidst these changes, the European Commission has launched an investigation into China’s subsidies for its EV industry. While this move could potentially protect European manufacturers, it may not necessarily promote the adoption of EVs. Instead, it might push Chinese manufacturers to explore other markets such as those in south-east Asia.

In response to the growing geopolitical risks, many automotive manufacturers and suppliers are now looking to establish more local and regional supply chains. This shift, known as near-shoring, has seen Turkey emerge as a significant player in European automotive production. The country’s integration within the EU’s Customs Union, coupled with its adaptable logistics networks and proximity to key markets, has made it an attractive hub for automotive manufacturing.

Looking ahead, the influence of politics on automotive supply chains is set to grow even stronger, posing challenges for industry professionals accustomed to operating in a purely business-driven environment. The need for expertise in navigating these complex political landscapes will become increasingly crucial for supply chain managers.

John Manners-Bell, Chief Executive of Transport Intelligence and CEO of the Foundation for Future Supply Chain, discusses this evolving landscape in his newly published book, titled ‘The Death of Globalization: How politics, ethics and the environment are transforming global supply chains’. In it, he delves into the impact of political, ethical, and environmental factors on global supply chains, offering insights into the future trajectory of the automotive industry.

In conclusion, the interplay between politics and automotive supply chains has ushered in a new era of complexities and uncertainties, marking a significant departure from the established paradigms of global trade and economic imperatives. As the industry adapts to these changes, the ability to navigate the evolving political landscape will be a critical skill for future success.