CLEMENT: Supply chain concerns have become even more pressing for Canada

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The double whammy of COVID and Russia’s invasion of Ukraine is creating changes of tectonic proportions on global supply chains. Canadian governments and businesses need to take this into account and change their thinking. The alternative is continued shortages, massive inflationary pressures and lower living standards for all.

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Even before COVID, there were warning signs that business could not continue as usual for global supply chains. The Chinese government was busy establishing massive dominance over rare-earth elements like cobalt and lithium, paving the way for control of electric vehicles and solar panels.

Then COVID hit hard and shortages of masks, gloves and gowns, with China controlling the market, sent shockwaves through healthcare procurement sectors. At that time, it became clear that the lack of local supply of essentials is not just affecting jobs. This affects our health security and our national security.

Countries have started to relocate critical aspects of our economies. Canada has started to source PPE locally and has established a joint initiative with the Americans to create a non-Chinese-controlled supply chain for the extraction and processing of rare earth elements. President Joe Biden has signed executive orders to re-examine supply chains for semiconductor chips, PPE and major manufacturing products. The “great decoupling” from China was at least underway.

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Then Russia invaded Ukraine. This irresponsible and illegal act forced NATO and Western countries to react. Economically, Russia very quickly became a pariah state. State sanctions against Russian individuals were followed by sanctions against Russian oil and gas, financial transactions and access to funds. Additionally, in a series of stunning moves, more than 250 Western companies have either announced their own sanctions, from commercial planes to cats, or simply shut down their business operations in Russia.

The implications for global supply chains are also of a magnitude that most people are unaware of. Russia is the producer of 10% of the world’s oil and gas, which has rattled markets and helped cause exorbitant prices at the pump. But this is only the beginning.

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Russia (and Ukraine) are the main producers of fertilizers for the world. Any interruption in this supply due to war or sanctions will affect farmers around the world and food prices. Russia is also the largest wheat producer and Ukraine is the fifth producer. Disruptions there could add to food misery, mainly in Africa and Asia. It’s not a short-term problem. Russia is on the verge of defaulting on its international obligations, adding to uncertainty in global markets.

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What should Canada do about supply chains in the face of all these issues? Governments must first address decades of supply chain information gaps and identify where Canada is vulnerable and needs to act.

Second, the federal government must support new supply chain connections for rare earths, semiconductors, PPE, and other manufactured goods that impact our health safety or national security.

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Last but not least, Canadian companies need to take the sinking global supply chain seriously. This is not a temporary anomaly. It’s the new normal. Bring your supply back to Canada (and North America) and reduce your exposure to unstable supply chains with hostile countries.

The era of unfettered globalization is coming to an end. A new era of uncertainty is upon us. But Canada can not only adapt, but thrive. It is up to our government and our business leaders to make urgent but necessary choices.

Tony Clement is co-founder and co-chair of Reshoring Canada and former Minister of Industry for Canada.

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