Commentary: COVID-19 and supply chains, no silver bullet solutions

Mark Agnew is Senior Director of International Policy at the Canadian Chamber of Commerce.

The phrase “supply chain resiliency” is increasingly what people see when looking into their economic crystal ball. Yet, it is not as simple as three words. 

At the outset it is important to remember that macroeconomic indicators represent the summation of individual business transactions. Thankfully a centrally planned state apparatus in Canada does not decide where to export, import, or invest. In terms of responding to the lessons learned from COVID-19, unless the government is going to nationalize industries and take direct control of companies, strengthening supply chain resiliency instead hinges on incentivizing private sector behavior.

The incentives needed to induce a change in supply chains varies by sector. Some of these include:

• Tax and financial incentives – What measures should exist for companies that produce in Canada, such capital cost allowances as well as payable or non-repayable grants?
• Procurement – Will the government use procurement as a tool to incentivize domestic production through long-term performance requirements in contracts? Would procurement be used as a tool to support nascent companies or industries?
• Regulatory – How can regulations be a tool to shape desired supply chain outcomes? For example, overhauling regulations to improve the business environment or making it easier to manufacture domestically.
• Infrastructure – Given the distances to move products within Canada, what infrastructure needs to be in place to ensure that goods can move where they are needed in an expeditious manner?
• Trade and investment – How do Canada’s external trade policies affect the relative incentives for production across international boundaries? What sort of trade policy constraints are acceptable to place on our procurement, regulatory, and investment policies?

Although the above points focus on the physical production of goods, services play a critical role in resiliency throughout all stages of the supply chain. At the front end are knowledge-intensive inputs such as engineering and R&D. This design work and intellectual property are critical for many industries to stay at the leading edge of their sector and remain competitive. There are likewise critical functions further down the supply chain such as maintenance and third party providers that support ongoing business operations.

The flip side to resiliency is not just about supplying our domestic needs, but also ensuring export opportunities for Canadian companies abroad. An example is supporting trade-enabling infrastructure that gets our products to market. Domestic regulatory rules also have a significant impact on the ability of Canadian companies to participate in global supply chains as it pertains goods (eg. product standards) and services (eg. professional qualifications).

The current crisis has shown that supply chains are hugely complicated with many moving parts needed to shift private sector behaviour. There is also the interplay of how these policy measures would affect other sectors. It is better to think of the cumulative impact of these variables on company-level microeconomic decisions that lead to the macroeconomic shifts. As Canada moves forward in identifying how supply chains need to adapt, there are no silver bullet solutions.

– Mark Agnew