Global Trade and the Ethical Supply Chain In High-Tech Markets

Global Trade and the Ethical Supply Chain In High-Tech Markets
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Media outlets and activists episodically highlight the ethical complexities of mineral supply chains that lie behind producing everything from electric cars to iPhones. The U.S. imports nearly a half-trillion dollars worth of tech products – computers, TVs, integrated circuits, and batteries – and another half-trillion worth of cars and machinery. All of these goods begin with raw materials increasingly sourced from places like the Congo, China, or Argentina.

Most economists hold free trade as generally positive. But that doesn’t mean markets necessarily consider the ethical dimensions of trade decisions, especially when consumers are unaware of them.

For several years now, the Securities Exchange Commission has tried to enforce new rules requiring tech companies to disclose supply chain information. Turns out it is often not so easy and frequently complicated. A few companies have gone to great lengths to produce such reports, while others, notably Tesla, have pursued more vertical integration and direct sourcing of raw materials.

There are myriad critical minerals and metals that underpin the production of electronic devices and both high-tech and low-tech cars. Consider cobalt, essential to producing lithium batteries. The top five countries producing cobalt are the Democratic Republic of the Congo (DRC), China, Canada, Russia, and Australia. But the DRC dominates, supplying 60% of global demand with two thirds going to China. Then the U.S. imports $1.5 billion worth of cobalt-containing batteries from China.

As with so much else on the policy agenda now, one may wonder at the impact of president-elect Trump’s Buy American promises. New policies may well impact environmental and social “responsibility” considerations for high-tech manufacturers and their material suppliers. But odds are it won’t lead to a big jump in sourcing from the American extractive sector. While the U.S. is a mineral-rich country, recent history suggests there still isn’t much support for a lot more domestic mining, in part because of costs.

Two factors drive cost up for mineral extraction: regulations and labor. Countries like the DRC can compete on price even when mining lower-grade ores because of cheap cost of labor and lax environmental and safety regulations. But if enough companies, and consumers, worry about the sweat of Congolese children used to supply inexpensive materials for batteries, for example, might the supply chains shift?

One beneficiary of attention paid to ethical supply sources – and perhaps the next best thing to “buy American” – could be “buy Canadian.” Canada has minerals and metals in abundance and is well equipped for and generally tolerant of expanding extraction. While Canada’s GDP, like that of the U.S. and most developed nations, relies predominately on the services sector, it has a much greater reliance on and thus vested interest in its primary (or extractive) sectors.

What’s more, Canada’s metal and mineral deposits are both particularly high-grade and geographically close, requiring less work to extract large volumes of product as well as lower shipping costs. There is an obvious opportunity for U.S. electronics producers to take greater advantage of relatively local and transparently conflict-free minerals, especially in light of China’s heavy investment in Africa as a source of cheap raw materials.

Now with cars increasingly resembling rolling computers, the transportation sector may well get dragged deeper into the supply chain and conflict minerals controversies. In principle, tighter integration of the North American industries offers both strategic and economic benefits along with an ethical supply chain. Canada already sells about $25 billion, roughly half, of its minerals and metals exports to America. To step this up a notch, U.S.-based tech manufacturers will likely have to emulate China’s sourcing model in bartering competitive pricing in exchange for long-term agreements. There is, in theory, a win-win here. After all, the U.S. currently enjoys a trade surplus with Canada if petroleum is subtracted from the equation.

Arguably Canada has as much to gain on the outcome, especially given the likely continued increase in American petroleum production further eroding Canada’s number one export to the U.S. The Canadian side might reasonably argue that an expanded ethical supply-chain is a “good deal” for America.

Supply chain relationships can be complex and problems aren’t easily addressed with Band-Aid solutions to economic and diplomatic challenges. This is particularly true now, with the Trump Administration’s focus on NAFTA. But if there’s one thing learned from NAFTA (recent political histrionics aside), one can achieve significant and mutually valuable market integrations across the North American continent.

Based in Washington, D.C., Portia M.E. Mills is a principal in Great Eagle Marketing. Readers can follow her on Twitter @portiamills.  

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