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Weekly Roundup - Cold War Drives Innovation, Essential Products Priority and Climate Tech Challenges

Yulia Fedorova

02 Feb 2024

The new cold war between the US and China, driven by advancements in artificial intelligence and strategic control of supply chains, is highlighted in the context of generative AI being weaponized for malicious purposes. The US has imposed export restrictions on critical technologies to hinder China's semiconductor industry growth and deny military access to advanced technologies, but China has shown resourcefulness in circumventing these restrictions. Collateral damage includes China's influence over key resources like cobalt and the potential economic impact of a Chinese invasion of Taiwan. The rivalry between the US and China has the potential to drive innovation, but the US faces the dilemma of further restricting Chinese supply chains or investing in homegrown technologies to maintain its lead. The outcome remains uncertain, with China demonstrating resourcefulness in circumventing restrictions and investing in domestic technologies.

EU countries and lawmakers have agreed on rules that mandate Europe-based companies to prioritize the production of essential products to prevent supply chain crises, such as those caused by the COVID-19 pandemic and Russian-Ukrainian conflict. The agreement stems from the European Commission's proposal of the Single Market Emergency Instrument, influenced by similar measures in the United States and Japan.

The deal addresses concerns raised during the AstraZeneca vaccine supply dispute in 2021, with adjustments made to the original proposal following criticism from businesses. The new rules empower the Commission to issue priority-rated requests to purchase critical goods or services from companies, with the ability to offer liability waivers to prioritize its orders over firms' other contractual obligations. Additionally, EU countries can now jointly procure crisis-relevant or critical goods or services, while the Commission can request stock level data from companies, albeit with the option for companies to refuse by providing a valid explanation.

Recent McKinsey paper discusses the unique challenges and opportunities faced by asset-heavy climate technology businesses, such as green steel and renewable energy production. These ventures require substantial capital and face greater commercial uncertainty, making them unsuitable for traditional venture capital or private equity financing. Despite the challenges, some businesses have successfully accessed significant capital and achieved profitable performance. The paper emphasizes the importance of scaling up asset-heavy operations quickly and highlights the significance of securing a stable supply chain and offtake agreements to derisk and support the commercial model. It also recognizes the importance of talent in developing a competitive edge and suggests a balanced approach to capitalize on established and emerging technologies.

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Dive deep into research

"Traditional versus fast fashion supply chains in the apparel industry: an agent-based simulation approach" by Sabrina Backs, Hermann Jahnke, Lars Lüpke et al. (2021)

"The economics of supply chain politics: dual circulation, derisking and the Sullivan Doctrine" by Dan Ciuriak (2023)

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