[EAI-SBS Foundation] ④ Supply Chains and Technological Networks Reorganized Amid Fragmentation

YouTube Link: https://www.youtube.com/watch?v=zBEo7ZMNIxI

Video Script

Hello. I am Hyun Lee from the Korea Institute for International Economic Policy (KIEP). When I joined this research project, Professor Seung-hyun Lee asked me to evaluate the economic or trade aspects during the big picture conceptualization phase. I tried my best to address that part. As the project duration was not long, I spent considerable time on how the future world order would change and how to structure it within a theoretical framework, rather than focusing on rigorous academic evidence or specific papers. My role was to find evidence-based support through data within this framework. The core keywords of our research project were to identify the direction of the two forces, 'economic security' and 'securitization of the economy,' as described by Professor Jeon Jae-sun, as the core structure.

Multilayered Fragmentation of Global Networks

What I identified is that supply chain decoupling, supply chain fragmentation, or club formation occurs differently across various layers. Here, layers refer to four levels: general goods trade, advanced industrial supply chains, technological relations and exchanges, and military security, each of which appears to manifest in distinct ways. This was a structure we all agreed upon. Therefore, for each layer, I examined the changes over the years (2014, 2018, 2023) for the three aspects I was responsible for: goods trade, advanced industrial supply chains, and technological relations and innovation networks. I also analyzed the changes over time and the differences across advanced industries, goods trade, and technology innovation networks when measuring the intensity of decoupling in terms of network connectivity.

This concludes the explanation of the research part I was responsible for, and I will now present the research findings. The findings largely aligned with our expectations. First, for the goods trade network, the connectivity strength increased by approximately 50% in 2018 compared to 2014. However, by 2023, it regressed to a lower connectivity strength than in 2014. Next, examining the advanced industrial supply chains, while there might be discussions regarding data construction methods, according to the criteria we defined, the network connectivity strength was relatively low compared to general goods trade. It remained at a low level for all years: 2014, 2018, and 2023.

Analysis of Changes in Goods Trade and Advanced Industrial Supply Chains

The advanced industrial supply chain also showed a trend of decreasing in 2023 after peaking in 2018, similar to goods trade. In this regard, it occurred to me that decoupling happens in different forms across layers. Finally, to analyze the technology innovation network, we utilized patent citation networks. Based on how much a specific country cites patents from other countries, we analyzed technological exchange and international relations. Compared to goods trade and advanced industrial supply chain networks, the analysis revealed a characteristic that China has significantly fewer international partners, meaning fewer countries with which China maintains close ties.

Restructuring of Technology Innovation Networks and the Rise of China

Until 2014, the global patent network was almost a single system centered around the United States, with Japan forming two clubs by disseminating U.S. knowledge within Asia. Interestingly, after 2018, a phenomenon emerged where China became the country absorbing the most technology from the United States. By 2023, China has taken a central position in the Asian technology club, but Japan and South Korea have exited this club. This can be interpreted as the technological center of Asia shifting to China, while Japan and South Korea have either sought self-reliance or attempted to find a balance between the U.S. and China. This is a short-term interpretation and requires future verification.

Potential Ripple Effects of Technological Decoupling

One of the most significant insights from the technology layer, as mentioned earlier, is that China has far fewer technology partners than goods trade partners. In the goods trade supply chain, China has various partners besides the United States. However, in the technology sector, the U.S. remains the most crucial country for technological development and global influence. If the U.S. and China decouple in the technology sector, it is my belief that China's current innovative growth will become difficult to sustain, potentially leading to a crisis far greater than that in the goods trade supply chain.

Lee Hyun (Associate Research Fellow, Korea Development Institute)

Managed and Edited by: Lim Jae-hyun, EAI Research Fellow
Inquiries: +82-2-2277-0746 (ext. 209) jhim@eai.or.kr