Selective Disentanglement: What Fractures vs. What Keeps Flowing

China’s share of US mobile phone imports dropped from 65% to 20% since 2000. India is now the largest supplier as Apple shifted iPhone production. This is fracturing by design – security-driven, not cost-driven. But toys, furniture, and clothing? They’ll keep flowing.

The Strategic vs. Non-Strategic Divide

Shearing’s core prediction: fracturing will be confined to strategically important areas – anything affecting supply chain — as explored in how AI is restructuring the traditional value chain — security, national security, or global technological leadership.

WILL FRACTURE (Bloc-sourced or reshored):

– Chips, semiconductor — as explored in the economics of AI compute infrastructure — s, AI
– Batteries, EVs, green tech
– Biotech, pharmaceuticals
– Dual-use goods (drones)
– Telecommunications equipment
– Critical minerals, rare earths

WILL CONTINUE TRADING:

– Toys, furniture, clothing
– Basic consumer goods
– Commodity inputs
– Non-strategic manufacturing

The Mobile Phone Case Study

The smartphone shift illustrates the mechanism perfectly. Mobile phones are “essentially computers in our pockets” with massive data and security implications. Apple made the strategic decision to shift production of the latest iPhone out of China into India.

This wasn’t about labor costs – it was about reducing single points of failure in a strategically important sector. The fracturing is sector-specific, not universal.

Implications for Business

The critical question: Are you operating in a sector that could be perceived as geostrategically important? This breaks into two sub-questions: Are you in a strategic sector? Are you using geostrategically important inputs?

Key Takeaway

As the AI Value Chain shows, the implications for a toy manufacturer are “somewhat different” from chips or biotech. Know where you sit on the strategic spectrum.

Source: The Great Fracturing with Neil Shearing on The Business Engineer