A supply-chain “strike force”, and the problem with allies

Shortly after election, US President Biden enacted an executive order to perform a 100-day review of critical supply-chains. The report was released in June, and one of the outcomes of the report was a trade “strike force”, which is supposed to look for anti-competitive practices that have hollowed-out the US supply chain for a number critical goods. To be sure, US reliance on foreign production for a number of things from medical supplies, to drugs, to computer chips, has been highlighted during the pandemic. Equally, it would be wise of any country not to become dependent on China (or anyone else) for such critical goods. But while this notionally makes sense, there are (as with all such things) hidden complexities. I’ve already written briefly on the incredible amount of money fixing this would take (“There’s not enough wood behind that arrow”, newsletter #68), but the recent French-Australian-US-UK kerfuffle over submarines points out some of the harder issues. How do we balance an at least notionally ally-based supply chain providing security for critical components and infrastructure at the national level, while simultaneously supporting allies — or, who gets to actually secure their own future?

A quick review of the background: in 2016, Australia agreed to buy 12 diesel-electric submarines; the contract was cancelled by Australia last week, claiming the project was years late and well over budget; simultaneously, Australia announced they would instead be purchasing nuclear subs from the US and UK; both France and China are livid (to give you an idea of how livid, France has recalled their ambassadors from the US and Australia).

Of course, from a “contain China” perspective, Australia having nuclear subs is a preferable state of affairs. But coming back to supply chains, allies, and national security, France is able to maintain an independently sourced and developed navy, because they subsidise their development through sales to allies (à la, diesel-electric submarines to Australia). To the extent that allies are allies, they’re also competitors within that allied ecosystem. Pulling critical supply-chain elements into allied nations reduces strategic risk, but it also creates a competitive landscape that undermines the desired goal, to the extent that said allies are also competing with each other from both a technological and economic perspective. This is even before we start looking at questions of what it means to be an ally and who is allied with whom? Thailand is an extremely close ally with the US — so what does it mean that they’re conducting digital currency experiments with China, as mentioned in the newsletter?

It’s all well and good for the Western World to decide to diversify their critical supply chain, and move at least part of it out of China and into, say, India and Thailand, but how far does that really move the needle?

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Chris Richardson has strong opinions on just about everything. Just ask.