In a recent Supply Chain Management Review article, columnist Rosemary Coates told the story of how a LAN transformer had resulted in thousands of Audi, Bentley and Porsche vehicles sitting idle at U.S. ports.
The story detailed how that LAN transformer may have violated the U.S. Uyghur Forced Labor Prevention Act (UFLPA), which bans the import of any component produced by forced labor. The transformer, parent company Volkswagen Group, learned may have been produced by a sub-supplier that was on the U.S. banned entities list for its use of forced labor.
In terms of procurement issues, this is just a minor blip on the radar of the current geopolitical landscape. There are issues in the Red Sea. There is the ongoing Russia-Ukraine war. There is Israel-Hamas. There are trade tensions between the U.S. and China. There are elections, not just in the U.S. but in at least 64 other countries. There are concerns over certain minerals such as graphite, which China dominates with 61% of the market share. China also controls the global supply of gallium and germanium, two critical minerals used in semiconductor production.
“The leaders are symptoms of these challenges. They are not the causes of these challenges.”
In short, there are plenty of geopolitical issues that procurement professionals not only need to be aware of, they need to navigate around.
There are some that believe the upcoming U.S. presidential election will change the fortunes of global trade and provide clarity on the path forward. To Ian Bremmer, though, that is a fallacy.
Speaking at the recent ISM World Reimagine conference at the MGM Grand in Las Vegas, the founder and president of geopolitical risk advisory firm EurasiaGroup, Bremmer dedicated his nearly 50-minute keynote address to the current geopolitical environment. He detailed much of the recent history that has brought the world to its current situation, taking nearly five minutes before he even mentioned the two U.S. presidential candidates.
“You should notice for just a moment that so far in my talk I have not mentioned, Joe Biden; haven’t mentioned Donald Trump; haven’t talked about the upcoming elections in the United States or the last one because this is structural,” he told the audience. “The leaders are symptoms of these challenges. They are not the causes of these challenges.”
When the supply chain moved into the mainstream due to the high number of disruptions and rising inflation that drove up prices, consumers demanded answers. The Biden administration responded by creating the White House Council on Supply Chain Resilience. But what is that? Melanie Nuce Hilton, senior vice president of community engagement at GS1 US, joined Talking Supply Chain host Brian Straight to discuss the council, its purpose, and what it may be able to achieve as it prepares a report on the state of the supply chain for later this year.
Bremmer dismissed the idea that a change in political leadership will wipe away the geopolitical risks to supply chains.
“That is not doable with an election. It is going to take at least a decade or two,” he noted.
Certainly, that doesn’t sound positive for procurement leaders, but Bremmer offered some words of hope, and it all boils down that one word that has become divisive in American politics: globalization. Bremmer noted that India is growing quickly, and more manufacturing is moving away from China to other countries. The result: Without globalization, supply chains will break.
For those that believe the U.S. insourcing all its manufacturing is the answer, Bremmer has a story to tell.
“If the United States, in our wisdom, wants to ensure that Americans only have access to lousy, expensive EVs, America can do that. America is capable. America is powerful enough to ensure that Chinese EVs do not dominate the United States … but the rest of the world will not do that,” he said. “The rest of the world is going to have access to American AI and programming, and Chinese transition energy and production, and that is globalization. That is the global supply chain. You cannot fight a cold war if no one else wants to fight it. You can’t. You can have a few bureaucrats in Washington and in Beijing saying, ‘we don’t trust these guys. We’ve got to increase the costs. We’ve got to put up the tariffs,’ but the rest of the world isn’t going to play ball.
“The rest of the world is going to globalize. The rest of the world is going to have access to these technologies, and that is by far the best news I have to give you today, is that the politics will not trump the technologies, it will not trump the size of these markets,” Bremmer added. “The United States today is the most powerful global military in the world. Thirty-seven, thirty-eight percent of all defense spending in the world is spent by the Americans. It’s the only country in the world that can send its troops, its ships, its drones all over the world; has bases all over the world. The global economy is not driven by the U.S. The global economy is actually multipolar. You’ve got the Americans, you’ve got the Europeans, you’ve got the Chinese, you’ve got the Indians coming up, you’ve got the Japanese still relevant. It’s multipolar.”
The geopolitical environment is much more complex than just what is written here. In fact, Bremmer’s entire presentation provided a general overview of the risks, which also include energy transition, the belief by more people that their governments are not acting in their best interests and that the U.S. shouldn’t be acting like the world’s policeman anymore, and that China has become more authoritarian in the past 10 years as President Xi Jinping has consolidated power in the state.
World Trade Centers offers a helping hand to create resilient, interconnected supply chains
Bremmer was not all doom and gloom, though, and noted that ultimately, he believes the interconnectedness of the global supply chain will prevail. And he also believes China may have overplayed its hand as more Asian countries are leaning toward the U.S. That is leading to an uneasy truce, if you will, between the U.S. and China.
“Both countries are trying to manage more effectively than they have for the last 10, 20 years,” Bremmer said. “And an environment where the geopolitics aren’t so good, and there are a lot of real dangers out there, you don’t necessarily need to create another danger that you don’t have to have right now.”
So, for procurement professionals, the answer may be in the current strategy: diversification. With more countries lining up to offer their services, the ability to source effectively may be improving.
“So here we are in 2024 and the American political space looks mean and nasty, and everyone agrees that the other side is trying to destroy democracy, but around the world, things are more stable than you might think,” Bremmer concluded.
Brian Straight is the Editor in Chief of Supply Chain Management Review. He has covered trucking, logistics and the broader supply chain for more than 15 years. He lives in Connecticut with his wife and two children. He can be reached at [email protected], @TruckingTalk, on LinkedIn, or by phone at 774-440-3870.
@SupplyChainManagementReview on Facebook
@SCMR on Twitter
SCMR on Linkedin