Paper #26. Supply Chain Competition & Warfare II: Strategic Decisions and Integrative Options

  • Thomas A. Drohan, Ph.D., Brig Gen USAF ret.
  • Asia-Pacific, Commercial, Cyber, Eurasia, Strategy
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Authoritarian states are weaponizing supply chains into all-effects warfare while democratic states compete with inferior strategies. We can be more competitive and wage superior complex warfare in kind.

Our previous paper (ICSL Paper #25) explained how democracies, and the US in particular, entered into this self-inflicted predicament. Fundamental political, economic, and security advantages profoundly affect supply chain competition and warfare. Now it’s time to focus on decisions and options.

Decision Points

The US is in a privileged position, probably temporary, to decide what level of autarky it needs and compete globally to grow the economy. Most state economies do not have that luxury. Of the 200 or so, abut 40 are developed while the rest are emerging. As more people see the world economy splitting into Western-led and China-led spheres, policy and business decisions will be crucial in specifying boundaries between supply chain competition and supply chain warfare.

The analysis is organized around three inter-related decision points that affect broad strategies of competition and warfare: (1) diversification and leverage; (2) energy and transportation; and (3) leadership and capital.

Diversification and Leverage

Most actors face a dilemma between diversifying supply and gaining leverage over suppliers. From a business perspective, government contracts are desirable due to their reliability compared to the private sector, where diversifying suppliers erodes purchasing power. Large companies can diversify in order to increase leverage. If owned or controlled by the state, having a network of suppliers that includes potential adversaries and their partners can weaken alliances while avoiding overt military attack.

Therefore control of scale, such as multiple ports and routes, should generate influence if they occupy positions in supply chains that add value. Size matters, but information intelligence is critical. Even for actors with assets and demand greater than their suppliers, the complexity of mapping demand and supply chains frustrate achieving diversification and leverage. For many businesses, outsourcing supply is the answer.

Prior to the COVID-19 outbreak, outsourcing via Third Party Logistics (3PL) to Mexico and Southeast Asia was a trending alternative to relying on suppliers in China. Declining shipments from China and increases from Southeast Asia and Europe indicate this shift. As China’s income levels rise, skilled labor and performance standards will have to add more value to sustain competitive supply chains. The complexity of various countries re-opening from the pandemic complicates the ability to forecast and plan a viable supply network. Open and uncensored information-sharing via such websites as help small businesses by promoting innovative solutions.

The Trump administration‘s response to China’s trade war with the US, born of frustration with unfair competition and systematic theft, has increased incentives for diversification by raising costs of doing business with China. Apple, Google, Intel, Microsoft, Samsung, Ericsson, Nokia, Nike, and Adidas intend to diversify their supply chains, but what about small businesses? The latter account for 40% of US GDP. The ability to follow-through requires cash. Therefore most moves are likely to be gradual as governments deficit-spend their way through the pandemic shutdown and any subsequent biological re-attacks.

In the US, pandemic re-opening is not a rush toward self-sufficiency. Even with low interest rates and incentives to onshore more infrastructure, there is resistance. One concern is that shutdowns scatter specialized labor. With over 50,000 small businesses supporting the DoD, Chinese vendors such as Huawei, ZTE are standing by to buy. So the pressures of an extended shutdown incentivize small businesses to seek cash flow to survive, wherever that cash comes from.

For instance, the National Defense Industrial Association and Professional Services Administration requested Congress to delay prohibiting small businesses from working with Huawei and ZTE. In response, government programs spent trillions more, accumulating more debt. Much of that debt is financed by China’s purchase of US government securities ($1 trillion). In this environment, which US businesses are confident enough to risk selling factories in China at a loss? Will the US government step in to subsidize and therefore protect the parameters of that competition?

Energy and Transportation

Even autarkic supply chains need energy sources. US dependence on foreign energy is decreasing, but the price of shale oil is still higher than Middle East oil. If US policy and business leaders want to use domestic oil for internal consumption rather than pay less for foreign oil, transportation costs will increase. That effects nearly all products. An alternative to that is exporting US oil, which means allowing market forces to determine the distribution of energy, again.

As Northeast Asia’s dependence on China increases and parts of Europe become moored to Russian oil and natural gas, US oil can compete in these markets if we have access. The technology competition is important. Examples include resource exploitation with accepted standards of environmental protection, the ability to track-onload-transport-offload, and managing customer expectations if not shaping demand itself. We also need personal relationships and institutional engagement to acquire and monitor contracts, and to create political and financial influence.

What about autarky on demand—is that an option? That is, can we turn off exports and redistribute energy for local consumption when needed, other than the national energy stockpile? If so, who will assure allies and partners the flow of energy unobstructed by PLA exercises and a maritime militia’s economic warfare? Consider what the competition is doing.

With internal lines of communication and high demand for energy, China’s interests in securing energy flow and defending its expanding claims of sovereignty are on the rise. Territorial expansion and militarization of supply chains is extending in at least three prongs:

  • through the Taiwan Strait and East China Sea toward into Taiwan, South Korea and Japan exclusive economic zones
  • through also-disputed territory in the South China Sea, toward the Malacca Strait and Indian Ocean
  • westward into India-claimed territory

From a global perspective, what do we see? A growing population dependent on finite fossil fuels and facing water shortages, subject to inefficient food distribution while climate change worsens. The planetary solution is to have a globalized economy. Or, at least one that is not so sovereign states-protected that collective problems are not able to be solved.

For these reasons, a US retreat to isolationism is a flightpath to global irrelevance. China‘s early exit out of the pandemic without heavy spending and with capital for energy and infrastructure mark Beijing as the go-to source for solutions. The big question is whether China‘s authoritarian capitalism can be trusted. Particularly during Xi’s centralization of governance, China lacks the transparency to share any information that might contest the legitimacy of the CPC’s unshared decision-making.

For states that do not trust official China’s intent, shortening supply chains makes sense where efficiency can be found, but diversification is the best competitive alternative. This trend began before the COVID-19 pandemic as many corporations sought to increase their resilience. Most small business can’t afford to do this. Small businesses will go where appropriately skilled labor costs are low compared to transportation costs. Local or regional manufacturing needs to be a bottom-up set of incentivized decisions, not a top-down unfunded mandate. Expensive US exports will not compete well with cheaper labor elsewhere, given the low cost of maritime transportation.

One of the areas where US capacity needs to adapt is warehouse capacity. Warehouses are not sufficient for the increased supply due to decreased transportation, yet imports pour in from China. Goods arrive without demand so 3PLs are being contracted. Compare this situation to China’s transcontinental industrial plan with regional logistics centers — ports and airports. Prologis and CBRE, for instance, provide warehouse space and consulting to manage real estate leases as e-commerce retail sales push up demand for local distribution.

For China’s neighbors who desire alternatives to shortening supply chains with China, a globalized US economy that is engaged in international institutions is critical. Even shortening supply chains requires relationships with practices that protect partners from predatory attacks.

A diversified and leveraged US energy and transportation strategy should include the following:

  • collaboration to prevent and mitigate global threats
  • international institutions to expand supply chains
  • inventory technology and R&D to increase reliability of supply
  • transportation and infrastructure to build resilience and standards for information sharing
  • military capabilities to secure international energy and transportation routes

Leadership and Capital

Leadership is also a competition. China is looking for alternatives to US suppliers, and vice versa. There are 18 emerging economies that have experienced growth rates that would achieve upper middle income status over a 20- 50 year period. That is where a global recovery of manufacturing and trade can begin. The 53 other emerging markets were under-performing before the pandemic. Proactive investment leadership looks at the timing of growth cycles for opportunities when risk-reward ratios look good. Such as when currencies are inexpensive and good companies are trading at low prices.

To act upon these global opportunities, globalization must be protected. The existential threat to doing this is the globalization of protectionism. Every country has protected sectors, but China’s protectionism is authoritarian, globalized, territorial, and filled with disinformation. We see its oppressive influence most prominently in emerging markets.

China’s approach to the emerging markets is to buy debt, then purchase desired assets. Distress-buying serves China’s state-subsidized domestic overcapacity, which seeks markets. Growing and then protecting China’s market share on a global scale is what the Beijing politicized economy is designed to do. With 60 million Chinese employed by state-owned, collective-owned and private enterprises, Beijing needs high rate economic growth to stave off political unrest.

This approach contrasts to that of the IMF and WB: restructuring debt payments in return for domestic policy reforms. China’s approach becomes an acceptable alternative for emerging economies when democratic economies politicize and frustrate their reforms. This is what happened in the 2008 global financial crisis.

Western banks’ capital ratios for banks were weak, resulting in loans not backed up by enough reserves. Even though the IMF, US Federal Reserve Bank, other Western central banks and Japan provided emergency financing and loans, China was better positioned for the crisis. A divided US Congress failed to approve increased IMF funding quotas. That deal would have elevated the voting shares of Brazil, Russia, India and China. This outcome led to the BRIC’s establishment of the NDB and AIIB. Compared to the easy credit and low interest rates that drove risky loans in the US, China’s higher reserve ratios and interest rates enabled its banks to lend more when it was needed. China’s actions stimulated growth through infrastructure projects while the US, Europe, Japan and others were in recession.

Will this pattern replay in the aftermath(s) of the current pandemic? We know that China’s supply chains are well integrated into the global economy and backed by a growing military presence. Russia’s supply chains are thin, but backed by military aggression and a formidable nuclear capability. Less certain is China’s territorial and credit-fueled economic expansion whose municipal deficits are hidden. China and Russia expansion is having two important effects: (1) a tightening of US alliances (though tense), and (2) a transformation of Russia’s eastward economy into Eurasian waypoints.

The Need for Integrated Effects

US business and government strategists face trade offs and dilemmas. Diversification of supply reduces leverage over suppliers, unless an organization is large enough to influence terms. In energy and transportation, there is a dilemma of seeking either autarky or interdependence. The former risks an isolated, uncompetitive economy, while the latter reduces national control. Leadership requires capital for credible guarantees, but massive capital does not require responsible leadership.

Thus the world is a mix of protected globalization and globalized protectionism. Decisions made by the governments of the largest two economies can heavily influence the balance. The strength of the US dollar as the international currency of choice guides financial flows through US markets. To the extent that US tariffs against unfair traders such as China protect fair trade, they protect rules-based globalization.

In contrast, China’s opaque information sharing, dark supply chains, predatory lending practices and economic threats globalize protectionism. A coordinated disinformation campaign claims openness while China’s tariffs, subsidies and currency manipulation promote unfair trade. Prior to the pandemic, the Trump administrations’ hardline in bilateral trade negotiations found a compromise after decades of unfair trading practices. US political, professional, and business leaders are in a global struggle for advantage against authoritarian all-effects warfare. To compete, we need to generate superior combinations of effects.

Strategic Integrative Options

Supply chains are becoming integrated in complex ways even as some linkages are being removed from undesirable partners. Sudden or permanent decoupling from China is unlikely in such dynamic networks as we seek alternative supply chains closer to home. As for Russia, decoupling would be insignificant for the US. Patchy European dependence on Russian energy generates influence for Moscow primarily due to Russian disinformation and military power.

The following four recommendations enhance supply chain competitive advantage, as their effects are integrated:

  • Lead Economic Transformation of the Americas
  • Increase Diplomatic & Economic Engagement and Information-led Military Effects
  • Adjust Costs & Benefits of Protectionism and Globalization
  • Shape Rules of International Competition

Each of the four recommendations contains an integrative option for competition and/or complex warfare:

  • Option A: integrated competition to counter complex warfare waged by China and Russia
  • Option B: horizontal escalation into complex warfare to subsume that of China and Russia

Lead Economic Transformation of the Americas

Option A. Promote hemispheric integration of specialized supply chains for: competitive advantage; expanded employment; and growth with common health and safety standards.

The Americas have potential with respect to industrial capacity, a growing middle class, and capable governance. If realized, this potential can create the kind of transcontinental scale and efficiencies that Eurasia presents China. In Latin America, challenges are acute. As noted by R. Evan Ellis, they are: underfunded public health care; high debt levels; low liquidity; major defaults; and mass protests. Canada is the largest consumer of US goods, more than China, Japan and the UK combined. Mexico’s is the second largest consumer of US goods, with 40% of US imports from Mexico made in the USA. The North American Free Trade Agreement, just replaced by the US-Mexico-Canada Agreement, transformed Mexico from protectionism to freer trade while Canada and US trade tripled.

More trade and investment in higher paying jobs, however, does not create competitive advantage. Better strategies to produce goods and services that dominate markets are needed first. Superior combinations of effects can gain market share over that of competitors. Such as inducement & persuasion and deterrence & defense: inducing demand while persuading brand loyalty; and deterring market entry while defending quality. Each effect targets customers and competitors, respectively. Without effective strategies to gain more market share, economic growth benefits competitors with such strategies. China and Russia strategies break the rules of “fair” economic competition by waging complex warfare. With that, American transformation according to Option A may simply hand over relative gains over to authoritarians. Hence the need for Option B.

Option B. Envelop China’s predatory economics, political pressure, and military presence in the Americas.

China is the largest trading partner of the US, but direct investment has declined for both sides since 2017. In 2018 China committed to strengthen enforcement of intellectual property and improve access in agriculture and financial services. At the same time, cyber theft, discriminatory licensing, and strategic acquisition of US assets continued. China is also Canada’s second largest trading partner, but there is still no Canada-China free trade agreement. China’s investment in Canada is mostly state-owned rather than private, and has dropped precipitously as Canadian concerns over strategic takeovers has risen. In Latin America, China’s trade and investments have soared. Easy loans and failed projects feed corruption, result in mergers and acquisitions, coerce contracts, and pressure governments to adopt pro-China policies. In addition, equipment and weapons sales generate military exchanges and regional hosting of operational missions. Domestic surveillance equipment funnel data to Beijing.

Enveloping all of that is a three-part challenge: (1) education and employment; (2) defense and diplomacy; and (3) effective market dominance.

  1. Education and Employment

Education and employment can be a sustaining advantage if driven by academic, professional, and vocational learning. Academic exchanges and scholarships, think tanks and democracy centers can deconstruct Confucian Institutes’ propaganda, reveal disinformation, and expose environmental destruction caused by China’s operations. The Department of Defense Perry Center for Hemispheric Defense Studies and the US Southern Command Conference Center of the Americas provide broad problem-solving activities for regional collaboration and whole-of-government solutions. Expanded access to a greater variety of high quality higher education can promote productivity and innovation.

Returns on investment include income and influence. An individual’s income ROI from a Latin American university, professional institute, or tech training center (22) has been greatest in engineering, law and science. This is an opportunity for the US to increase student assistance in order to cultivate democratic values and technical skills. Investment in long-term develop projects is also needed to compete with China’s equity influence being sold as benign. In North America, Mexico’s export-dependent economy also requires inclusive growth to fund infrastructure, educational access, and law enforcement. Similarly, strengthening the US-Canada Innovation Partnership can leverage development of leading software, information technology, transportation infrastructure, and the services industry.

Networks of technology alliances with innovative startups, corporations and higher education have no geographic limits. Technology is inherently educational and disruptive, with competitive advantages flowing to learnable labor markets in growing economies.

  1. Defense and Diplomacy

Defense cooperation in Latin America is driven by US Southern Command ’s three lines of effort. These need to be unified with broad preventive and causative effects to envelop the full range of China’s pol-mil-economic activities:

  • strengthen partnerships for security, governance, and economic opportunity
  • counter narcotics, transnational crime, and illicit trafficking
  • build an educated, trained and healthy team prepared for steady state and crisis operations

US-Canada defense relations should also be unified and specified. This can be done by building upon the The Tri-Command Vision among the Canada Joint Operations Command, North American Aerospace Defense Command, and US Northern Command.

Note that vision’s five strategic goals are largely reactive:

  • detect, deter, defend against, and defeat threats
  • unity of effort; collaboration and cooperation
  • intelligence and information sharing/fusion
  • support to civil authorities

With unified political leadership, coordinated information operations can be a catalyst to develop actionable intelligence for more proactive effects.

Deep collaboration between all of these activities and each US Ambassador’s country team is needed. This could also create more civil-military ties among American leaders. That foundation would set long-term conditions for defense and security to guide like-minded partners.

To be more specific, here are eleven expansions of desired effects with which US leaders and strategists can speak a common integrative language. These expanded effects integrate the narrower Defense Strategy with the broader National Security Strategy:

3. Effective Market Dominance.

Dominating the market with desired effects takes more than financial support. Chinese investment is greater than USAID and the Inter-American Development Bank combined. US foreign aid, only 1 percent of the US federal budget, is underfunded despite its holistic effectiveness. Foreign military sales and direct commercial sales, however, dominate competition from China (and Russia) and support multiple diplomatic, economic and military objectives. How?

First, defense products and services are designed to out-perform potential adversaries. Second, export licenses and proprietary agreements are monitored as FMS cases. This involves government review and Congressional notification. Even if the US is unwilling to match China dollar-for-renminbi overall, FMS technology and shared democratic values create political, economic and social advantages.

Taken together, all of the preceding can produce a competitive supply chain system of systems. The common functions are to develop and acquire capabilities, facilitate mutual access, and position assets, information and people to enable the execution of complementary priorities.

Increase Diplomatic & Economic Engagement and Information-led Military Effects

Option A. Commit to the NATO alliance and strengthen EU ties to compete with China’s BRI inroads and counter Russia’s divisiveness. Russia’s influence operations across the EU are persistent. US military capabilities need to combine with shared diplomatic and economic effects to undermine Russia’s influence. Moscow preps pol-mil-economic actions with information, such as its new front in the Philippines pursuing a joint military technical agreement. In the Indo-Pacific region, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has expanded after US protectionism killed its parent agreement, the Trans-Pacific Partnership. The US must either participate in this agreement or strike a new set of agreements among its member to be in the arena of epic Eurasian integration. US military support of ASEAN assertiveness against China’s territorial claims miss that competitive economic commitment.

Existing alliances and partnerships in the Indo-Pacific provide various degrees of deterrence and defense. Closer cooperation and support for confrontational effects are limited by policy differences over right of innocent passage and spheres of influence, basing negotiations, and US-China trade tensions. Under such constraints, information-led technology is vital to maintaining military advantage. The integrated distributed combat force, a command & control capability that generates military effects, is one such system.

China benefits from any US diplomatic or economic disengagement. The US must expand trade and financial ties or China will extend its lead as the largest trading partner of several US allies (Australia, New Zealand, Japan, the Philippines, Thailand).

Option B. Expand military cooperation to create new diplomatic, informational, economic and social effects.
This requires anticipatory analysis. For instance, extending the integrated distributed combat force to a Coalition of state (and perhaps trusted non-state actors) could cause the following effects on the Coalition and China, respectively:

  • Diplomatic:
    • Coalition: compel alignment for or against China
    • China: deter Taiwan independence; induce North Korea support; deter India expansion; persuade Russia support
  • Informational:
    • Coalition: persuade unity, dissuade division
    • China: compel nationalism; deter separatism; induce coalition divisiveness
  • Military:
    • Coalition: deter and defend against incursions
    • China: deter and defend against incursions; coerce coalition defections
  • Economic:
    • Coalition: secure technology transfer, credit, and trade
    • China: induce trade and credit losses among coalition; compel, induce and coerce contracts
  • Social:
    • Coalition: persuade domestic support and defend against protests
    • China: compel and coerce domestic Party compliance

Adjust Costs & Benefits of Protectionism and Globalization

Option A. Incentivize selective protectionism for national security technology, infrastructure, food, and health.

Policy and business leaders need to identify when it’s worthwhile to pay more for protecting supply chains, based on associated risks and vulnerabilities. These include our own capability gaps and dependencies as well as competitors’ combined effects, from compellence to coercion. Which types of medical supplies and ingredients should be domestically produced, for instance?

Government-induced incentives can develop and re-scale supply chains, as in our pharmaceutical industry after Chinese officials threatened to cutoff medical supplies. US over-reliance on antibiotics sourced in China, the pandemic’s edgy origin, triggered rules-based regulation. Costs are specified, funding determined, then budgeted and supported by taxes and/or debt. Benefits are generalized throughout society, so paying the costs is contentious. Beneficiaries’ incentives are to free ride, because others subsidize costs (moral hazard). Democratic rules can resolve these issues, but the processes are only efficient politically.

By comparison, China’s approach is “distributive globalism” (107) as described by Kent Calder. Benefits are not transparent, but are concentrated. Costs are not specified, but are distributed. For example the benefits of a project, such as a hydroelectric dam, flow to the political elites involved in making the agreement. Significant costs of the dam, such as downstream disruption of agriculture, are borne by others. This moral hazard of passing costs (consequences) of non-transparent agreements on to others promotes secret deals, corrupt processes, and authoritarian regulation.

By incentivizing selective protectionism via government inducements, democracies can compete with China’s distributive globalism if we leverage technological advantages. However, the absence of enforced rules to regulate secretive agreements is a disadvantage for democracies. China’s persistent theft of technology, combined with illegal agreements, enables its businesses to capture market share and defend them with supply chains.

Selective protectionism of safeguarding certain technologies will not work for long. We need to have more effective strategies. By knowing what is critical to an opponent’s system and not so much to ours, we can identify changes to create near, mid and long-term advantages. But we need to transition into a broader perspective of competition.

Option B. Adjust protectionism and globalization to create advantages in multiple contexts.

We know that protectionism costs more than globalization from a financial profit-seeking point of view. However there also are political-economic costs of too much dependence: (a) the consequences of being coerced and compelled into less market share or policy positions; and (b) less shareholder value and the imposition of authoritarian values.

Some costs are more important than others, so we must set priorities. The debate over regime type and economic growth is a long-standing one. Whether China’s model of socialism (read, authoritarian capitalism) with Chinese (read, single-Party) characteristics can outperform democratic capitalism (many forms) can be influenced by strategy. If we assume that economic growth drives political and military influence, we need a strategy that generates value-added products and services better than the competition. This means using less resources for greater effects.

Given the complex warfare from China and Russia, we need a strategy that protects those relationships we want to be independent (nuclear weapons production, e.g.) and globalizes relationships that we want to be interdependent (proprietary trade, finance, e.g.).

One way to assess the impact of protectionism and globalization on systems is with the ratio of required resources to desired effects. This ratio is different from the current practice, which is the ratio of resources to capabilities. A good example of the the latter is “enhancing expeditionary logistics with emerging technology.” A better strategy is to use technology to develop missions that create the most advantageous effects. Let’s clarify this difference.

The US relies on a mix of manned and unmanned platforms in a network of various sensors and shooters. Part of that consists of unmanned aerial systems (UAS). Technology is pervasive. Competitors field a number of UAS with similar functionality. China has driven out most entrants in the commercial market, so US manufacturers are not in that space at scale. UAS that meet combat specifications such as the AeroVironment RQ-11 Raven (made in the USA) are often more expensive than China’s mass-produced (and cyber-compromised) platforms. Ravens also are more complicated to operate and require two-person teams, so their resources (price, manpower) to capability (short-range reconnaissance) ratio is high. Recent contracts such as the FLIR Systems Skyraider are expected to produce more capable platforms. It’s the same story with counter-UAS systems. What about the resources to effects ratio?

The desired effect of any individual platform is higher than its capability due to our prevailing command philosophy and operational strategy. Commanders are expected to communicate their intent and allow competent subordinates to adapt and reconfigure capabilities. Applied to UAS and other systems, such ”distributed mission command” empowers decision-making and creates a more resilient network. The Joint All-Domain Command and Control (JADC2) architecture connects many platforms and functions across all domains. Having reliable and secure systems in this kind of a network has great holistic value. Strategy determines desired effects, but the security of supply chains enables JADC2 effects chains to happen.

An opponent could counter some of our platforms’ individual capabilities by mass producing near-peer platforms, but the network and strategy also matter. A better combination would be needed to create superior military effects. Without that, however, China’s DIMES-wide strategy can subsume US superior military effects.

This is why we need to adjust supply chains to provide capabilities that create both defense and broader security effects (shown in Table 1). The ratio of resources to desired effects in different contexts should inform how protectionist and how globalist supply chains should be.

Doing that requires public-private partnerships to increase supply chain transparency, identify vulnerabilities, collaborate on technology strategy, and discuss types of competitiveness. From a corporate perspective, protected supply chains means multiple governments’ regulations that inhibit international competitiveness. From a complex warfare perspective, business-to-business (B2B) cooperative competitiveness should be placed in the context of China’s confrontational competitiveness.

Shape Rules of International Competition

We can wish for a particular mix of protectionism and globalization, but the choices are constrained by the prevailing rules of international competition. Domestic restraints can become international constraints, as in our “should deterrence fail” approach to warfare. This strategy gap requires US engagement in international institutions to promote acceptable rules.

Option A. Institutions are cooperative and confrontational influence space. Compared to national governments with exclusive sovereignty, multilateral institutions derive their influence from membership. Each member may have one vote in the United Nations General Assembly, for instance, but each has unequal power in many other aspects. Leadership and resources are brought to bear on global supply chain issues. Supply chains are pervasive and tend to be nationalistic, subject to protectionism. Each country therefore pursues a mix of protectionism and interdependence. The prevailing mix matters because international influence will follow economic growth, advanced technology, and military power.

In that context, states attempt to set standards for international finance and trade (see study on 5G). As authoritarian states seize physical territory, how can they be trusted to restrain themselves from seizing market share with mercantilist practices? Absent US and other democracies’ engagement and multilateral enforcement, the rules of cooperation and confrontation are more likely to be determined by actors hostile to democratic interests and values. If China replaces rules with ruling, supply chain warfare will become more globalized.

For instance, China does not allow third party audits of its stocks despite US investors having lost billions to Chinese fraud in the New York Stock Exchange. This condition is facilitated by US laws that loosened compliance requirements for emerging market investors to draw business away from the London Stock Exchange (LSE). Such competition among democracies is tempered by international rules. A surprise attempt by Hong Kong Exchange and Clearing to buy out LSE in 2019 was blocked by the latter’ s management board. Today, with China’s broken commitment to allow Hong Kong autonomy until 2047, such a buyout attempt could easily be regarded as financial warfare.

Shaping the rules of institutions can only go so far without the leadership of the world’s largest economy. A change in strategy is needed. A feasible approach is to reform international institutions to protect globalization with rules that negotiate protectionism.

Option B. Collaboratively reform international institutions with rules of protected globalization

Reforming international institutions requires strength of will and capability. The following three recommendations form a basic synergy of effort.

First, the US National Security Strategy should prioritize prosperity (NSS goal #2) as goal #1. A growing economy is required as the competitive foundation for the other three goals (protect the homeland, peace via integrated power, advance influence).

Second, to achieve goal #1, the US should propose establishing new international rules for negotiating protectionism. The current context of authoritarians waging complex warfare calls for a full US commitment to reforming the WTO, as difficult as that long-standing process has been.

Third, to promote rules-based competition that accommodates change, the US should cooperate with and confront China and Russia in collaboration with allies and partners. With the previous recommendation, this effort can form a persuasive strategic narrative.

Combined Effect

We detailed four strategic integrative options to create supply chain competitive advantage. The options are: lead economic transformation of the Americas; increase diplomatic-economic engagement and information-led military effects; adjust costs & benefits of protectionism and globalism; and shape rules-based competition.

Each option involves a basic choice of (A) supply chain competition, and (B) supply chain warfare.
If implemented together, any combination of the four options create political commitment and economic inducements for the following combined effect:

  • Broad integration of American supply chains
  • Globalization with transparent protectionism

American supply chain integration can compete with, moderate, and prudently participate in China’s economic expansion. US engagement in multilateral institutions can lead transparent negotiations that afford protections for member states.

Because supply chains tend to be nationalistic or nationalized, US values and interests support an open rules-based trading system backed by negotiations for free and fair trade. Negotiating is also a spectrum of competition to achieve desired effects, ranging from cooperation to confrontation.

Cooperation and confrontation are competitive, so states and firms will pursue the best options for them. The US needs to stay globalized to compete while protecting what we need. Many US businesses depend upon supply chains with segments in China, where disinformation is a currency of authoritarian influence. Transparency is profoundly important to trusted banking. Yet China’s state agencies secret credit to favored firms and provide lending to unofficial projects and non-bank subsidiaries. The US cannot afford to walk away from China, or China will fill markets and lead institutions toward illiberal rules. The Party’s existential dependence on non-transparency and coercion converts supply chain competition into supply chain warfare.

A more globalized China is not likely to be a less nationalistic China. Until there are independent courts, a free press, and an apolitically professional military, we are likely to be competing against Beijing’s complex warfare. So far, the US is not waging option B.

The main reason for this is our narrow “should deterrence fail” approach to warfare, cedes non-military arenas of confrontational competition to opponents. As a result, military superiority is subsumed by broader strategies of complex warfare.

Beijing’s attacks include orchestrating disinformation campaigns, undercutting outside investors via banks, constructing or seizing then militarizing disputed territory, shutting down human rights by brutal means, and creating supply chains that restrict foreign competition. Taken holistically, there is an authoritarian synergy: nationalistic narrative-corrupt finance-territorial expansion-domestic control-protected supply chains.

Moscow’s attacks are less robust in terms of creating financially solvent supply chains, but equally predatory. Murders, political assassinations, proxy invasions and annexation remind many of the Soviet era.

To defeat authoritarian threats in this expansive and consequential arena, we need to speak and master all-effects competition and warfare.

Author: Thomas A. Drohan, Ph.D., Brig Gen USAF ret.

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