U.S. Supply Chains Aren't Ready For This
Intro
Hi there! Welcome to the latest edition of The Sidekick!
Today, I’m sounding the alarm over the fragile state of our international supply chains.
With risks including geopolitical flashpoints around the globe, the rise of BRICS, and Chinese restriction of critical minerals, there’s only one way to describe the situation: vulnerable.
That’s not all. Scroll down to check out more technology news, some curated highlights from social media, words of wisdom, tech news, people to follow, and more.
Let’s dive in.
The U.S. is not prepared for (more) geopolitical disruption
Global supply chains can’t take much more disruption.
We’re risking serious repercussions for the U.S. economy and society. We had a taste of this during the pandemic, when shortages and delays forced companies to pass on costs to consumers, leading to inflation and eroding purchasing power.
Empty shelves became the norm, and critical sectors like healthcare and technology struggled to obtain essential supplies. Lengthened lead times disrupted production schedules, resulting in operational inefficiencies and layoffs. As U.S. supply chains buckle under pressure, companies risk losing their competitive edge to more resilient foreign competitors.
Geopolitical flashpoints and the rise of BRICS
I don’t need to tell you that the Red Sea has emerged as a critical trouble spot, with attacks by Yemen's Houthi group on cargo ships in the Bab al Mandeb Strait prompting major shipping companies to suspend operations.
This disruption forces vessels to reroute around the Cape of Good Hope, resulting in significant shipping delays, increased costs, and a surge in insurance premiums. Ongoing concern about drought forcing the potential closure of the Suez Canal, a vital trade artery, exacerbates these challenges too.
It’s well-past time for warnings of possible escalation in the Middle East. It’s already happening. Israel is now facing multiple belligerents including Hamas and its Palestinian allies, Hezbollah, ISIS, and Amal in Lebanon , the Houthi movement in Yemen, Shia insurgents in Iraq, the Muslim Brotherhood in Jordan - and, of course, Iran.
There’s no surprise that the conflict is impacting port operations in Israel. The Port of Ashkelon is experiencing significant strain, with ocean shipping premiums escalating dramatically. This instability not only risks disrupting the high-tech sector, where numerous multinational companies operate, but also threatens to squeeze the global gas market further, compounding the crisis in energy supply.
With the Russia-Ukraine war now approaching 1000 days, the ramifications continue to reverberate worldwide. Sanctions against Russia have led to substantial disruptions in the flow of critical commodities like oil and natural gas, affecting multiple sectors, including energy and aerospace.
How much longer can it go on? I’ve seen conflicting opinions about whether Russia can sustain its war machine (and absorb so many lives lost) for years to come, while others believe Putin’s economy is on the brink of collapse.
What is certain is that the citizens of Ukraine, from families in bunkers to exhausted front-line fighters, have more to win and lose depending on the outcome of the US election than most people here in the US itself.
Should conflict arise between China and Taiwan, the potential fallout could lead to catastrophic disruptions, costing the global economy over $1 trillion. A blockade of Taiwan would cripple commercial routes and severely impact the semiconductor supply chain, which is vital for US industries. Yes, we are ramping up our domestic chip production, but the industry needs more time to mature.
The rise of BRICS—now including Egypt, Ethiopia, Iran, and the UAE—poses a serious challenge to U.S. economic interests. With this bloc representing 45% of the world's population and accounting for 35% of global GDP, it’s becoming a formidable force compared to the G7 (which includes the U.S., Germany, and others) at just 10% and 30%.
This growing economic clout means BRICS nations are better positioned to make waves in global markets, and that’s something the U.S. can’t ignore.
However, navigating the BRICS alliance isn’t straightforward. Brazil and India want to keep things neutral and “non-aligned,” while Russia, China, and Iran are eager to challenge the U.S. dollar’s dominance and present an alternative to Western influence. This mix of interests creates uncertainty and makes it tough for the U.S. to figure out how to respond effectively.
As BRICS countries work to diversify their economies and boost the voice of the Global South, they could develop supply chains that bypass U.S. interests altogether. This shift threatens American companies and raises critical questions about reliance on foreign suppliers for essential materials. With over 40 countries eyeing BRICS membership, the potential for a united front against U.S. economic power is growing.
China's squeeze on critical minerals
Meanwhile, China is tightening its grip on several critical minerals. This is a big deal.
- Antimony: China will impose export limits on antimony and related technologies. As the largest producer, China accounted for 48% of global production last year, with antimony used in flame retardants, batteries, and photovoltaic equipment.
- Rare earth elements: China has banned the export of technology for making rare earth magnets, essential for electric vehicles and electronics, along with existing restrictions on extraction and separation technologies.
- Graphite: Export permits will be required for certain graphite products, crucial for electric vehicle battery anodes. China produces and refines over 90% of the world’s graphite.
- Gallium and germanium: China announced restrictions on exports of gallium and germanium products, both key materials for microchips and solar technology.
The answer to this challenge may not lie in supply chain management but in the science lab. The massive power of the 19th century rubber barons, for example, was destroyed nearly overnight in 1909 when German scientists succeeded in polymerizing isoprene to create the first synthetic rubber.
Today, we need alternative minerals for chips and EV batteries that are more readily available and don’t rely on the cooperation of political adversaries.
So, what can be done?
Strategies like reshoring and nearshoring are gaining traction.
Reshoring - bringing manufacturing back to the U.S., helps cut down on reliance on foreign suppliers, gives us more control over production, and creates jobs here at home.
Nearshoring, on the other hand, is about moving operations closer to the U.S., like to Mexico, which can speed up shipping times and lower costs while reducing risks tied to far-flung supply chains.
But let’s be real—these approaches aren’t without their challenges. Reshoring and nearshoring require investment in infrastructure and workforce training, and we might not yet have the manufacturing capacity to completely replace what we get from established suppliers overseas.
This transition could drive up production costs, which could end up hitting consumers in the wallet.
Plus, redesigning supply chains is no walk in the park. Companies have to navigate new relationships with suppliers and deal with different regulatory environments. And pulling supply chains out of the Eastern Hemisphere might mean facing tougher competition from countries like China and India, where supply chains are already efficient and cost-effective.
Do we have time for this? While reshoring, nearshoring, and diversifying supply chains are vital for building resilience, they come with their fair share of challenges that need some serious thought and planning.
With geopolitical tensions on the rise and critical minerals getting harder to come by, the U.S. really needs to step up and fortify its supply chains - at least until our reshoring and nearshoring strategies begin to bear fruit.
Technology News
What’s going on in the world of technology? Plenty. Here’s some news that caught my attention:
Boeing satellite suffers catastrophic explosion: I’ve lost count of how many Boeing incidents I’ve reported in this newsletter to date. Here’s the latest: last week, Boeing’s Intelsat 33e communications satellite “experienced an anomaly” (exploded), and is now enjoying its new existence as 80 or so pieces of orbiting space junk.
Australia could extract gallium and germanium from zinc mining waste: I mentioned above that Chinese restrictions on these strategically critical minerals are a big deal. Normally, the by-products of zinc mining are not considered worthwhile in terms of the economics of resource extraction; but gallium and germanium have now shot to the top of the critical list.
EV pricing pressure will remain intense until at least 2026: Automakers including Ford are weakening profit outlooks amid an increasingly flooded market placing downward pressure on EV prices. It’s a great time to buy an EV, but not so great a time to own automotive shares.
People to Follow
Sarah Adams is a former CIA Targeting Officer and author of "Benghazi: Know Thy Enemy". Adams served as the Senior Advisor for the U.S. House of Representatives Select Committee on Benghazi. She has an incredible list of accolades and remains one of the most knowledgeable individuals on active terrorism threats around the world.
Sarah is a must follow for geopolitical insights!
Quote of the Month
"Wolves always come during rain."
- Mongolian Proverb
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See you next time!
– Kris