March 28, 2022 | Barron's

Global Supply Chains Are Driving Conflict. They Can Be Rewired for Peace.

March 28, 2022 | Barron's

Global Supply Chains Are Driving Conflict. They Can Be Rewired for Peace.

The immediate path to stopping Vladimir Putin’s brazen and brutal war in Ukraine may not be entirely clear, just yet. But one thing is certain: global supply chain dependencies on Russian oil and natural gas are what will allow Putin to continue financing it. Unless the U.S. and its allies reorient supply chain dynamics for the long-term, today’s conflict won’t be the last of its kind. To preserve and strengthen democratic order, unite to take down Putin economically, and reduce the potential for dependency-induced conflict to continue, we need to re-order our critical global supply-chains through what we call ally-shoring.

Ally-shoring, as we wrote previously, means leaning into our trade and co-production relationships with friends and allies we trust—deliberately sourcing essential materials, goods, and services with countries who share our democratic values and commitment to an open, transparent, rules-based international economic and trade regime. Ally-shoring achieves two key foreign policy goals: It supports deeper economic integration with key partners while offering a real alternative to countries that would prefer to work with a democratic-led trade and economic development regime, rather than rely on authoritarian “offerings” such as China’s corrupting Belt and Road Initiative, or Russia’s dependency-inducing energy deals.

Over time, ally-shoring helps to solve the problem of chronically sourcing commodities and products from countries who then use those foreign reserves to finance their aggression toward us and our allies. Without substantial foreign reserves, China would be hard pressed to fund its Belt and Road Initiative; meanwhile, Putin is counting on Europe, the United States, and others to continue buying Russian oil and natural gas. Ally-shoring means shifting our consumption to other sources, but carefully.

For example, an ally-shoring framework helps us understand that substituting Venezuelan or Iranian oil in lieu of Russia’s would empower other hostile dictatorships rather than fixing supply-chain problems. Do we really want to solve our gas dependencies with Russia by supporting authoritarian kleptocrats in the Middle East and Latin America? The answer should be obvious.

Taking this a step further, tapping into U.S. oil and gas reserves, intended for use during exactly the kind of crisis we now face, is an obvious step, as is longer-term co-investing with Canada to unlock shale reserves. Over time, this approach can provide an abundance of energy from the right kind of sources, although it is unlikely to bring down costs right away. Right now, however, the greater risk to us is not higher gas prices at home but in allowing democracy to die in Ukraine.

Oil and gas provide but one immediate example. Dependencies on critical minerals, rare earths, agriculture, advanced manufacturing, semiconductors, medical technologies and supplies also create serious vulnerabilities and potential to fuel conflict and force painful trade-offs in the future.

How would a full-scale ally-shoring program work in the United States? We would start with an assessment of all critical global supply chains. We need to define them properly and root out the deepest and most problematic dependencies and vulnerabilities, including what technologies are at risk. Understanding our dependencies allows us to identify and rank the options to move us out of these dependencies as quickly as possible. Then, we double down on the alliances and partnerships needed to protect the most critical goods, materials, technology, and commodities. We co-invest with our partners to build new supply chains where needed, creating jobs, political stability, and economic security within and across our borders. Both the assessment and weighing of options is a dynamic process that should be subject to revision as the threat changes.

Business leaders, especially those who own or manage critical supply chains, must be part of this discussion from the beginning. The seeds are already planted and taking root. Quick moves to untangle commercial interests in Russia—ranging from Western energy giants to manufacturers of luxury goods, electronics, and cars—demonstrate that companies understand that they have a critical stake in the outcomes of this conflict. The preservation of free and open governance protects the foundations for global supply chains by which they profit. The private sector plays a critical role in addressing the vulnerabilities.

Shifting away from dependencies on Russia is causing pain, but we fear what supply chain dependencies mean in the context of our relationship with China. Would the United States and its allies be able to similarly shift interests out of China in the face of future aggression by that authoritarian regime? Would Tesla, Apple, Nike, JP Morgan, and others walk away from their supply chains, influence, and investments in China if faced with a similar situation, like a Chinese invasion of Taiwan or another neighbor? It won’t be easy, but let’s not wait until we are facing a new conflict to sort out our vulnerabilities. Even more reason for the government and private sector to begin working together to find alternate suppliers of critical components and technologies among friends and invest in growing economies (and markets) with countries who share our values and play by our “good” rules.

Long-term peace, stability, and a strengthened democratic global order everywhere require a permanent (and iterative) rewiring of our global supply chains. Starting to make these moves now will help us demonstrate clearly that ally-shoring is the way to help us grow economies and provide the engine of good jobs and livelihoods that democracy can and should deliver in spades. Much to Putin’s dismay, the Ukrainians have already chosen democracy, and now they are showing the world what they are willing to do to protect it. We owe them our full support. Ally-shoring is part of the solution.

Elaine Dezenski is a senior advisor at the Center on Economic and Financial Power at the Foundation for Defense of Democracies. John Austin directs the Michigan Economic Center and is a nonresident senior fellow with the Brookings Institution and the Chicago Council on Global Affairs. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

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