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FOSC keynote: Supply chains must adapt to geopolitical changes

Former Defense official says China, Russia trying to upend global economic order

FreightWaves CEO Craig Fuller (left) interviewed Jonathan Hoffman, a former assistant secretary of defense for public affairs, about the way geopolitical tensions are roiling international trade. (Photo: Jim Allen/FreightWaves)

Companies need to be more flexible with sourcing and shipping strategies in response to three years of geopolitical events that have reoriented global trade, said Jonathan Hoffman, a former chief spokesman for the Pentagon, on Tuesday.

The new economic order will present opportunities for those in logistics and supply chain operations who plan for and embrace the change. 

“The world we’ve known for the last 80 years is going to be a little bit different. Having a sense of flexibility is going to be necessary because relationships are changing. So you need better information, better visibility into what’s going – and redundancy: How are you able to find alternative paths to get goods places and find alternative production?” Hoffman said at FreightWaves’ The Future of Supply Chain event in Rogers, Arkansas.

Supply chain professionals will be looking to find alternative locations for supplies to come from and governments will need to work with them to enable those shifts, Hoffman said. 

Supply disruptions wrought by COVID have exposed weak links in goods movement and led to discussion that companies should carry more inventory in the future to keep shelves stocked.

“I don’t know if it’s going to be more inventory or being more flexible in terms of where your inventory comes from,” Hoffman said. Business will need to rely on more than one supplier, which means “you’re going to have to manage a little more complex supply chain. But it will be a more redundant, more sustainable supply chain.”

China is a “near peer” to the U.S. today but has ambitions to be a leading economic and military nation by 2049, the 100th anniversary of the founding of the People’s Republic led by the Communist Party. The government’s mismanagement of COVID has increased distrust among other nations and motivated them to become more self-sufficient for critical resources.

“Countries saw a need to be more self-reliant because of COVID, because of the supply chain issues and the need to have their own PPE, access to resources and a lot of things internally ready [because] and you can’t count on the global networks to support you in a crisis,” Hoffman said. 

The U.S. government is also identifying critical supply chains that require support for a domestic manufacturing base to reduce reliance on China.

Now with lockdowns across the country in an effort to keep outbreaks and public complaints under wraps, supply chain executives realize even more the need to spread their production sources to other countries, including those closer to the domestic market, the former Defense Department official said. 

“I would say China is not an adversary, they’re a competitor right now. They need the relationship with the U.S. and the Western countries as much as we rely on them because without export markets for their goods they don’t have jobs,” said Hoffman. “Without jobs hundreds of millions of people who have been lifted out of poverty for the last 30 years will return to poverty. That’s bad for the Communist Party. So they want to maintain those relationships. And that’s why I think they haven’t embraced what Russia is doing in Ukraine because they understand that they need us.”

But China is also trying to reduce its dependence on the dollar and the Western financial system so it has more of a free hand in the event it forcibly tries to reunite Taiwan, especially after seeing how allied nations have punished Russia with sanctions for the Ukraine invasion.

“Now that China has seen that playbook they’re taking steps to insulate themselves … so they can be more independent,” Hoffman said.

Asked if the U.S. would go to war to defend Taiwan, Hoffman indicated the U.S. would likely treat the situation like Ukraine by continuing to give the nation the resources to defend itself.

“I don’t know how much you are going to get the American people to support a war over an island that we won’t even acknowledge isn’t a part of China,” he said.

Ukraine invasion

Hoffman said Russian President Vladimir Putin badly miscalculated that taking over Ukraine would be easy and is now bogged down in a war he likely can’t win. The trick for the Western allies is to help him find a face-saving way to de-escalate the war and leave Ukraine.

Russia has expended a huge amount of weaponry and will be hard-pressed to replace it because the nation is the 16th-largest economy in the world but had the second-largest military and was pushing the limits of its military budget even before the invasion. 

“Their ability to wage land war against NATO is pretty diminished right now. Russia is struggling to subdue an adversary that’s a tenth their size militarily. NATO would have a significant advantage, particularly with air power, over Russia. But Russia’s battle order is a little bit different. They consider use of battlefield nuclear weapons as acceptable. We do not. We see that as a straight-line escalation to global nuclear war. But I don’t know what their objective would be with a wider war. They’re not going to win it,” Hoffman said.