The Supply Chain Crisis: A Strategic Awakening
Remarks Delivered to the Hillsdale College Free Market Forum on 28 October 2022
This past week, it was my honor to join the eminent scholar and author John Steele Gordon and Heartland Institute president James Taylor on a panel about “The Biden Economy” at Hillsdale College’s Free Market Forum. Both of my co-panelists delivered incisive presentations on inflation and energy, respectively. Sandwiched between these two intellectual heavyweights on the first panel of the Forum, I could not have felt more like an amateur baseball player who was signed to a contract and found himself at the plate in the big leagues the very next day.
Given the broad topic I was requested to speak upon - the supply chain crisis in the post-COVID era of the United States, and the world at large - I could have taken it any number of directions for my 15 to 20 minutes at the microphone. In the end, I settled on presenting the broad strokes of my case for the United States to create a grand strategy for an American Industrial Revolution 2.0. What follows here are my remarks as prepared, if not perfectly delivered. They will serve to tee up a series of posts here diving into the specifics, as well as offering a few pivot points into adjacent, but closely related, topics. Stay tuned.
Good morning.
First, may I say what an honor it is to share this podium – and this room – with some of the preeminent economic minds of our generation. As a high school student whose application to Hillsdale would charitably have been said to be insufficient, it is frankly incredibly humbling to stand here today two decades hence.
That being said, what I share with you here will hopefully challenge each of you, perhaps even make you uncomfortable. But the present supply chain crisis is not a comfortable thing, even to a lay observer. And to an expert, it is far more fearsome than it is merely uncomfortable. It is perhaps even existential, a catastrophic failure cascade of the Westphalian era characterized by self-organized criticality and the omnipresent weaponization of every asset, every person, and every system that has sustained the hyperpower status of these United States for almost a century.
Examining the present supply chain crisis to unpack the broader themes of disruption and change in a globalized world order rather than traditional economic or geopolitical models casts a stark light on just how unsuccessful globalism has ultimately been at protecting the interests of the United States. In order to effectively do this, however, we must acknowledge that there are levels of employing logistics as a targeting and observational aperture.
Logistics as a tool of simple awareness (cognition)
Logistics as a map of human action (analysis)
Logistics as a map of human intent (prediction)
Logistics as an order of battle (meta-cognition)
So it might be through this process that we examine, say, the PRC strategically stockpiling critical and strategic materials beginning in mid-2020 at a level far above consumption and sustainment. Notably, some of these key commodities would be those at most risk to global disruption if Russia and Ukraine were to become involved in a kinetic conflict. Nickel, grains, ores, certain fertilizers, strategic materils, and so on. Even now, the PRC is hoarding physical inventories of crude oil on ships in harbor, using the tankers as floating stockpiles while paying large sums for vessel detention.
Similarly, in November 2021, Russian exporters in the Black Sea region switched their incoterms, a tacit acknowledgement that something was reasonably to expected to disrupt energy and grain supply chains in the coming weeks or months, and that the counterparties in the trade needed to find a better balance of risk and reward than was normal. In short, the whispers of Russian aggression were reaching Western and Eastern traders’ ears weeks before Putin began an all-out mobilization of his armed forces under guise of training exercises.
And due to the pervasive exposure held by the US and allies to globalized supply chains, these events dancing on the distant edges of the spider web of world affairs reverberate to us, warning of more pain yet to come.
The geoeconomic order is bifurcating, with the Western-dominated system of trade, fiat, and financial order being challenged by an ascendant malign sphere of resource-dominant economies organized around the strange attractor of the Communist Party of China. Here in the West, we cannot seem to get out of our own way, slowly devolving our understanding of “free trade” until we now apparently embrace kakistocracy with corporatocratic traits, while transferring trillions of dollars in capital, currency, and technical data to that same adversary. It is failure theater, walled gardens, captured elites, and turtles all the way down.
As someone who has spent his entire career in international logistics and supply chain management, primarily in the agribusiness, energy, and government domains, it is a strange thing indeed to see “supply chains” become a topic of everyman discussion since the onset of the COVID-19 pandemic in the first quarter of 2020. Perhaps there was a clarifying moment, such as the spectacle of the Ever Given lodged sideways in the Suez Canal, one helpless little excavator working frantically to free a 221,000 ton bottleneck to 10% of global trade. Or perhaps it was so many similar such ships anchored in the “Great Los Angeles Maritime Parking Lot” throughout 2020 and 2021, waiting to destow the Playstations, furniture, appliances, and textile goods that locked-down consumers desperately coveted. It might even now be the twin labor disputes involving the longshoremen and rail workers, either of which going badly would cripple the US economy in weeks, if not days.
Inflation is spiraling out of control, with the CPI for food up 11.2% compared to 12 months ago. Energy is up 19.8%. All categories are up 8.2% versus 12 months ago. And that’s with me charitably assuming that the Bureau of Labor Statistics data is totally pristine and in no way has a thumb on the scale. The dollar is ripping of late to be sure, but here again, we find the tension between being a country who imports things (strong dollar good) versus a country who makes and exports things (strong dollar not so good). The threat of recessionary inflation becoming a durable stagflation looms large, especially as we see the Kerry wing of the Biden Administration pursuing ever more obvious Malthusian strategies to choke domestic energy and food production in the name of saving Gaia from the predations of parasitic man.
Compounding all of this is the pervasive threat of subnational influence operations by the Communist Party of China here in the US, from acquiring vast swaths of real estate to buying off local city councils and governors with airy promises of jobs and economic growth. Now, the Department of Defense and the vast majority of the intelligence community consider this to be an imminent threat to our national security, but of course, we nonetheless see the usual suspects hoist the flag of “free trade” to signal that all is well with regard to our captured elites. But to my eyes, “free trade” is not necessarily cost-free when it we see such examples as retired Vice Chairmen of the Joint Chiefs Admiral Bill Owens establishing private-sector infrastructure to help PLA and US flag officers collaborate on business opportunities, or the same admiral registering as a lobbyist for Huawei in 2009 to help the now-notorious firm purchase Sprint-Nextel and its book of DOD contracts.
But as a friend reminded me just the other day – it cannot be all black pills and Nietzschean abyss-gazing. All of this fear mongering must terminate in solutions grounded in the belief that the United States, perhaps uniquely so in all of human history, has an incredible cultural capacity for self-renewal.
So it is from my own unshakeable belief in my fellow Americans that I offer this framework for turning this supply chain crisis into a generational opportunity. To be sure, I do not believe this to be the be-all end-all. In the spirit of Observing, Orienting, Deciding, and Acting, we we simply must throw some darts at the board and iterate from there.
The first principle of such an effort must be that free trade is not free when one stakeholder chooses to weaponize it. A fundamental premise of classical free trade is that rational actors, through voluntary participation and mutual need, will behave in such a manner that equitable exchange of goods and price discovery are the paramount rules of the transaction. But as we have seen with regulatory capture and the gelding of our national and economic security by the toxic partnership of the CPC and Wall Street, free trade may indeed prove to be the proverbial rope from which we capitalists will swing.
Thus, there must be a tension between pure trade and pure authoritarian national security interests. Free trade amongst trusted allies and partners, and strong firewalls for provably malignant actors. I do not care if Larry Fink can make another $10,000,000 if the deal exposes my nation to harm. In the same way, not all foreign direct investment or bilateral trade should be regarded with extreme suspicion.
Bearing this frame in mind, a new conception of free trade can emerge – trade that promotes freedom and liberty, not the uninterrupted flow of capital between the culpable and the enemy. So how do we achieve this delicate, ever-evolving balance?
Build a coalition of cooperative, overlapping customs trade unions. These trade unions should operate on the guiding principle of what national security expert Elbridge Colby calls the “strategy of denial”, or the US utilizing its hegemonic capacity as an engine of economic and national security to help allies deny the space for an adversary to grow too powerful, without having to directly intervene in expensive wars of attrition that could have been prevented with proper application of truly free trade.
Such trade unions would be aligned along natural, modern lines of national security drift, so to speak - FVEY, Scandinavia and the Three Seas Initiative, Quad+, the Western Hemisphere, and robust multilateral engagement with Africa.
From such a grand strategy, the US can develop an “American East India Company” that is private in structure but organized for the equal purpose of profitable trade and securing the nation’s well-being. This would have the extremely important knock-on effects of driving the requirement for a revival of American shipbuilding and the merchant marine sector, as well as having commercial outposts that can blunt or degrade China’s efforts through Belt and Road. Fundamentally, we must offer a better deal that weights the benefits more strongly in favor of the host nations with whom we trade or co-invest. This is particularly true for the acquisition of critical strategic materials that we simply cannot access in our own lands or within our close ally network.
The US must also make more targeted use of free trade agreements. This would be enforced by a CFIUS-like body that works cooperatively with a prospective FTA nation to examine the nation’s exposure to malign foreign interests that would utilize the FTA as a vector of threat to the US’s own interests.
Another critical policy shift would be regulatory express lanes for key strategic projects. One such example could be a 6-month cap with presumptive approval for natgas projects regulated under FERC, presuming a certain percentage of the natgas is going directly towards the domestic manufacture of food or feed ingredients. Another might be a targeted exemption for critical minerals mined in Canada to be exported on water to US refiners without a full Jones Act requirement in place.
Lastly, we must get American and allied-national capital off the sidelines and into the fight. One such effort currently coming online is Amberwave Partners, who is working to raise and invest capital deployed not towards ESG or DEI objectives, but towards JSG – Jobs, Security, and Growth. By charting a path towards robust profitability that ALSO serves the national interest and concurrently providing opportunities for allied capital to do the same, the US can again become a place where investments can be deployed towards a revival of the US’ heavy industrial, manufacturing, energy, food, pharma, and high-tech sectors. Perhaps even certain tax incentives could be created for capital that contributes directly to designated projects that are in the nation’s strategic interest. In the same way, capital deployed towards damaging ends should be subject to non-permissive tax rates, punitive sanctions, or other burdensome penalties for placing pure profits ahead of the public good.
These are some examples of the kind of holistic thinking we must adopt to square so many circles with the time we have been given before the opportunities are too far gone.
I end this, perhaps paradoxically given the room, with a quote from President Franklin Roosevelt’s 1936 nomination speech:
There is a mysterious cycle in human events.
To some generations much is given.
Of other generations much is expected.
This generation...has a rendezvous with destiny.
Thank you, and never short America.
Dum spiro spero,
RK