Vladimir Putin is returning the world to a paradigm of "might makes right." China may take note as it eyes its democratic neighbor Taiwan. And the war in Ukraine has shown just how tangled our international supply chains are.
As we have seen, diplomatic efforts are all the more difficult when we have to rely on our enemies for our most crucial needs. While it may be Russian oil today, it may well be Chinese manufactured goods tomorrow. If America and the West really want to stand against dictatorships, then remaining reliant on the fruits of their labor is untenable.
To fuel our domestic economic recovery and maintain a strong hand internationally, it's time to strategically decouple ourselves from the supply chains that snake through totalitarian regimes across the globe—starting with energy and manufacturing.
Sanctions against Russia have so far included blocking seven Russian banks from the SWIFT network, freezing the assets of individuals close to Putin and blocking airspace and flights over Russia. Even Switzerland—famed for its secretive banking system—has stepped up its game and sanctioned the accounts of Russian oligarchs.
All of this pales in comparison to the voluntary efforts of the private sector. Most major retailers including ExxonMobil, BP, Shell, Disney, H&M, Nike, Volkswagen, Toyota and Mercedes-Benz have at least partially stopped doing business in Russia. Meanwhile, Apple has not only suspended sales in the country; it has also heavily restricted Apple Pay and kicked Russian state television off of its App Store.
This is the new face of warfare. Since the U.S and Europe have ruled out sending troops, the Western world is hitting back with some of the toughest and quickest economic sanctions ever implemented against a foreign country. The impact has so far been extensive. The ruble collapsed by 30 percent after the invasion and the $650 billion of reserves Russia had on standby to increase the value of its currency in an emergency have now been frozen.
The point of all of these measures is to turn up the heat on President Putin either so that he changes course voluntarily and comes to the negotiating table or so that his people become so fed up and so impoverished by the restrictions that they rise up against him and force a change of policy on Ukraine.
It's important to note that regardless of the outcome of such policies, doing business with a country is a form of endorsement. It's also worth considering that our leaders often focus on what they intend the policy to do, only to be blindsided by unintended effects, resulting in a failed policy.
While all eyes are on Russia, however, we should be looking further east to China. China and Russia are ideological and strategic allies. Major Chinese tech companies—including Huawei, Xiaomi and Alibaba—have all refused to speak out against the invasion. Following the suspension of Visa and Mastercard, Russia is now looking to the Chinese payment system UnionPay to circumnavigate the restrictions.
China will be watching eagerly from the sidelines to see how far Western allies go in their attempts to cripple Russia economically. Its leaders are likely trying to ascertain if they could weather the storm of similar sanctions, asking themselves what would be a price worth paying to mount a successful invasion of Taiwan.
Just as Russia tested the water in 2014 by invading Crimea with little consequence from the West, China used the media smoke screen of the pandemic in 2020 to make its move on Hong Kong with the introduction of the "security law," which effectively violated the 1984 Sino-British Joint Declaration's promise of universal suffrage and continued freedom of expression for Hong Kong until 2047.
The time to act against China is not when its troops are marching on Taipei, but today. It is no longer ethical to continue to do business with China. The Chinese Communist Party's well-documented human rights abuses in the Xinjiang region, and attempts to brainwash its population through Orwellian state surveillance, take place on a much grander scale than even Russia's opposition clampdowns.
At the moment, however, American businesses have too many links to China and do not have alternative arrangements in place. China plays host to 28 percent of the world's manufacturing output—about as much as the U.S, Japan and Germany combined. Cheap labor and limited health and safety regulations make it an easy place to mass-produce goods. Decoupling may encourage the U.S. to rebuild its own battered manufacturing capability.
One of the lessons of globalization for the Western world is that we need to become more self-sufficient, and consider spreading our manufacturing load across the world.
If we rely on one country—as we have with China ever since President Richard Nixon began thawing relations with the pariah state in 1972—we will be in no bargaining position to challenge that country's domestic and foreign policy.
There are alternatives to China. Vietnam is a cheaper and more ethical manufacturing hub. Apple has long been considering moving some of its manufacturing capacity across the border. Our government should use tax benefits to incentivize global corporations to move manufacturing back to the U.S., or at least to invest in manufacturing in places other than China, like Africa and South America. The focus should be on investing in supply chains in emerging markets where the geopolitical environment might be more friendly and willing to offer major incentives. There are many presidents and prime ministers who would welcome U.S. corporations and manufacturers with tax breaks and incentives, if it meant bringing growth and prosperity to their land.
But that is easier said than done. It would take billions of dollars to make such a shift. That is why the government must help drive this economic strategy.
If we want to rebuild our economy and strengthen our hand abroad, we must continue on this path of supply chain decoupling.
Jordan Erskine is an entrepreneur who co-founded many businesses over 17 years in the personal care/skincare industry. He currently serves as president for the award-winning contract manufacturer Dynamic Blending.
The views expressed in this article are the writer's own.
