America needs to start thinking strategically about its future and its national policies, domestic and foreign. What do I mean by thinking strategically? Let me start with the back story.
The Back Story
I was chatting recently with a good friend who is a seasoned investor. We were discussing the coronavirus and the effect of that virus on global supply chains, especially the ones that originate in China. My friend pointed out, using the February29/March 1 Wall Street Journal as a reference, that “China makes 85% of the world’s toys, and 17,600 of Proctor & Gamble’s products rely on materials from China.”
Later that day, I thought about his comments and realized that countries around the world rely too much on China as a low-cost producer. This over-reliance on China is like putting all your eggs in one basket. I believe this over-reliance is a grievous mistake because when you have an outbreak like the coronavirus, the resultant ripple effect around the world can be shocking. I think the multinational companies that rely on China must change their manufacturing strategies and diversify away from China.
Strategic Avoidance of China
We should avoid over-reliance on China for two other reasons as well. The first is related to the coronavirus situation.
Sanitation and health standards have been problematic in China. I have visited China twice, once in 1980, and once in 1988, and saw this first hand. After both trips to China, I contracted a severe upper respiratory illness. The sanitation and health situation may well worsen with the ongoing movement of over one billion Chinese to megacities along the coast. Urbanization of this magnitude sounds good on paper, but the potential downside effects of such a program are not easy to predict or understand until after the fact.
The second point of concern is the continuing oppression of the Chinese people by a totalitarian regime. Such abuse will end only in conflict. However, I believe this situation may be self-correcting in time as the Chinese experience the wonders of a free market system. Access to wealth and net favorable changes in lifestyle are like magic wands.
What Can Be Done At A Tactical Level?
American multinational companies should start looking at the Philippines, Malaysia, Bangladesh, South Vietnam, and other countries as well as potential candidates for relocating the necessary supply chains. This relocation is not a trivial task, but it must be undertaken as soon as possible. The Trump Administration cannot mandate this change. However, President Trump can highlight this diversification away from China as a strategic imperative for our country.
Thinking Strategically
America must begin to think strategically about its future. In my experience, America tends to act on an ad-hoc basis or a reactive basis. This approach has to change.
I do not recommend that a new, bureaucratic entity conduct the necessary “strategizing,” but instead undertaken, ideally, by a small team of men and women. I have in mind the strategic planning and thinking that was conducted before our active involvement in World War II, as described in General Wedemeyer’s book, “Wedemeyer Reports!,” published in 1958. Wedemeyer set forth the idea of a grand strategy that incorporated political, economic, psychological, and military components.
In more recent times, we can look to the global scenarios prepared by the Shell Oil Company. These strategic statements do not have to be complicated or very detailed. Simple strategy statements are far easier to understand, implement, and update to reflect changing conditions.
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