Is China's rise a threat or an opportunity for the USA?: Decoupling realists
New to risk management
The fire that shut down four continents
March 19, 2021. A fire at the Renesas Electronics factory in Naka, Japan. Seventeen hours. Twenty-three machines destroyed on a line supplying microcontroller chips to 30 percent of the global auto industry. Within a week, Ford cut production in Kentucky. GM shut a plant in Kansas. Toyota — the company that invented just-in-time — could not build cars. That is what concentration risk looks like when it stops being a term in a risk assessment.
We fill out the risk assessments. Supply chain managers, procurement officers, semiconductor professionals. Some of us discovered during COVID that the active ingredients in most generic antibiotics are manufactured in a single Chinese province. We do not have a grand theory. We have purchase orders and a clear memory of what happens when a single node fails.
TSMC fabricates over 90 percent of the world’s most advanced chips on an island China claims, within range of ballistic missiles. An earthquake on the Longitudinal Valley Fault would produce the same disruption as an invasion. We do not need Allison to tell us this is a problem. We have a bill of materials.
The Thucydides trap camp wants preparation for war. The peaceful rise camp wants to preserve the relationship. Our position is simpler: do not build systems that require your strategic competitor’s cooperation to function. Apple has moved 18 percent of iPhone production to India. Intel is building fabs in Ohio. These decisions were not made because executives read Allison. They were made because a supply chain with a single point of failure will fail.
Where we concede ground: Diversification is expensive and the costs land on workers and consumers first.
What would change our mind: A major disruption propagating across diversified geographies equally, proving location isn’t the variable.
Read the full synthesis: Is China’s rise a threat or an opportunity for the USA?