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Balloon Diplomacy in a Time of Global Jitters

When do balloons pose a threat? And what about those UFOs tracked along the Article Circle? These are questions preoccupying Washington in recent weeks. Should we be worried? Yes, but for reasons that have more to do with terrestrial matters than alien spaceships.

U.S. reactions to a Chinese high-altitude balloon the size of a bus traversing U.S. airspace, deliberately or not, underscores the growing tensions between the governments of the world's largest economies. Moreover, the shooting down of UFOs in Alaska and Canada has less to do with little green men and more to do with a demonstration of U.S. military capabilities to detect even small objects drifting into North American territory.

According to Beijing, the air balloon incident was an accident. Indeed, Chinese authorities went out of their way to downplay the matter, insisting the balloon was a research vessel that drifted off course. So far, public statements from Washington throw shade on that description. Still, details remain scant, suggesting that any intel the military has gained from the balloon will stay classified – at least for now.

Tensions between the countries remain high. Worries about Taiwan remain keen, while the war in Ukraine only complicates the situation. Pieces are moving around the proverbial geopolitical chess board. The U.S. ups its military presence in the Pacific by expanding cooperation with the Philippines, Australia, and Japan. Chinese jets fly dangerously close to American planes. Biden tightens controls on technology transfers to China. Xi Jinping signals continued support of Russia in the conflict with Ukraine. So on and so forth. Tit-for-tat, action-reaction – the kind of behavior that ratchets up the tension and increases the likelihood of a mistake being made by one side or the other. And there's all the stuff we don't even know about yet.

Yeah, it reads like some Cold War thriller. But haven't we learned anything from the past?

Relations between both countries took a nosedive during Donald Trump's time in the White House, but there were signs of stress even before he took office. The pandemic only elevated tensions, while Trump, always the eager populist, capitalized on deteriorating relations. Now we have Section 301 tariffs, but, interestingly, those tariffs have yet to evaporate with Joe Biden in office. If anything, Biden has only doubled down on poor relations with China despite public claims from both countries that everyone needs to chill out. The balloon situation, however, has made that more difficult.

The conflict in Ukraine has also complicated relations between both countries. Whether China supplies Russia with military assistance is a symptom of Xi Jinping's desire to build a new geopolitical alliance to counter American hegemony, NATO, and allied democracies. Geopolitically, this is the central question of our times. And that's before considering any perceived threat of Chinese aggression against Taiwan and possible U.S. reaction. The clock is ticking, and relations may only worsen as time spins.

Between a Rock and a Hard Place

Stuck in all of this are the textile and apparel industries. As our industry embraced globalization decades ago, the fate of the business is intertwined with relations between these great powers. Sorry gang, we can't avoid that. What goes on between China and the United States will largely determine the future of our industry – how it functions, its ability to innovate, source products, and meet the requirements of consumers worldwide.

A SWOT analysis for the industry today favors weaknesses and threats more than opportunities or strengths. The prospects for our industry will only become more problematic should relations between China and the U.S. deteriorate. And make no mistake, the U.S. ban on Xinjiang cotton is yet another piece on the geopolitical chessboard.

High costs continue to plague supply chains, affecting retailers' ability to slash consumer prices. Moreover, shifts in sourcing have occurred. According to the Office of Textiles and Apparel, U.S. imports of textiles and apparel (measured in square meter equivalents) rose by more than 12% in 2022 from 2021. Although still the largest supplier to the U.S., imports from China fell nearly 10%, imports from ASEAN nations increased by 40%, and imports from the Western Hemisphere jumped by more than 27%. Even imports from Sub-Sahara Africa rose more than 16% in 2022.

Indeed, the business is changing. Extrapolate these growth rates, and Chinese exports will play a sharply reduced role in U.S. markets in the future. Moreover, many of these rising exports will result from Chinese companies that have relocated to other countries, particularly in Southeast Asia.

Still, exports from China proper will become less of a force over time should these trends continue. And then there's the knock-on effect of China's Covid Zero policy which locked down supply chains at a time when overseas markets awakened from the worst of the pandemic. As a result, demand surged as supply chains struggled, contributing to higher price inflation. In turn, higher prices threaten to choke off consumer demand. Not a pretty picture.

China has a slew of problems facing it today. The one-child policy set up China for its demographic problems; its economic success has set it up only to accelerate that trend as rising costs outstrip the ability of young couples to afford children. There are also similarities to what happened in Japan in the 1980s—trade strife with the U.S., asset bubbles, changing demographics, and eventual easing.

The U.S. has its problems, too, most notably with its polarized politics. The infamous Washington gridlock compounds decision-making and the ability of the government to enact effective policies. What's more, when it comes to financial matters like the debate over the debt ceiling, political stalemate in Congress threatens the nation's ability to pay its bills. Is a default in the offing? Should a default occur, it'll be more than a domestic matter as the global economy will be affected. The point is that domestic concerns only feed geopolitical tensions.

The Business of Change

There's lots of talk about sourcing companies moving out of China. It's not surprising after the pandemic-induced supply chain disruptions of recent years. Yet, for every person saying they're bailing on China, at least two say they're staying. That is, until they must. And there's the rub: many folks will only bail once circumstances compel change. For some, it's today; for others, it's tomorrow.

Even so, some U.S. companies continue to expand operations in China despite poor relations between China and the U.S., confident in their ability to manage their supply chains no matter what. However, many of these investments are in consumer-facing industries such as clothing. More so, these investments come when demography has left China with a smaller population and a likely continued decline over the following decades. Short-term thinking? Perhaps. Or a calculated risk that pent-up demand post-pandemic is still viable for the near term.

It's hard to ignore, but our business is changing. But during times of change, there's always talk about what's happening and why. However, so much of that talk is based on superficial analysis. Hyperbole sneaks in too. Drums are banged, fires set, smoke billows, and the truth -- all that anyone is trying to see -- is obscured.

Companies must manage change and find ways of capitalizing in an ever-evolving market; they are forced to dig deep, think more creatively, and contemplate goals and objectives. At its worst, companies struggle to survive. At the same time, for an exclusive few, success comes from understanding what's happening now and implementing plans to succeed in the future, embracing change.

China's days as the top global supplier of textiles and apparel are numbered, right? Well, maybe. We've seen recent sourcing shifts in the import data, but nearshoring has risen. It helps to explain gains posted by Western Hemisphere. Some of the trade has moved back to this part of the world. At the same time, there are sharp gains posted by Africa. The business is bifurcating. It continues to search for the lowest cost possible. Still, at the same time, it is hedging its bets with proximity to consuming markets.

Riding the Wave of Change

But change takes time to happen. Companies only make sudden shifts if some crisis compels them. So instead, decisions are made to diversify sourcing while maintaining traditional supply chains. After all, money has already been invested and relationships long established; dumping all that overnight is foolhardy.

Even so, companies are facing pressures to diversify nonetheless. It's more of a slow drip that can become a geyser once new relationships are established elsewhere and capabilities are assessed. In short, it takes time. Such decisions can only be expected to be made after some time. But that's the deal: the ground is shifting.

Many years ago, brands fled traditional domestic supply chains when the MFA system of quotas was dismantled. On the surface, it seemed like the floodgates opened, but it took time for people to find suppliers in Asia and elsewhere. Companies kept their initiatives secret; no one wanted to talk because it was hard to find suppliers.

The Asian industry had a long way to go to develop, too. It was like working in the Wild West for sourcing executives searching for low-cost suppliers. After failing to find qualified suppliers, it got so bad that many companies gave up and hired sourcing companies that handled full-packaged production for them.

Global Jitters

We're living through a populist moment -- a reaction to years of globalization. An overlooked aspect of globalization is that countries trade more than just products; they import each other's problems. In many ways, the world is only now coming to grips with what's changed and what could come next. Unfortunately, politics have lined up to weaken many of the assumptions of globalization. Friction between the U.S. and China has only become more acute. Ukraine could turn out to be a flashpoint -- and that's before considering Taiwan's fate. Although frightening, the U.S. and China may be on a collision course. Let's hope not.

There's a lot of talk in the media these days about de-globalization. So, not surprisingly, when politicians, economists, business leaders, or academics talk about how the world went into reverse after the pandemic. For those on the front lines of sourcing, the industry's hand was, in fact, already on the reverse gearshift before the pandemic. It took the pandemic for the shift to occur. Now we're faced with a change of direction.

Globalization has ebbed and flowed for generations. Technology plays a role, as do economics and politics. Yet what we're seeing today is nothing new. Ironically, the United States embraced open markets and globalization typified by a rules-based order. Both were adopted to correct errors made during the Great Depression. However, the United States has had second thoughts about its prospects in a globalized world.

The United States is nervous, as are its leaders. Shooting at UFOs? There was a time when such a thing would only be fodder for jokes on late-night talk shows. It still is, only now there's more to the story. Tensions, nerves, poor relations, stilted politics, wars, pandemics, accusations, and rebuttals – in short, the jitters.

It's not a laughing matter. So, when will we not have to worry about balloons?

This article was originally published in on March 10, 2023.


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