Ms. Pelosi Goes to Taipei—and the Industry Browses for Umbrellas
Speaker of the U.S. House of Representatives, Nancy Pelosi, recently paid a visit to Taipei. She was warmly greeted by President Tsai Ing-wen of Taiwan -- and evoked the ire of China's president Xi Jinping. True, speaker Pelosi was already on a tour of various Asian nations, but the visit to Taipei was unannounced.
President Xi, however, deployed his military to encircle Taiwan to show his displeasure.
Even so, it's not uncommon for high-ranking government leaders to visit Taiwan. For instance, European Parliament Vice President Nicola Beer visited in July without a military mobilization by Beijing. But the Pelosi visit was different.
The question is, why did she choose now to visit Taipei? And although the political dealings of leaders in Washington, Beijing, Taipei, and elsewhere may seem detached from the workings of our globalized business, nothing could be further from the truth.
Our Industry's Vulnerability
The friction between Beijing and Washington over Taiwan directly affects our industry.
Here's why. According to data compiled by Bloomberg, almost half of global containership traffic passes through the Taiwan Strait. So if trouble was to break out over Taiwan, supply chains would not only be disrupted, but the cost of shipping would rise along with delays.
And, of course, trade between the U.S. and China would cease if hostilities were to occur. This would compel sourcing companies to reroute production, cancel orders, and scramble to find alternative sources of supply outside of China. Overnight. It would be a white-knuckle time, for sure.
Imagine being in the Taiwan Strait on a transiting containership trapped in the middle of hostilities. It's scary.
Of the many lessons learned from the war in Ukraine, commercial business and regular shipping of products into and out of Ukrainian ports ceased under a Russian naval blockade. As a result, many countries worldwide, particularly in Africa, struggled to feed their people without regular grain and other food shipments from Ukraine.
A Way Out of the Taiwan Strait?
Make no mistake: the Taiwan Strait is a pinch point for global trade, and as the recent Chinese military exercises made clear, it can be blockaded, setting up a potential confrontation with the American navy.
Imagine that. Then things would get dicey, but options would become crystal clear from a commercial perspective. Sourcing from China would come with uncertainty, panic, and pressure from the U.S. government for companies to exit the country.
It's terrifying but ironic when contemplating such things. Today's China was built on free trade, global investment, and the movement of people. Should hostilities break out between China and Taiwan, wouldn't all of that be thrown out?
Of course, Chinese authorities know that, and that's not lost on the governments of Taiwan and the United States. So there's a lot at stake.
President Biden apparently has a loose interpretation of the One China policy. He has repeatedly said that the U.S. would defend Taiwan if invaded, even though that's not explicitly stated in the decades-old One China policy. This must drive Xi Jinping crazy because, in his eyes, Taiwan is part of China. It's a renegade province that needs to be brought to heel.
And that's the rub. China wants Taiwan back in the fold, but for reasons that have more to do with internal politics and pressures than external forces. For example, Xi faces rising nationalism, economic stagnation from strict pandemic lockdowns, and an anxious military.
In fact, China's military exercises around Taiwan seemed to have been expanded and extended after reports of dissent within China critical of Xi's response to Pelosi's visit to Taipei was not tough enough.
It's not a foregone conclusion that China will invade Taiwan, despite what many media observers suggest. Instead, direct dialogue between China and the U.S. could defuse the situation. Let's hope calmer heads prevail.
The Wall Street Journal reports that Xi and Biden may meet during the November meetings of the Group of 20 nations in Bali or the Asia-Pacific Economic Cooperation summit in Bangkok. "The trip preparations suggest that the 69-year-old Mr. Xi is confident about his fortunes at a twice-a-decade congress set to take place this fall, where he is expected to break with recent precedent and claim a third term as Communist Party chief.”
A Strategic Realignment
However, both countries are barely on speaking terms. Without direct interaction, trouble in the Taiwan Strait or elsewhere in Asia becomes more likely. No one looks for war. But war has a way of finding us.
There needs to be strategic dialogue and options explored by all parties to identify solutions. Despite all of the bellicose posturing, there is more to lose by not speaking directly.
And our industry is caught in the middle, powerless to do anything other than suffer the economic fallout. Yet, the industry should take precautions to protect itself instead of waiting to adjust should some conflict emerge in the region.
According to U.S. trade statistics, two trends have emerged in textile and apparel sourcing. First, sourcing has already diversified away from China as the sole supply source for many companies. Second, sourcing in the Western Hemisphere has increased, benefiting from shorter supply chains and proximity to consuming markets.
The hedges are in. Diversification of supply is an effective way to manage a company's risk. A good call.
As our industry and many other industries learned the hard way during the pandemic, relying upon supply chains that have never been pressure-tested during a crisis is risky.
The lesson: a creative, proactive sourcing strategy is more critical than simply sourcing from the lowest-cost supplier.
Provocations and Umbrellas
The history of our industry is essentially a journey of technological development, economic progress, social impact, and politics. Indeed, our industry, just through its sheer scale and global reach, touches so many aspects of the human condition. But it is also often on the precipice of societal change and human interaction — both good and bad.
The Taiwan Strait could be a flashpoint of some future conflict between great powers. Or it could continue its traditional role as a significant shipping lane for commerce. But it also stands as a symbol of our times -- teetering between conflict and resolution. With our business caught in the middle like some accidental tourist.
This brings us back to where we started out. Ms. Pelosi went to Taipei. Why? Publicly, statements said she went to Taipei as a show of support for the people of Taiwan. Maybe so. But it was seen in Beijing as a provocative action.
How did Beijing respond? The best thing to be said was there were no accidents reported, no incidents that could have led to an escalation of tensions. Which, perhaps, was Speaker Pelosi's goal in visiting Taipei in the first place. Simply to gauge Xi's response, a measure of how determined the Chinese remain on reunification with Taiwan.
For us working stiffs, we may never know. But we should learn to watch out for possible trouble somewhere down the road. Is a storm brewing? The skies seem cloudy, but there's no sign of thunderstorms. Even so, umbrellas, anyone?
Originally published in SourcingJournal.com on August 15, 2022.