Fortifying Supply Chains Against Security Threats

Governments and companies are paying more attention to supply chains as a potential source of national security risk since the Covid-19 pandemic exposed these vulnerabilities. This interest will likely grow in light of the changing geopolitical and political landscape in the US and abroad, creating more risk management challenges for companies. ?

Measures in the US

The Biden administration has been active on various fronts to buttress supply chains that deliver critically important goods and services.

For example, it created the White House Council on Supply Chain Resilience and a task force to coordinate government efforts to make strategic supply chains more secure. The aim is to lessen the risk of disruptions caused by pandemics, cyber-attacks, climate stressors, terrorist attacks, geopolitical disputes, unfair economic competition, and other threats.

The administration’s 2022 CHIPs and Science Act was signed into law to “strengthen American manufacturing, supply chains, and national security, and invest in research and development, science and technology, and the workforce of the future.” The legislation spurred multi-billion-dollar investments in domestic microprocessor manufacturing, a sector deemed of special strategic importance to the country.

Another initiative is the inaugural Supply Chain Summit hosted by the US Department of Commerce and the Council on Foreign Relations in September 2024. The summit convened leaders from the public and private sectors “to shift from reacting to global supply chain disruptions to proactively strengthening supply chain resilience.”?

Unclear outlook

It is uncertain whether this enthusiasm for fixing security gaps and mitigating disruption risks in vital supply chains will continue unabated.

President-elect Trump has made it clear that a key theme of his administration is reducing the size of government and its influence on the private sector. Much of the legislation passed by the Biden administration, including the CHIPs Act, could be on the chopping block. Yet, the incoming administration believes in “peace through strength,” so it may invest more in security and defense.

The geopolitical outlook is equally murky. No one knows for sure how the military conflicts in the Middle East and Ukraine will evolve over time. It is difficult to predict the future shape of global trade tensions, especially as the new administration threatens to impose tariffs that are likely to spark retaliation from other countries (see my Chain Reaction post on tariffs for more on this).

Also, the range of security-related supply chain threats appears to be widening.

A report published by the Center for Strategic and International Studies suggests that China’s investments in international port assets are a cause for concern. “China now dominates maritime trade in terms of volume, shipbuilding activity, and construction and ownership of ports around the world. China’s position puts US economic interests and national security priorities at risk,” says the organization.

Russian aggression is another source of concern. A chilling example of how Russia’s ambitions to cause mayhem could threaten supply chains is the suspected plot by Russian intelligence to plant incendiary devices in packages on cargo planes bound for North America. Packages caught fire at a courier hub in Germany and a warehouse in England.

This incident also underscores the potential for using supply chain infrastructure to endanger national security. ?Earlier this year, the discovery of communications equipment installed on Chinese-built cargo cranes used in US ports raised concerns that the components are spyware that pose a national security risk. This type of risk could increase as companies import systems and equipment to digitize and automate their supply chains.

Meanwhile, familiar threats, such as China’s tightening grip on supplies of strategically important materials and components, will continue to pose security risks.

Green supply chains represent a possible future source of tensions between countries. The incoming administration is committed to building on America’s status as a world-leading petrostate by increasing the production of fossil fuels, pulling back green initiatives at home, and taking the US out of the Paris Agreement. China seems to be moving in the opposite direction. The country is investing massively in renewables and nuclear power, including fusion, and now leads the world in the manufacture of parts and products that combat climate change like electric vehicles and solar panels. Their advanced research capabilities in nuclear fusion may position China as the world’s power supplier for decades. As countries pursue green policies, many could pivot to China as a supplier of relevant technology, creating tensions with the US which will probably be on a different track.

Of course, such a forecast excludes many other factors, like the Western world’s preference for liberal values and the resilience of systems based on private enterprise. Unfortunately, these values – which are the hidden strength of Western democracies – are under pressure in most Western countries.

Receptive to change

With the changing US administration, many companies are already reviewing and assessing supply chain risks rooted in geopolitics and national security considerations.

The amount of data needed to properly analyze these risks is huge, particularly for large, multinational companies. Training AI models to perform the analyses is one way to approach the task.

Corporate leaders will no doubt decide how to mitigate the risks and respond to disruptions, underscoring the importance of organizational responsiveness and agility in a world made even more uncertain by the vagaries of unpredictable national security demands.