Leaving China Behind
It’s no secret that tensions are escalating between China and the United States. The tensions have escalated into a trade war that has several companies worried about how the new tariffs will affect the supply chain with China. However, looking at the issue from a different perspective, this trade war could be a blessing in disguise. Being too reliant on China as a supplier can actually make American companies (and U.S. citizens) vulnerable to cyber operations by state-affiliated actors.
Take a look at the items in your home and you’re likely to find a label on many that says it was made in China. Even if the product wasn’t built in China directly, many of the parts that went into producing it likely were. China has established itself as an essential supplier for several tech companies. Research shows that twice as many companies surveyed by the FM Global Supply Chain Risk Study (86% vs. 43%) relied more on China as a crucial part of their supply chain for key products than Japan. Furthermore, 83% of companies said that disruptions to the supply chain presented a great risk, while 95% of companies are concerned about what a natural disaster in China could mean for their supply chain.
Trade War Fears
A Trade War has become a significant concern for companies on both sides. American companies are particularly at risk because of how much they rely on Chinese companies. There is still a lot of uncertainty over the tariffs being placed on Chinese goods.
This has forced several companies to look for alternatives to Chinese suppliers. Some companies are using Vietnam and Taiwan as a replacement, while others are moving to Mexico or actually bringing production over to the United States. Analysis from the Japanese investment bank Nomura shows that companies would rather avoid the tariffs -- and China as a whole.
President Donald Trump has also asked American companies to abandon China. The President even attacked companies that continue to maintain a presence in China, taking General Motors to task for not shifting production to the United States.
Why U.S. Companies Shouldn’t Rely on China for their Supply Chain
While the Trade War has the potential to be a serious issue for American companies, they could see it as an opportunity to reduce their dependence on China. It’s been a long time coming, given some of the problems associated with relying on China.
To start, China has a long history of cyberespionage and intellectual property theft. The Chinese supply chain leaves the door open for cyberattacks, and there are numerous examples of this.
There are two main ways to alter technology to use it for spying. The first is interdiction, which is when someone manipulates a device as it passes from the manufacturer to the customer. The other is to plant the spyware during the production process.
There was a massive scandal a few years ago when it emerged that China had been distributing electronics with a spy chip built into it. United States investigators found that chips had been installed into devices in an attack that affected nearly 30 companies, including government contractors, Apple, Amazon, and financial institutions.
Another cyber espionage campaign by China involved the hacking of a U.S. Navy contractor to obtain sensitive information on weapon development, submarine cryptographic systems, sensor data, and radio room information.
There’s also the risk of supply chain malware attacks. A software supply chain hack is one of the most insidious kinds of hacks. By breaking into the network of a developer and planting malware code onto apps and software that people trust, supply chain hijackers are able to smuggle malware onto potentially millions of devices in one fell swoop.
This has also happened with the Chinese supply chain, with supply chain attacks on six different companies over three years being tracked back to a single group of hackers who were likely of Chinese origin. Hacking groups, such as ShadowHammer, are noted for their supply chain hacks.
Alternatives to Chinese Supply Chain
There are several alternatives to using China. Most companies that are leaving China are staying in Asia and moving operations to nearby Taiwan or Vietnam. Southeast Asian countries are the strongest alternatives for China because they still have the same low labor costs and favorable trading arrangements that China offers (or used to offer) as well as developing economies and rapidly growing manufacturing capabilities.
The trade war between China and the United States is a problem that will not be resolved anytime soon. The good news is that the so-called “Trade War” could present an opportunity for companies to pull away from China and avoid the problems that come from working with the manufacturing power, such as the risk of spying and China’s lax laws on intellectual property rights. They say the Chinese use the same word for “crisis” as they do “opportunity.” Maybe it’s time American companies took a lesson from that and used the “crisis” of the trade war as an opportunity to bolster and diversify their supply chain.
Julio Rivera is the Editorial Director for ReactionaryTimes.com, a political columnist and commentator, and a Business Strategist.