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The Mother of All Supply Chain Disruptions?

For the past several years, I have been writing here and there about the serious and growing tensions between China and many of its Asian neighbors - and the US.

Putting it bluntly, things could go seriously astray, making Chinese sourcing and market development strategies null and void. We might even be in a form of war

I sometimes get critical emails when I cover these topics that I am veering too far into geo-politics. I will just say I try to steer very clear of politics in this column. What I am exploring here is supply chain risk - it just happens to be a geo-political one.

Here is the latest development: over the weekend, China flew 148 warplanes into Taiwan's "air defense identification zone," (something different than its official airspace), shattering previous daily records three times in a row, and requiring Taiwan to scramble jets and issue warnings. Some of those Chinese planes are nuclear bomb capable, and some of the flights almost flew over tips of Taiwan's land mass.

Of course, China believes Taiwan is part of its country, even though it operates as an independent nation.

In recent months, China has made it quite clear it is prepared to take Taiwan by force if needed.

"Top U.S. military officials testified earlier this year that Beijing is likely to try to use force in its designs on Taiwan within the next six years," the Wall Street Journal reported this week, adding "Other officials have said China's timeline could be sooner than that."

Chinese state media warned this week that "war is real" and it "may be triggered at any time."

It also warned Taiwan and its supporters such as the US not to "continue to play with fire" as "the Chinese mainland's preparation to use force against Taiwan secessionist forces is much stronger than ever before".

Then Thursday, the Wall Street Journal also reported that a US special-operations unit and a contingent of Marines have been secretly operating in Taiwan to train military forces, part of efforts to prepare an effective resistance to a Chinese attack on the island.

China has previously indicated it would retaliate swiftly and immediately to any indication the US had deployed military forces to Taiwan. Shortly after the Journal story, the editor of one of China's most prominent government-controlled newspapers wrote "See whether China will launch a targeted air strike to eliminate those US invaders!"

Last weekend, China also warned that World War Three could be triggered "at any time," and that the people of China were ready to back all-out war with the US, warning again the island nation against "playing with fire."

The trillion dollar question: Are what have previously been downplayed as idle threats now something scarily more real?

On Wednesday, US President Biden said both he and Chinese leader President Xi Jinping agreed to abide by the "Taiwan agreement," which vaguely calls for a peaceful resolution to the issue, with no time table. Biden's comments were in part based on a call he had with Xi in early September.

But then Secretary of State Antony Blinken reiterated that the US commitment to Taiwan remains rock solid.

There is another major complications for the US. The 1979 Taiwan Relations Act is the agreement cited by Biden. It called for the diplomatic recognition of China on the condition that Taiwan's future was determined peacefully.

But it also has this language, that the US "will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability," with the nature and quantity of this defense to be determined by the president and Congress.

In other words, the law is not a mutual defense pact like the US has with Japan and South Korea. The US is obligated to assist Taiwan but not to go to war. What will happen if China does invade? No one knows for sure.

But it would almost certainly bring trade with China to a standstill. Think we have a semiconductor shortage now? Wait until top supplier Taiwan is invaded.

Meanwhile, there is also China's ridiculous claim to rocky outcrops in the South China Sea hundreds of miles from its coastline. China is building those outcrops into artificial islands, putting military equipment on them, and claiming the area - through which a large percentage of global trade passes in bulk and container ships - as part of its own territorial water, contrary to what almost every other country in the world believes and a World Court ruling.

The US continues to periodically sail Navy ships by the islands, generally with a large Chinese naval escort. In fact, on Oct. 3, the British Royal Navy's flagship aircraft carrier HMS Queen Elizabeth, together with two US carriers - the USS Carl Vinson and USS Ronald Reagan - joined 14 other naval ships from the US, the UK, Japan, Canada, New Zealand and the Netherlands to conduct so-called combined exercises in the Philippine Sea.

China was not amused, with its Navy ships again shadowing the exercises by the US and our allies.

Could this cold war in the South China Sea turn into a hot one? That is another trillion dollar question.

Meanwhile it seems to me most companies continue ahead with China sourcing as if none of this is happening.

Perhaps it is all Chinese bravado, and that things will settle down here. But make no mistake, the US, Europe, Australia and parts of Asia seem determined to stop Chinese economic and military aggression - and the existing world and supply chain order is center stage.

Do you see these tensions with China growing? Are companies adequately considering the risk? Let us know your thoughts at the Feedback button or section below.