The globalized and laissez-faire economy that has defined the business world for years is giving way to an entirely new set of considerations, according to Michael Chertoff, the former Secretary of the Department of Homeland Security.
While companies have for years focused on the fastest, cheapest, and easiest way to produce products and do business, Russia’s invasion of Ukraine and the rise of China have increased the attention dedicated to national security as a business consideration, said Chertoff.
Since the start of the Ukraine war, Russia has been weaponizing the global supply chain to help its interests, the former Secretary of Homeland Security told attendees at the Fortune CEO Initiative summit in Palm Beach, Fla. on Thursday.
Russia has already cut off natural gas exports to Europe and escalated fears of a worsening global food crisis after it backed out of a U.N.-brokered deal to export grain via the Black Sea before rejoining the deal this week.
“This is a deliberate effort by the Russians to use the possibility of energy shortages and food shortages as a way to leverage to getting support for the Ukraine to begin to diminish,” Chertoff said.
But Russia’s actions are not an isolated phenomenon, said Chertoff. For the past 10 or 15 years, the domain of geopolitical conflict has progressively bled into the economy.
“The vectors and the domains of conflict are more than just what you think of with tanks, and aircraft, and ships,” Chertoff said. “The economy, food, information—all of these are areas in which there’s competition, conflict, and even warfare.”
This growing trend has thrust businesses increasingly into the throes of geopolitics, and put economic issues at the forefront of national security.
Chertoff pointed to the recently passed CHIPS and Science Act, which is meant to increase American semiconductor production, as a positive step the government has taken to avoid a fallout similar to what Europe is currently facing with natural gas.
Semiconductors are a key component for a range of electronics like computers and smartphones, but also military equipment. However, a majority of semiconductors are manufactured in China and Taiwan, which leaves the U.S. at risk of getting its supply cut off.
While onshoring business to the U.S. may conflict with companies’ traditional mindset of producing products in the most efficient way at the lowest price point, the national security implications are becoming increasingly hard to ignore, Chertoff said.
“There was a time that would be considered a ‘no no.’ You’d want to have the leanest, cheapest supplies, and you don’t want to have any excess capacity,” Chertoff said. “What we realized was that’s a great way to fall off a cliff.”
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