A casual understanding of foreign policy would suggest that retail is facing a point of concurrency, where three influences intersect at once.
The intersection of commerce and national security has emerged as a complex and multifaceted challenge for retailers and marketplaces navigating the pressures of pricing, shipping, supply chain, and forecasting demand. This essay explores three key dimensions of this confluence: cybersecurity (as told through Shein), shipping vulnerabilities (as told through the Suez Canal conundrum), and concerns in the Indo-Pacific (as told through the Taiwan conflict). Each of these areas underscores the need for a comprehensive and strategic approach to safeguarding national and corporate interests while maintaining a thriving global economy.
A telling example of this phenomenon arises from the world of e-commerce and data collection. While this issue was explored in-depth in a previous report titled “Where NATSEC Meets Commerce”, it bears revisiting due to its profound implications.
The rise of Chinese tech companies, such as TikTok, Shein, and Temu, has significantly influenced the global commerce landscape. These companies have leveraged their direct-to-consumer models to rival and even surpass American competitors. What’s noteworthy is the symbiotic relationship between Chinese commerce giants and tax incentives. Packages worth less than $800 have long been allowed to enter the United States duty-free, incentivizing Chinese firms to sell their products in the American market while bypassing warehousing them stateside (until very recently). Furthermore, the Chinese Communist Party (CCP) has waived export taxes on these products, facilitating market share expansion in the United States.
China’s expertise in data collection predates that of the United States, with a relentless focus on first-party data. The Chinese tech ecosystem has harnessed first-party data to refine search algorithms, assess creditworthiness, and enhance its digital finance industry. This extensive data collection raises concerns about privacy and data security, given the potential for misuse and abuse.
It becomes increasingly evident that national security and commerce experts should converge. Understanding the depth of knowledge possessed by both sides is paramount, as the ancient wisdom of Sun Tzu’s “Art of War” suggests: “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” While government officials may raise alarms about tangible tools required for battle, such as warships, the modern battleground also encompasses data and the vast knowledge it represents.
It becomes increasingly evident that national security and commerce experts should converge.
The implications of this confluence of commerce and national security are far-reaching, affecting not only the global economy but also the sovereignty of nations and the privacy of individuals. As we delve deeper into the complexities of this interplay, the need for a nuanced and strategic approach becomes evident.
Shein vs. The American Stock Market
Shein has risen to prominence, particularly among a younger demographic that craves affordable, trendy clothing delivered promptly to their doorsteps. Shein’s unboxing videos, showcasing $5 shirts and $10 bikinis, have become a hallmark of its marketing strategy.
The company made waves in the retail industry by adopting a unique approach. Unlike traditional retailers that produce large quantities of a single item for a season, Shein opted for small-batch production, often making only 200 pieces of a particular item initially. This strategy minimized excess inventory, reduced costs, and maximized the likelihood of selling each piece—a feat made possible by Shein’s adept use of data-mining and AI to gauge consumer demand and preferences.
Founded in China in 2008, Shein’s appeal extended to a broader audience during the pandemic, as even parents began exploring the brand’s affordable options. By every available measure, Shein has climbed the ranks to become one of the most popular brands among teenagers, rivaling the likes of even Nike. For now, Shein remains a privately held company, making it challenging to pinpoint its exact market share. But that is about to change.
Shein has taken steps toward becoming a publicly traded company, with reports indicating that it has filed for an IPO. The company has started addressing concerns such as sustainability, issues related to the treatment of independent designers, and transparency about its influencer partnerships — efforts seen as necessary when entering the public market in the United States. However, the most important issue remains: data security concerns.
Despite being a private entity, estimates of Shein’s value have ranged from $100 billion to $66 billion, outpacing the annual revenue of established retailers like Macy’s. However, the company faces significant controversies that could impact its IPO journey. One critical concern centers on allegations of forced labor in its supply chain. Reports have suggested that Shein may have sourced cotton from Xinjiang, a region in China associated with forced labor, raising questions about its compliance with US law.
Another issue relates to customs duties, where Shein benefits from the de minimis trade rule, exempting imports under $800 from fees. Critics argue that this provision was intended for personal items, not as a loophole for corporations relying on low-cost, high-volume shipping.
Additionally, Shein’s rapid and inexpensive production model aligns with the fast fashion industry’s negative environmental impact. While the company has made some efforts to introduce sustainable materials, critics view these steps as insufficient to counteract the disposable nature of ultrafast fashion. Concerns persist about the extent of data access the Chinese government may have to Shein’s customer information, given the company’s origin and current headquarters in Singapore. I wrote this in October 2023 with little understanding of its significance in 2024:
The combination of China’s global espionage campaign, Russia’s invasion of Ukraine, and the Middle East crisis has raised doubts about the intelligence community’s ability to effectively address these challenges and confront what seems to be an insignificant eCommerce problem. Driven by China’s autocratic government and advanced technology, that “insignificant problem” undermines the rule of law and poses a major threat not only to the United States but also to its allies. The situation calls for increased vigilance and coordinated efforts to counter this multifaceted threat.
Shein faces growing scrutiny not only for its business practices but also for its potential implications on national security. The intricate web of challenges and opportunities surrounding Shein’s ascent underscores the complex landscape of modern retail and its broader societal and geopolitical implications.
The Symbolism of The Suez Gulf
As we delve further into the complex web of global events poised to shape 2024, one cannot overlook the growing tension surrounding the Suez Canal. The strategic significance of this historic waterway, connecting the Indian Ocean to the Mediterranean Sea via the Red Sea, cannot be overstated. Approximately 12 percent of global trade and a staggering 30 percent of the world’s container shipping traverse this maritime corridor, serving as the quickest route between Asia and Europe.
In recent weeks, the Suez Canal has faced severe disruptions due to attacks on shipping traffic, precipitating ripple effects throughout the global supply chain. This ominous development arised from the actions of Iranian-backed Houthi rebels, primarily based in northern Yemen. These rebels, citing support for the Palestinian cause amid the Israel-Hamas conflict, initiated a campaign targeting commercial vessels in the Bab al-Mandab Strait. This waterway connects the southern end of the Red Sea to the Indian Ocean, making it a vital access point for maritime trade.
The Houthi rebels’ audacious first target was the Galaxy Leader, a Japanese-operated cargo ship reportedly partially owned by an Israeli investor. Their actions raised concerns about the safety and stability of shipping routes in the region. In response to these escalating threats, Secretary of Defense Lloyd Austin recently announced a 20-country coalition, with the United States at the forefront, to safeguard the Suez route. China is not a part of said coalition, raising concerns that could be perceived as adversarial.
The initial plan involves deploying warships close to the Yemeni coast to deter and defend against potential Houthi attacks. However, the severity of the situation may necessitate more comprehensive actions by the US military, including naval escorts for vulnerable ships and potential air strikes against Houthi military infrastructure.
The implications of these events are profound and far-reaching. With the vital flow of global trade hanging in the balance, past missile attacks have already led shipping companies to divert over 100 vessels from the Suez route, re-routing them around the treacherous Cape of Good Hope, situated at the southern tip of Africa. This drastic measure adds approximately 6,000 nautical miles and potentially three to four weeks to the journey, causing considerable delays and disruptions in shipping operations worldwide.
History reminds us that disruptions in the Suez Canal, such as the extended closure following the 1967 Six-Day War and the high-profile grounding of a massive vessel in 2021, are costly and risky endeavors for global shippers. The maritime industry’s ability to adapt to such challenges underscores the vulnerability of this vital route.
The ongoing mission to secure shipping traffic through the Suez Canal, aptly named Operation Prosperity Guardian, raises questions about the use of military force to protect economic interests. However, framing this mission as a defense of global commerce is a prudent approach. Ensuring the safety and stability of this maritime artery is not only essential for countries less affluent and powerful than the U.S., but it is also an investment in long-term global security. Until industry stakeholders are convinced that the Suez route is fully secure (Maersk has resumed operations), the retail world will continue to bear the brunt of disruptions.
The Suez Canal conflict stands as a stark reminder of how the intertwined spheres of geopolitics, commerce, and national security can converge in unexpected ways, shaping the world’s outlook in the year 2024 and beyond.
China, Supply Chain, and the Third Proxy War
As we explore the final globo-retail challenge that will define the commerce landscape in 2024, one issue looms large and unprecedented: the prospect of a proxy war involving the United States and China. This scenario, more likely today than at any point since World War II, stems from the highly contentious issue of Taiwan. Chinese President Xi Jinping’s unwavering stance on unifying Taiwan with mainland China poses a significant risk, one that could ignite a major conflict in the Indo-Pacific region.
The strategic significance of Taiwan extends beyond its geographical boundaries. A successful Chinese invasion of Taiwan would undermine the U.S. and allied defenses in the region, thereby weakening America’s strategic foothold in the Western Pacific. Moreover, such an invasion could disrupt the global supply chain, cutting off the United States’ access to crucial components like semiconductors produced on the island nation. In response, President Joe Biden has emphasized his commitment to defending Taiwan against external aggression.
However, the risks associated with this geopolitical flashpoint go far beyond the military dimensions. While U.S. citizens have grown accustomed to wars fought on distant shores, China represents a fundamentally different adversary, capable of exerting its influence in unprecedented ways, including within the American homeland.
The military aspects alone paint a grim picture. China’s hypothetical strategy for capturing Taiwan would likely involve a rapid and overwhelming assault through air, sea, and cyber means, targeting key strategic locations before the U.S. and its allies can mount an effective response. The relative size of Taiwan, comparable to the state of Maryland, underscores the speed at which such an operation could unfold.
Adding to the complexity, China possesses an arsenal of over 1,350 ballistic and cruise missiles aimed at U.S. and allied forces in the region, further complicating the defense scenario. The United States would find itself waging a war across the vast expanse of the Pacific, confronting an adversary boasting the world’s largest navy and Asia’s most substantial air force.
Beyond conventional military operations, China has cultivated an array of political and cyber warfare capabilities designed to penetrate, manipulate, and disrupt American society. This multifaceted campaign would involve disinformation campaigns, cyber-attacks, and potentially, attacks on critical infrastructure like satellites.
In addition to these challenges, China could leverage its control over global supply chains and shipping routes to inflict severe economic consequences on the United States. The U.S. economy’s reliance on Chinese resources and manufactured goods, including those with military applications, is substantial. A war would disrupt this intricate web of trade, leading to potential shortages, inflation, unemployment, and economic uncertainty.
China’s ascendancy as the dominant global industrial power has transformed the strategic landscape. It has outpaced the United States in manufacturing output and production capacity for essential military components. The recent Ukrainian conflict highlighted America’s inability to meet the demands of even a smaller-scale war, depleting critical military supplies. As this story plays out, the signs of this inability are omni-present:
The U.S. on Wednesday announced what officials say could be the final package of military aid to Ukraine unless Congress approves supplemental funding legislation that is stalled on Capitol Hill.
The general public, retail world, and greater United States must begin to consider the economic uncertainty facing consumers in 2024. This includes fortifying domestic defenses against disinformation campaigns, reconfiguring supply chains for critical goods, and pursuing a long-term strategy to regain dominance in global manufacturing. Until then, it is imperative for Washington to exercise caution, avoiding provocations, and engaging in constructive dialogue with adversarial nations.
****
In a world where the stakes have never been higher, the challenge posed by a potential conflict with China is unparalleled. The events unfolding on the global stage in 2024 will undoubtedly be shaped by the intricate dynamics of this emerging geopolitical landscape.
In the complex tapestry of commerce, national security, and the digital age, the concerns outlined in this essay reverberate far beyond geopolitical borders. As we seek to safeguard national interests and protect the integrity of our economies, we must also consider the impact on consumers and their welfare. Disruptions in supply chains, cyberattacks, and threats to maritime trade can have direct consequences on consumer prices and accessibility to essential goods. Striking a balance between security and affordability is paramount, as our interconnected world relies on the uninterrupted flow of commerce.
The flow of commerce faces further disruption.
By Web Smith