In March, a ship got stuck in the Suez Canal. After six days, it was finally freed, thanks to the efforts of tugboat crews combined with shifting tides.
Before the freeing of the ship, analysts made dire warnings about how the crisis in the canal proved the inherent instability of the globalized economy. According to a headline in The Washington Post, “The Suez logjam shows how fragile our global trade system is.” Bloomberg went even further, saying, “Suez Shows Civilization Is More Vulnerable Than We Think.” One ship had shut down a route that accounted for more than 10% of international trade, and, the author argued, this showed how the existence of civilization itself is vulnerable to the closing of a few chokepoints.
The lesson of Suez is actually quite the opposite. Globalization does not increase fragility, but in fact makes supply chains robust against shocks. Once we understand this, we can see that many arguments for protectionism and investing heavily in American military primacy fall apart.
A recent White House document says it is the goal of American foreign policy to “defend access to the global commons, including freedom of navigation.” The United States must remain in the Middle East lest Iran close the Strait of Hormuz, according to former Secretary of State Mike Pompeo. Likewise, the U.S. Navy conducts Freedom of Navigation Operations through waters claimed by Beijing in the South China Sea, risking war in order to make sure they remain open to international shipping.
The problem with such arguments is that they ignore redundancies in the system, and the ability of consumers and producers to adjust to novel circumstances when given an economic interest to do so. If a street in your town is shut down, it does not mean that it becomes impossible to get from Point A to Point B. Some people will take other routes, while others will maybe rely more on public transportation or work from home. Eventually, the road will get fixed or a new one built.
This is even more true on the oceans. Whereas a road system is limited by infrastructure built up over time, there are no such limitations on the open seas. After Suez was clogged, ships began going around Africa. While this certainly increased costs, even a long-term closure of the Suez Canal would probably not have been a global catastrophe.
A longer route raises costs, but even if it became unprofitable to ship some goods over long distances, the genius of the market is that when there is profit to be made, people act. So one would begin to see manufacturers making more of the same goods closer to their ultimate destination, or a shift by consumers to substitute products. Some prices would go up, but civilization would survive. The more globalized supply chains are, the more ways there are to adjust.
It is important to note that Suez is the most vulnerable chokepoint in global shipping lanes; contingencies that the U.S. Navy is spending billions of dollars to guard against matter even less. As of 2019, about 21% of global petroleum liquids consumption passed through the Strait of Hormuz. But Saudi Arabia and the United Arab Emirates have developed pipelines to allow them to ship oil through a different path. In addition to this, closing the Strait would simply stimulate more oil production in other parts of the world. In some cases it would encourage the transition to other forms of energy. High oil prices helped set off the shale gas boom in the United States, and the industry became a victim of its own success when production increased so much that it brought prices down.
The idea that the United States needs to guard shipping lanes or defend freedom of navigation in the Asia-Pacific is even more fanciful. If you need to be convinced of this, simply look at a map of the South China Sea. Unlike the Suez, which straddles two continents, the entire contested area is surrounded by more water.
Attempts by politicians to make supply chains robust often have the opposite effect. The only reason there is even a question of Iran shutting down the Strait of Hormuz, which would damage itself more than any other country, is because of tensions stemming from the United States trying to maintain military hegemony in the region. Moreover, protectionist attempts to develop domestic industries take away the flexibility that globalization allows. One can plan for yesterday’s contingency, but no government has the foresight to know what the next crisis will bring.
Globalization has many critics eager to crow about its supposed demise. But thanks to the level of interconnectedness already achieved, crises tend to pass with much less damage than people expect. For dealing with unforeseen disruptions in supply chains, decentralized solutions remain superior to central planning. The best government can do to deal with unforeseen disruptions in supply chains is to help facilitate more economic globalization.
Richard Hanania is the president of the Center for the Study of Partisanship and Ideology and a research fellow at Defense Priorities. He holds a PhD in political science from UCLA and JD from the University of Chicago. Follow him on Twitter: @RichardHanania. The views expressed are the author's own.