Our need for supply chain diplomacy

There was a time in the not-sodistant past when the United States and the People’s Republic of China had no formal diplomatic ties, and very few goods were traded between the two countries.

That began to change in 1971 when nine players from the U.S. table tennis team became the first American delegation to visit China since its communist revolution in 1949. A year later, U.S. President Richard Nixon visited China, and the Chinese table tennis team came to the United States for a series of exhibition matches.

Ping-pong diplomacy, as it became known, was a highly publicized cultural exchange that laid the groundwork for re-establishing official diplomatic relations between the two countries, which have grown into the world’s largest economies in terms of GDP.

But while goods, services, and people now flow regularly between the United States and China, their official diplomatic relationship has been strained in recent years, mostly because of disagreements over issues such as fair-trading practices, global governance, and human rights concerns.

Perhaps it’s time for an updated version of ping-pong diplomacy— something more economically strategic in nature but still driven by the power of human relationships. We believe it’s time to bring together academic and industry experts from the United States and China to work collaboratively and transparently on the supply chains of the future. Call it supply chain diplomacy. Tariff levels between the United States and China have soared in both directions over the last five years, a span that includes two U.S. presidential administrations. Despite an agreement on a phase one trade deal, the barriers to trade remain in full force.

The pandemic, meanwhile, has accelerated diversification trends in the global supply chain for personal protective equipment (PPE) and other products by U.S. companies, even though China remains a top sourcing location for businesses.

Rather than working together to identify and solve global economic issues, political leaders from the two countries are engaged in various diplomatic policy clashes. Businesses and consumers, meanwhile, suffer because of operational inefficiencies, delays in the shipping of goods, higher production costs, and increases in prices.

The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities— the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.

Supply chain diplomacy would bring together industry leaders, academics, and other supply chain stakeholders in a unique, cross-cultural format, and then share what is learned with decision makers of both countries.

Imagine two teams of at least six members from each country convening four times over the next two years to discuss challenges and solutions for effective policies and strategies that would create a more effective, efficient global supply chain. These teams could:

■ Identify key challenges in the global supply chain, with particular emphasis on the United States and China.

■ Conceptualize solutions, including policy actions as well as corporate logistics tactics and supply chain strategies.

■ Create a back channel for threeway communications and messaging between U.S. corporate stakeholders, Chinese policymakers and U.S. policymakers on U.S.-China and global supply chain issues.

■ Play a few friendly games of ping pong.

The intent would be to work on supply chains of the future in the spirit of cooperation and, in some instances, cooperating competitively. This “coopetition,” to use supply chain management terminology, would focus on three areas:

1. Global economic impact. Supply chain diplomacy could help rein in global inflation by reducing the costs of trade.

Participants could work together to identify and reduce sources of inconsistencies in transit times with a better balance of loaded containers traveling between the east and the west. Balancing the head haul portion (China to U.S.) of transportation with revenue producing back hauls (U.S. to China), as opposed to shipping empty containers, is one of the most fundamental value creation strategies found in the transportation function of supply chain management.

U.S. agriculture products like Arkansas-grown soybeans are leading the way in creating more balanced trade and represent an existing win in phase 1 of the U.S.-China Trade Agreement. Building on the initial successes in agriculture to balance trade would be at the top of an agenda for supply chain diplomacy.

They also could look for ways to reduce variation in supply chain inventories, including metrics like safety stock, order quantities, and on-shelf inventories. And they could completely rethink tariffs with an eye toward free or less expensive trade whenever possible.

2. Relationship restoration. The meetings should focus on building trust and a commitment to long-term supply chain strategies. Trust is a critical component of supply chain management because it sets a foundation for continuous improvement over time and for identifying and addressing sticky topics like decoupled areas and geographic diversification while improving areas for cooperation.

3. Sustainability. Participants would discuss sustainability from environmental, economic, and ethical perspectives, including the use of rare and non-rare raw materials. Supply chains are at the core of several opportunities for improving the environmental impact of packaging, transportation, mining, and manufacturing, including labor practices and pollution.

For the United States and China to co-exist in an increasingly complex and inter-related world, expanding the conversations between stakeholders in both countries has never been more important. The 19th-century idea that “When goods don’t cross borders, soldiers will” is as true today as ever. Perhaps more so.

Supply chain diplomacy, however, can’t happen without a cross-section of support. The two governments should support the idea because it would encourage solutions that would grow both economies in grounds not cluttered with political landmines. Industry leaders should support it— financially and with their participation—because it would give them an opportunity to solve challenges that directly tie into their business interests. And the public, in China and in the United States, should support it because the solutions would affect their everyday lives in positive ways.

Supply chain diplomacy might not generate the same type of international publicity that came with ping-pong diplomacy, but the results could be every bit as world-changing.

John L. Kent is a clinical professor of supply chain management at the University of Arkansas’ Sam M. Walton College of Business, the director of the college’s Supply Chain China Initiatives, and a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations. David J. Firestein is president and CEO of the George H. W. Bush Foundation for U.S.-China Relations and a member of the foundation’s board of directors. He was a U.S. diplomat from 1992–2010, specializing primarily in U.S.-China relations. This column reflects the opinion of the authors and not that of the University of Arkansas or Walton College.