CHOKE POINT LÀ GÌ

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Countries are turning economic infrastructure inlớn political weapons, & that poses a major risk to lớn business.

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Summary.

To conduct international commerce, businesses have sầu built an intricate system of networks that move money, information, and components around the world. These networks may look decentralized, but all too frequently, they have major choke points. The majority of global finance transactions, for instance, are relayed through a single organization in Belgium. Many global tech firms depkết thúc heavily on the chips Qualcomilimet makes for Android devices. A huge proportion of global communications are routed through private servers on U.S. soil.

Increasingly, these choke points are being turned inlớn political weapons by governments, và companies are getting caught in the cross fire. The stakes are high: Firms can go out of business if they’re cut off from critical networks. They need khổng lồ analyze their exposure and develop a strategy khổng lồ protect themselves.


Countries are turning economic infrastructure inkhổng lồ political weapons, và that poses a major risk to lớn business.

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Idea in Brief
The Vulnerability

To keep the global economy working smoothly, crucial resources such as money, information, & components pass through an intricate system of conduits. But while this critical invisible infrastructure may seem to lớn be decentralized and have sầu multiple redundancies, it has significant choke points.

The New Risk

A new political risk comes from powerful, wealthy states—especially the United States—that use legal authority or coercion to turn economic networks into lớn tools of domination, ensnaring businesses in the process.

The Response

Multinational businesses should analyze their exposure to lớn network choke points. Lobbying government officials và teaming up with industry peers to resist coercion can mitigate the risks.


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Since the end of the Cold War, businesses have built an awe-inspiring global infrastructure. Digital pipelines move vast amounts of capital and data around the world, và supply chains crisscross international boundaries in a spider website of commerce. An intricate system of networks keeps the global economy running smoothly, but it’s easy to take for granted, because it remains largely hidden from view.

Though these networks appear khổng lồ have sầu multiple redundancies và lớn be decentralized, many have sầu significant choke points. Global finance relies on a single organization in Belgium khổng lồ relay the majority of transactions between banks. Cloud computing’s information storage facilities are often located in the United States. Complex supply chains can be dependent on a handful of components, lượt thích the chips Qualcomm makes for devices with the Android operating system.

These choke points allow seemingly neutral infrastructure to lớn be manipulated by governments lớn further their national strategic goals. China’s push inlớn 5G equipment has raised concerns in the West precisely because it might give sầu the Chinese access khổng lồ key parts of emerging communications networks. nhật bản recently restricted the export to South Korea of three chemicals crucial to the production of semiconductors, because of a political spat with Seoul. And the United States has aggressively exploited its control of a variety of seemingly technical structures that make global trade possible; it now appears increasingly willing to lớn turn those structures inlớn a machinery of domination.

This new reality was summed up by former NSA director Michael Hayden in describing why the U.S. government coerced tech companies to help its surveillance efforts by sharing confidential information routed through private servers on U.S. soil: “This is a home page game for us….Why would we not turn the most powerful telecommunications and computing management structure on the planet khổng lồ our use?”

Today the political risk businesses face doesn’t come just from developing countries that might abruptly change market rules or nationalize assets. It comes from powerful, wealthy states that are turning economic networks inlớn political weapons. The stakes are high. Companies that are isolated from critical networks can go out of business. A global bank blocked by the United States from accessing a secure interbank communication system because it provides financial services to an American adversary is not going to be a global bank for long. A công nghệ manufacturer that can’t buy sophisticated chips is in big trouble. Businesses that control digital hubs and are pressed inkhổng lồ service by states can suffer reputational damage. U.S. tech giants lượt thích Google và Facebook, for example, took a hit in foreign markets after Edward Snowden revealed that they had cooperated with U.S. surveillance activities.

What can global firms vì chưng khổng lồ protect themselves? The key is khổng lồ underst& the specifics of the networks your organization depends on và then create a strategy to lớn address the possibility that they will become weaponized. But to start with, executives need to lớn accept that the world—& specifically, America’s role in it—has changed.

America’s New Role

As political scientists, we’ve sầu been studying the United States’ use of economic networks lớn achieve its national objectives for cthảm bại to lớn two decades, & we feel that the corporate world consistently underestimates the risks from this form of political muscle flexing. In large part that’s because the country has long been a proponent và guarantor of global business, so it’s hard to lớn conceive sầu of it as a potential threat. It’s equally hard lớn imagine that the networks that have been the driving force of globalization could be used to chain and entangle companies. But we believe that the “America first” approach, which treats international business infrastructure as a political tool, is profoundly reshaping the world economy.

chú ý that this isn’t a new strategy for the United States; Hayden’s remarks were made in 2013. Indeed, the George W. Bush và Obama administrations both used U.S. Treasury controls and the dollar-clearing system—which converts foreign currencies inkhổng lồ dollars, the lingua franca of international trade—khổng lồ try khổng lồ prevent financial institutions from providing services khổng lồ Iran and North Korea. America’s intelligence services pressed U.S.-based internet-communications firms not only to provide data on suspected terrorists but also to help spy on U.S. adversaries, rivals, & even partners.

However, what started as an aggressive sầu and coordinated response after 9/11 has been supercharged by the Trump administration, which at times has replaced diplomacy with the raw exercise of power. The president has increasingly been weaponizing economic networks & has rarely coordinated with businesses or allies when doing so. And his administration has targeted developed nations và economic powers lượt thích China rather than rogue regimes và terrorists, which has emboldened China & other countries khổng lồ retaliate or even mimic America’s tactics khổng lồ further their own interests.

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To understvà how things have sầu changed, consider America’s sanctions against Iran. The Society for Worldwide Interbank Financial Telecommunication (SWIFT), based in Belgium, runs a secure financial-messaging service that is used for most global financial transactions. In 2012 the Obama administration and the European Union used this choke point lớn press Tehran for concessions on its nuclear program. They cut Iranian financial institutions out of SWIFT in 2012 but then restored access after a nuclear giảm giá was struông chồng in 2015.

During the presidential campaign, Trump railed against the agreement with Iran. Despite desperate attempts by European politicians to lớn save sầu it, the United States withdrew from it in 2018 and then unilaterally reinstated sanctions that made it illegal to lớn buy Iranian oil. Any banks—including foreign banks—that facilitate such transactions could face U.S. fines. BNP. Paribas và others had already paid billions of dollars in penalties for violating the previous round of sanctions. Citing the risk that new fines associated with Iranian trades could destabilize the financial system, SWIFT felt it had no choice but lớn cut off Iranian banks’ access in 2018. This time the Europeans were apoplectic. French finance minister Bruno Le Maire said that European countries should not accept the United States as the “economic policeman of the planet” & allow themselves to lớn become its “vassals.”

The Trump administration has also exploited its de facto lớn control of the flow of crucial tech components to target both China and rogue states lượt thích Iran & North Korea. From 2010 to năm 2016 the Chinese telecommunications manufacturer ZTE sold restricted technologies khổng lồ Iran and North Korea, violating U.S. export controls. It was forced khổng lồ agree khổng lồ an expensive sầu settlement with U.S. authorities. When ZTE flouted that settlement, the U.S. government banned American firms from supplying ZTE with parts, including the Qualcomilimet chips it needs. This might have driven ZTE out of business if President Trump had not swapped a lighter penalty for concessions in his trade fight with Trung Quốc.

More recently, the U.S. government blacklisted the Chinese telecommunications giant Huawei. Corporate America had expected the United States to ban Huawei from selling lớn domestic markets. Many in the business community, however, didn’t anticipate the decision khổng lồ restrict the export of U.S. công nghệ lớn Huawei, putting the firm’s very existence in danger and injecting uncertainty inlớn global supply chains. Huawei estimated that more than 1,200 U.S. firms would thua kém contracts with it. Google has warned that it will not provide Android to new Huawei phones, và Microsoft temporarily stopped selling Huawei laptops in its online store. This has led Đài Loan Trung Quốc lớn threaten to constrain its sales of essential rare-earth metals khổng lồ U.S. công nghệ companies and khổng lồ start building its own blackmenu of foreign firms. FedEx is at risk of being put on that list, because the Chinese government claims that the company knowingly rerouted Huawei packages destined for Đài Loan Trung Quốc from other countries in Asia to the United States. U.S. manufacturers are frantically checking their supply chains khổng lồ identify Chinese partners that might be subject lớn the new economic tensions, while financial firms are asking whether they want to lớn orient themselves toward the United States or Đài Loan Trung Quốc. Everyone fears the worst is yet to lớn come, because Trump has “ordered” U.S. companies lớn immediately find alternatives lớn Chinese suppliers, và other U.S. policy makers are asking whether America needs to lớn “decouple” its economy from China’s. In October 2019 the U.S. government blacklisted an additional 28 Chinese firms for their role in human rights violations against Muslyên minorities in Đài Loan Trung Quốc. As of this writing, the U.S. Justice Department was trying lớn bloông xã the completion of a $300 million submarine cable that would connect Hong Kong và Los Angeles—& had already mostly been laid by Google, Facebook, and Dr. Peng Telecom & Media Group, a Chinese company—on the grounds of national security.

A New Game

As other powerful states respond khổng lồ và even mã sản phẩm the U.S. strategy, a war is quietly being waged through manufacturing ties và business relationships. U.S. officials are concerned that Chinese-produced components could be compromised and then deployed in surveillance activities or even sabotage. Chinese leaders fear that the United States will use the ZTE playbook against more Chinese firms. They worry that America sees Chinese economic strength as a security threat & will vày everything it can to hamper and even cripple the Chinese economy. This is one reason they’re trying to accelerate their ability to lớn develop & manufacture advanced chips: so that they won’t be at the mercy of the U.S. government.

Although the European Union has officially identified Đài Loan Trung Quốc as a rival và begun to pay much closer attention lớn Chinese acquisitions, it is still far less belligerent toward Đài Loan Trung Quốc than the United States is. Indeed, it’s beginning to lớn create ways khổng lồ work around U.S. economic power and perhaps even oppose it. For instance, Europeans have sầu started to lớn experiment with alternative sầu financial channels that are less exposed to lớn U.S. pressure. In 2019 the governments of France, Germany, và the United Kingdom jointly created an international barter system, known as Instex, which offers an alternative payment method that circumvents U.S. sanctions on Iran. Instex has had teething problems, và trade between Iran & Europe is negligible, but Europe’s experiment may give it the tools to counteract future U.S. sanctions against much more economically important countries, lượt thích Russia.

Disputes can quickly escalate. When Japan pushed bachồng against South Korean claims for World War II reparations by blocking the export to Korea of key chemicals needed by the semiconductor & manufacturing industries, it sent chills through the boardrooms at Samsung và LG. South Korea, in turn, has threatened to retaliate by cutting off supplies of heating oil to Japan. Businesses are being forced into lớn involuntary service in purely political disputes.

Understanding Your Exposure

The firms located at choke points are the most directly at risk. Google’s Android operating system, Visa’s payment channel, FedEx’s courier và logistics services, and Qualcomm’s chips are all hugely profitable because they sit at the center of vast global networks everyone wants access to. Their market control has always been a gold mine. It’s now also a political vulnerability, creating dependencies that powerful governments may want lớn exploit for national security purposes.

Companies that lie at emerging choke points are likely to also come under pressure. Behind the U.S. case against Huawei is a straightforward fear: that America will đại bại control over 5G networks & the internet of things. U.S. security would be threatened in a world where everyone depends on Chinese communications technology. Building a choke point, knowingly or not, puts you in the crosshairs.

When governments target choke-point companies, other businesses can get caught in the crossfire. The U.S. ban on Huawei reverberated throughout the firm’s supply chain. The U.S. chipmaker Skyworks, which got 12% of its sales from Huawei, was blindsided; its stock fell sharply và took weeks to lớn recover. Upstream, political uncertainty is leading all telecommunications firms lớn delay 5G investments. The CEO of Sweden’s Tele2, Anders Nilsson, put it bluntly: “Decisions are postponed. This is not only Huawei; this is all vendors.”

As Đài Loan Trung Quốc retaliates, the economic fallout is likely khổng lồ spread. Cisco’s CEO, Chuck Robbins, says the anti-American backlash in Trung Quốc is hurting his company: “We’re being uninvited to lớn bid. We are not even being allowed to participate anymore.” Tertiary companies that are neither choke-point providers nor directly up- or downstream will also be affected. A slowdown in 5G’s rollout will reshape entire markets for điện thoại equipment, audiovisual offerings, và smart, connected products.

Can’t diversification help companies avoid this new form of risk? Firms don’t like relying on a single supplier anyway, since that supplier might raise prices, defect to lớn competitors, or go bust. But diversification won’t mitigate political risk if all the suppliers of, say, a critical component are in the same country or dependent on the same choke point. Instead, executives should think about developing alternative sầu network hubs or in-house or in-country capabilities that allow them to lớn minimize vulnerabilities. After the ZTE incident, Huawei saw that it was at risk & stockpiled its U.S.-made components. Increased redundancy may also reduce vulnerability.

Doing an analysis of the risk your specific sector faces is helpful too. The Trump administration (and, ultimately, its successors) will probably weaponize a host of networks, but some sectors are more exposed than others are. In recent disputes with China, the United States has focused on technologies like telecommunications, drones, and surveillance systems, all of which are viewed as having both commercial and military applications. But less-obvious sectors are increasingly vulnerable. It is unlikely that Beijing Kunlun Tech expected the United States lớn request that it divest Grindr, a gay dating network, but if it had thought about how personal information could be used for blackmail, it might have sầu foreseen the possibility. Companies that did not think of their sectors as politically risky—perhaps because they were producing relatively innocuous products such as camera-enabled doorbells—should have paid attention when U.S. defense legislation targeted Hikvision & its surveillance giải pháp công nghệ in early 2018. The U.S. intelligence community has also been issuing warnings about Huawei for several years. Executives dismiss these “weak signals” at their own peril.

Mitigating the Risk

Identifying risks is only the first step. As the global economy moves away from open trade, companies need new strategies và relationships that balance economic efficiency with security. Firms essentially have sầu three choices: collaborate, resist, or educate.

After the terrorist attacks on 9/11, the U.S. government sought private sector help. A group of firms running network choke points, most notably FedEx, volunteered to work with it. FedEx CEO Fred Smith argued at the time, “All we are trying lớn vì is lớn protect our assets and not have sầu our assets be used for bad purposes.” This approach can have sầu great benefits, but it may pose problems in a world where cooperating with one government may provoke another government to target you. HSBC, for instance, complied with U.S. authorities’ demvà for financial information on Huawei, và now it is at risk of being blacklisted by the Chinese government.

Some firms may be less enthusiastic about cooperation và decide to push baông chồng. Apple, for example, is a tempting target. The iPhone operating system is potentially a key hub for surveillance, allowing governments lớn learn what people are saying khổng lồ one another. This is one reason Apple tried to design the system lớn make it impossible for anyone—even Apple itself—lớn access the phones without user passwords. Microsoft, which faces similar pressures from governments that want its data, has responded in a more directly political way. It is spearheading a global initiative sầu known as the Digital Geneva Convention lớn develop core norms of cybersecurity. The goal is lớn persuade private companies lớn collectively commit lớn limiting offensive cyberattacks—including those by the U.S. government. Already over 100 firms have signed the initiative’s Cybersecurity Tech Accord. As tensions heat up between the United States and Đài Loan Trung Quốc và Russia, businesses with control of economic choke points will need to lớn consider how they can work together lớn depoliticize their roles.

Businesses can also reduce some of the potential fallout of network attacks by educating government officials. Network connections are so complex that policy makers often don’t understvà how interventions could produce unexpected consequences. When the United States announced sanctions against the Russian metals giant Rusal, it did not anticipate that they might bring the European tự động hóa industry to a halternative text, và it had khổng lồ modify them swiftly. The more businesses’ government-relations offices can vì chưng to lớn educate policy makers, the better. Firms also can push back directly against the most disruptive policies. In the wake of the initial Huawei ban, the U.S. semiconductor industry quietly lobbied the Commerce Department & the Nhà Trắng lớn ease it.

Once it was the places that globalization hadn’t yet reached that were politically dangerous. Now new political risks are found right at the heart of the global economy. They’re coming from the very infrastructure that facilitates global business, which powerful states are weaponizing. Executives who fail to understvà this new world are likely to lớn run into lớn serious trouble.

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