Diplomacy Through Supply Chain ‘Containment’: Does It Really Work?

As of 2025, the U.S., with a nominal GDP of $30 trillion, was the world’s largest economy.

Most of what American consumers spend their money on is domestically produced goods and services. That’s not to say that foreign trade isn’t a vital part of the economy. U.S. exports in 2024 accounted for about 11% of GDP, and imports another 14%. With a quarter of the U.S. economy depending on international transactions, supply chain risk is a key C-suite concern. According to a 2025 Supply Chain Annual Risk Report, what worries companies most are extreme weather events, piracy, cyberattack, raw-material shortages and regulatory policy.

To put these worries in perspective, from 2016 to 2024, the total cost of extreme weather events cost U.S. businesses some $750 billion. Much more common, and costly, are cyberattacks. In 2016, there were approximately 250,000 cyber incidents reported in the U.S. By 2022, the number had doubled. With each incident costing U.S. companies on average $4.35 million, cybercrime is a trillion-dollar-per-year problem.

By comparison, the $9 billion lost each year to global pirates would seem small — except for the fact that additional insurance, security and rerouting costs are shouldered by only two dozen or so shipping companies that handle the majority of global trade.

Raw-material shortages are another industry-specific problem. The U.S. Census Bureau’s Quarterly Survey of Plant Capacity Utilization reported in 2024 that roughly 11% of manufacturing plants in the country cited shortages of raw materials as a key capacity utilization problem.  

Whom criminals target, when and where storms strike, and the availability of materials with which to build are problems largely outside a company’s control. As a result, risk management tends to focus on mitigating exposure and developing response plans. The plans that U.S. companies are increasingly being asked to make involve pivoting supply chains according to political ends.

Congress first introduced federal regulation of businesses in 1887 with creation of the Interstate Commerce Commission. Today, there are some 430 federal agencies responsible for administrating and enforcing more than one million regulations. In recent years, as world economies have become more interconnected, politicians have increasingly used regulations as a means of advancing foreign policy.

The China Syndrome

In 2017, China was the largest U.S. trade partner. Yet trade between the two countries had always been far from balanced. By 2018, the U.S. trade deficit with China had reached a staggering $418 billion. American politicians blamed it on unfair trade practices such as intellectual property theft, forced technology transfer, and exchange rate manipulation.

In response, a series of executive orders placed import tariffs anywhere from 7% to 25% on nearly 6,000 categories of made-in-China goods. In addition, the de minimis privilege — allowing U.S. companies to import low-value shipments of goods tariff-free — are slated to end. The U.S. Commerce Department has practically shut down imports of information and communications technology from China.

As trade has fallen, so too has investment. From 2016-2022, Chinese foreign direct investment into the U.S. reduced from almost $50 billion to $5 billion.

Nowhere is the lack of investment and trade more apparent than in high technology. The Committee on Foreign Investment in the United States has blocked several high-profile Chinese projects across both the Trump and Biden administrations. Both presidents also signed executive orders tightening restrictions on U.S.-China collaborations in the areas of artificial intelligence, semiconductors and telecommunications.  

Has supply chain “containment” of China worked? It’s a mixed bag. Arguably, U.S. sanctions haven’t changed how products are made in, or exported from, China.  Claims of intellectual property theft are still made. Forced technology transfer through joint ventures remains the norm. And exchange rate manipulation is ongoing.

What has changed is U.S. companies’ dependence on Chinese imports. From 2018 to 2024, U.S.-China trade fell about 19% or $130 billion. By 2024, the U.S. trade deficit with China dropped 30% or roughly $130 billion. In other words, U.S. losses in Chinese trade were made up almost entirely in reduced Chinese imports. By the end of 2023, Mexico had overtaken China as the U.S.’s largest trading partner.

The Chinese economy appears to be worse off from supply chain containment. In 2017, prior to sanctions and regulations, the U.S. and Chinese GDPs were about $20 trillion and $12 trillion, respectively. Average GDP growth in China over the prior five years was about 7% compared with 2% in the U.S. Analysts the world over predicted that China would soon overtake the U.S., but by 2024, China’s average annual GDP growth rate had fallen by 2%, while that of the US was 0.4% from where it had been.

In light of lost U.S. exports and investment (as well as a cratering domestic housing market), no one is predicting that the Chinese economy will overtake the U.S. anytime soon.  

Conflict With Russia

In 2022, Russia invaded Ukraine. Emboldened by its use of supply chain disruption as a means of financially weakening China, President Biden signed Executive Order 14071, and Congress passed the Countering America’s Adversaries Through Sanctions Act. As a result, U.S. businesses were prohibited from any further investment in Russia, as well as from importing, exporting and reexporting there. At the same time, U.S. banks were prohibited from opening accounts or conducting any business with Russian banks.

Supply chain containment was further expanded through a series of secondary sanctions. Foreign financial institutions providing services to Russian banks could be cut off from the U.S. financial system. Foreign companies that traded with sanctioned Russian companies could lose their ability to do business with U.S. companies and gain access to the American market. The U.S. even coordinated with G7 countries to limit the prices that Russian oil and gas companies could charge for their products sold abroad.

Has U.S. supply chain containment of Russia worked? As with China, the results are mixed.   As expansive as the sanctions were, U.S. and Russian supply chains simply aren’t that dependent on one another. Prior to the war, U.S.-Russia trade was a mere $40 billion per year, and U.S. companies had only about $12 billion invested in Russia.

The sanctions haven’t changed Russian leadership, their policies, or stopped the war.  On the other hand, Russia’s economy has taken a substantial hit. Prior to war, Russia’s GDP had been growing by 2% to 3% per year, reaching $2.3 trillion in 2022. By 2024, Russia’s GDP had shrunk by $100 billion. Thousands of companies and billions of investment dollars have left Russia. Interestingly, though, as western supply chains were unwinding, Chinese trade with Russia expanded by some $50 billion per year.

The Russia and China examples clearly show that U.S. foreign policy is increasingly leveraging supply chains. In the short-term, trade restrictions do not appear to bring about changes in leadership or policies. However, due to the extensive reach and size of the U.S. market, the American economy appears to have emerged from these trade conflicts in a stronger position than its adversaries.

The long-term effects of economic downturns on leadership and policy change remain uncertain. It would seem reas…