The Ukraine War and Global Manufacturing

Dieter Adam 16 February 2023

Setting aside all political and ethical considerations, recent developments in, and insights from the Ukraine war have triggered an evolving discussion in Western countries supporting Ukraine with military supplies. An address by NATO Secretary General Jens Stoltenberg on Monday created the first widespread media attention to the issue, although reports had been circling well before then. “We are in a race of logistics” Stoltenberg said, “[NATO] Ministers will also focus on ways to increase our defense industrial capacity and replenish stockpiles. The war in Ukraine is consuming an enormous amount of ammunition and depleting Allied stockpiles.” He pointed to the fact that the current Western ability to manufacture munitions in particular was well below demand, leading to increasing delays in supply. He went on to emphasise the need to ramp up production and invest in production capacity.

Stoltenberg’s comments reflect concerns especially in the US about its ability to engage in sustained military conflict. A recent study by the influential US Center for Strategic and International Studies (CSIS), called Empty Bins in a Wartime Environment, lays this out in detail . As Stoltenberg did, the paper goes well beyond current US supplies to the Ukraine and emphasises the importance of re­quisite stockpiles as a means of a credible deterrent, in particular in relation to future conflicts with the People’s Republic of China. Clearly, replenishment times for key military consumables that run into multiple years, as shown below, do little to create a credible element of deterrence, particularly if your potential enemies can do better in that respect. China outperforms the US at a ratio of 5:1 when it comes to the production of cast and forged products which are used in some defense pro-ducts, for example.

It is likely that these realisations will result in material changes in manufacturing systems for military supplies in the West. “’Just in time’ and lean manufacturing operations must be balanced with carrying added capacity to enable a surge in the case of war.”, the CSIS study demands. We are un­likely to see US manufacturing swing into wartime production as it did in January 1942. Between then, and the end of the war, a total of 139 automobiles for private use were manufactured in the US. Not only is the American public unlikely to make the sacrifices required, it’ll also be a bit harder for FORD or GM to pivot to manufacturing fighter planes these days. But it is a safe bet that changes will be made to manufacturing in the US and in Europe, redirecting both additional human resources and manufacturing facilities towards military supplies. What – if any – impact this will have on New Zealand manufacturers?

If we want to see what an increased focus on military supplies does to manufacturing, we only need to look at Australia. Here in New Zealand, it may not be an increased demand for military supplies impacting local manufacturing. But we’ve had two severe weather events already this year that may well impact on goods and services we need (lots) more of, and others for which demand will be re­duced. The fact remains that – apart from long-term contracts for supply – fluctuations in demand and the resulting feeling of uncertainty will continue to affect manufacturers and their willingness to invest in their business. It may well be that the only ‘safe havens’ for manufacturers for a while will be for those involved in supply chains for military supplies, and renewable energy machinery and equipment.