The Beepers Blew Up a Lot More than Hezbollah

Many pundits are pointing out how the Beeper explosions (including subsequent, successful Israeli attacks against Hezbollah’s entire leadership) have the potential to change the Middle East equation. But that’s the least of it; in fact, the campaign of exploding Beepers will have a far greater impact on the world’s economy and even the global international order.

The reason? A very “boring” subject: the supply-chain system. The iPhone, Corolla, or any other relatively sophisticated item that we buy is a product not of “American” Apple or “Japanese” Toyota, but rather of a vast, interconnected system of materials that were R&D’ed, mined, manufactured, assembled, and shipped from many different countries. Indeed, one would be hard pressed today to find any such product anywhere that was completely built from A-Z in any one country.

To be sure, the economic advantage of spreading out the process is huge: if companies can outsource different parts and stages of production, each to the cheapest or best producer, then we all benefit from low prices and superior quality. Competition on a global scale is a win-win for everyone concerned, except that…

Once a company or country loses total control of the production process, there are negative elements that can enter the picture. Before the Hezbollah Beeper mega-event, the biggest worry was cyber-spying or mischief. The cellphone might be researched and designed by Apple – “made in America” – but if some of the electronics is actually manufactured in China, there’s always the possibility that it contains a “backdoor” for recording or transmitting the ostensibly “private” messages sent from the phone. Indeed, the Biden Administration recently proposed banning Chinese-developed software from internet-connected cars, precisely for national security reasons. But why just cars? Even the kitchen refrigerator could be a spy machine. Or an “app”: TikTok too is under U.S. Government attack.

The Beeper episode took this one step further. If until now the threat was “virtual” i.e., the use of malicious software, the problem now entered the “real” world as well: stuff actually blowing up and causing physical harm! And according to news reports, this was enabled by virtual (straw) companies masquerading as bona fide suppliers of Beeper parts. In other words, even if Apple (or any company) did due diligence on a supplier and found it to be on the up and up, that wouldn’t negate the possibility that the supplier’s own suppliers (remember, this is a supply-CHAIN system) were bogus or intent on some sort of malice.
The overall problem did not come to light with the Beepers. The issue has been festering for some time. The U.S. has invested tens of billions of dollars in American chipmaking companies on the condition that the entire manufacturing process be brought closer to home (Mexico or Canada seems to be close enough). This, not only for greater supervision but also to prevent a future situation in which China invaded Taiwan – the world’s most advanced chipmaker nation – leading to the collapse of American high-tech companies who wouldn’t be able to continue producing economically-critical products.

Unfortunately, there’s a potentially serious downside to such supply-chain reordering. One of the main reasons that the world has not been witness to war breaking out between the major powers (America, China, Russia, Japan et al) is that their economies are too intertwined. In other words, such a war would be economically suicidal for all sides concerned: China buys many American products; Russia supplies China with much needed gas; without exports, Japan’s economy would collapse, etc. Thus, a serious retrenchment of what is called economic globalization would significantly increase the chances of eventual catastrophic war.
Where does this leave Israel? Whereas the Beeper escapade certainly reinforced its reputation as a high-tech leader (assuming that Israel indeed was behind the ploy), potential customers might start asking themselves whether buying from Israel might involve them getting “more” than they pay for.

Moreover, this past year’s ongoing war with Hamas and Hezbollah has shown Israel to be particularly vulnerable regarding armaments; without massive American arms shipments over the past year, the war would have ground to a halt – or at least would have been far less effective. Israel cannot rely with total assuredness on continued American arms largesse in the future – especially with the Republican Party (Trump in the fore) becoming more isolationist, looking to cut down on all foreign aid.
There is little doubt that the IDF faces a tough dilemma: whether to continue fully supporting its world class high-tech military-industrial complex, or to divert a large part of its budget to more mundane armaments: tanks, bullets, shells, infantry paraphenalia and so on, given the possibility that the world’s general supply-chain retrenchment would entail Israel losing some suppliers, if only because those suppliers would need to leave such arms at home (e.g., NATO in case of a Russian attack). A first answer appeared yesterday: Israel just signed a 1.5 billion shekel deal with its local contractor Elbit to build a new plant for the manufacture and provision of large bombs (like the ones used to assasinate Nasrallah) for the country’s Air Force.

In short, the Beeper attack was a wakeup call to the world economy: putting eggs in many baskets might not be such a good idea after all. But placing all one’s eggs in a single basket isn’t a great idea either. Finding the right supply-chain balance will be one of the world’s (and Israel’s) main challenges in the coming years, and probably beyond as well.