Bringing Home the Supply Chain

Posted in: Tax and Economics

The spread of COVID-19 over the past weeks has exposed our extreme vulnerability to supply chain disruptions. Millions of health care workers lack personal protective equipment (PPE) in part because 30 percent of it was imported from China last year and that supply chain has effectively ceased. Meanwhile, millions of American workers—workers who could be producing PPE, ventilators, and lifesaving drugs—are now unemployed as the economy grinds to a halt. There is a disconnect. We are finally being forced to confront the underside of unbridled globalization led by firms searching for the most efficient, most profitable “just in time” supply chains. Once the COVID-19 pandemic subsides, U.S. policymakers must not forget this lesson and should mandate that a minimum percentage of essential supplies be manufactured domestically. This is a national security issue.

Decades of offshoring have left us extremely reliant on the production capacity of China and other coronavirus hot spots. U.S. hospitals are ordering Chinese thermometer guns from Amazon on backorder until April 30 because there is no other way to source them. Even before the pandemic forced tens of thousands of manufacturing workers to stay home, U.S. auto plants were anticipating shutdowns because of the unavailability of electronic component parts from northern Italy. In 2016, 20 to 25 percent of these “intermediate inputs” were imported from other countries in sectors like construction and agriculture machinery, transportation, and electronics and computers. U.S. firms should be rethinking the wisdom of offshoring their production and supply chains.

Worse yet, state governments are competing on the open market for medical supplies against consumers, municipal governments, and even FEMA. The prices rise accordingly, with only the largest buyers able to afford the spike in costs. Governor Cuomo has asked New York State-based manufacturers to convert their idle production facilities to churn out medical gowns and masks, and is promising state funds to cover the capital costs of the conversions and to buy as many as the company is able to produce. Moreover, he has mandated that all hospitals contribute equipment to a central repository, to be distributed to facilities around the state based on need. While these sound policies help address the state’s immediate needs, Cuomo admits that manufacturers will not be able to retrofit their facilities fast enough to build the thousands of ventilators that the state needs in the next couple of weeks. And there is little hope to be able to obtain many more ventilators from China—the world’s main producer of the machines—on the timeline needed. Thousands of Americans may die as a result.

South Korea has successfully fought the spread of COVID-19 by, in part, purchasing close to the maximum number of respirators that domestic firms can produce, and then rationing the respirators to local pharmacies to sell at fixed affordable prices. This should also be done here, though a larger infrastructure problem exists in the U.S. because the capacity to manufacture domestically has been severely curtailed.

What if the U.S. government and firms took this as a call to invest in their own workforces by enrolling the millions of unemployed workers in robust retraining and upskilling programs promoting high-quality jobs? If policymakers learn anything from the pandemic, one clear lesson is that it was imprudent and even reckless to create systems in which critical sectors of our nation’s economy would be unable to function because of an inability to obtain supplies and component parts from other countries. This proposal is not about isolationism—it is about preserving the U.S’s ability to function in times of crisis while attempting to guarantee that our nation’s workforce continues to work.

A global crisis like World War II was a boon to the U.S. economy because we were able to domestically produce the materials needed to win the war and to sustain robust domestic employment during the war. Part of the wartime effort included rapidly training women and African Americans for skilled high-quality jobs that were previously held by white men deployed overseas. Though discrimination against those workers continued—and continues—to linger, the positive effects from that effort to retrain those workers for decent-paying jobs lasted long after the war ended. The U.S. was able to quickly ramp up its shipbuilding capacity during World War II through the federal Emergency Shipbuilding Program; we should follow once again that all-hands-on-deck approach to this national security crisis.

This call for greater self-sufficiency and re-training American workers is not new. For years, companies have been discussing the need to upskill and retrain their workforce to work with artificial intelligence and in automating workplaces. Those conversations must now be amplified and involve state and federal government agencies. The pandemic provides the perfect backdrop to seriously reorient our policies towards bringing home supply chains while ensuring workers have high-quality jobs.