The U.S. Council of Economic Advisers released a report on Thursday saying that while the outbreak has revealed the fragility of the supply chain, it is not the source of the problems that won’t go away after the outbreak is over.
According to the New York Times, the report notes that in recent decades, U.S. manufacturers have increasingly relied on components produced in low-cost countries, especially China, a practice known as offshoring.
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At the same time, companies have adopted a just-in-time strategy to minimize inventories of parts and materials to maximize shareholder returns.
“Many supply chains have become complex and fragile due to outsourcing, offshoring, and insufficient investment in resilience.” “This evolution has also been driven by short-sighted assumptions about cost-cutting, ignoring important costs that are difficult to translate into financial metrics, Or spillovers affect costs elsewhere.”
Cecilia Rouse, chair of the Council of Economic Advisers, said in an interview: “The U.S. is one of the most powerful economies in the world and still is one of them, but if we look at trends over the past few decades, some of those trends may be would undermine that status.” Part of the problem is that “the public sector has withdrawn from its role”.
The report also cited U.S. government efforts to identify supply chain weaknesses in key products such as semiconductors, electric vehicle batteries, certain minerals, and pharmaceuticals, as well as boost U.S. manufacturing through expanded federal procurement and other investments. “The public sector can be a partner to the private sector, not a competitor.”
Moreover, deputy U.S. Trade Representative Sarah Bianchi said in a blog post that day that trade negotiators have been working with officials in Canada, Mexico, the European Union, South Korea, Japan, the United Kingdom, and elsewhere to identify and resolve bottlenecks in supply chains.
However, some economists point to the potential cost of improving supply chain resilience, making products more expensive at a time when inflation has become a major concern.
The coronavirus pandemic and the Russian-Ukrainian conflict could lead companies to base at least part of their supply chains on a more politically stable and less strategically fragile position, said Adam S. Posen, chief economist at the Peterson Institute for International Economics.
However, pushing businesses to resume production could waste taxpayer money, lead to inefficiencies, raise prices on the consumer side, and slow growth.
Based on this, while White House economists emphasize the role of the public sector in the economy, they recommend only modest measures by the federal government to strengthen supply chains.
They suggested governments help collect and disseminate data to make it easier for companies to understand their supply chains and spot weaknesses. They also said the government could encourage domestic production of products critical to national security or other core interests.
Experts from third-party agencies said the measures could be useful but unlikely to address the problems outlined in the report. “Simply put, the answer is not easy,” said Chad P. Bown, a trade economist and senior fellow at the Peterson Institute for International Economics.
