Where’s My Stuff?
Americans can be forgiven for thinking that every critical system we rely on is breaking down. The country—nay, the globe—has endured years of social, political, environmental, and epidemiological upheaval. Pick your shock: COVID-19, wildfires, George Floyd protests, climate change, January 6. They all seem like harbingers of a chaotic future.
But backlogs in Pottery Barn orders are when shit gets real.
From Bosch dishwashers to bucatini to chicken wings to pipette tips, the past year has seen a raft of press coverage about delays, price spikes, and other disruptions to the production and shipment of goods to the United States. Strains in the global supply chain caused semiconductor shortages and big price increases for used cars. Toyota, Ford, and General Motors have all scaled back production in recent months because of the dearth of computer chips. When the container ship Ever Given temporarily ran aground in the Suez Canal, the Financial Times asserted that the accident showed “the inherent fragility of tightly stretched global supply chains at the very moment when they are already being buffeted by a pandemic and in an era when the philosophical underpinnings of global trade are being challenged.”
Journalists aren’t the only folks freaking out. Less than six weeks into his term, President Joe Biden issued an executive order mandating that eight cabinet departments examine the resilience of U.S. supply chains, warning that “pandemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition, and other conditions can reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services.” More recently, Biden has floated multiple policy responses, including using the National Guard to untangle snarled supply chains.
The administration’s concern about global supply chains fits in with the political elite’s larger ideological pivot away from trade liberalization and toward a more mercantilist posture. Indeed, this is the area where the Biden and Trump administrations sound the most similar. Biden’s U.S. trade representative, Katherine Tai, stated in a congressional hearing that trade liberalization and tariff reductions were no longer her office’s principal goals. In June, Biden’s National Economic Council director, Brian Deese, declared that “resilient supply chains must be at the center of a 21st century industrial strategy.” One of Biden’s senior directors at the National Security Council has told me that “the U.S. is not a trade-dependent nation.” Another administration official questioned to me whether the notion of comparative advantage in trade still exists. Never one to be outdone in policy freakouts, Sen. Josh Hawley (R–Mo.) has introduced a bill requiring more than half the value-added of any critical good to be domestically sourced.
The recent convulsions in global supply chains do highlight ways the globalization of the past decade differs from the idealized models taught in introductory economics courses. Globalization has produced far more market concentration than would have been expected a generation ago. The tripling of the Baltic Dry Index (which measures the cost of shipping dry goods such as coal or steel between ports) and the quintupling of U.S.-China container shipping rates over the past year demonstrate that frictionless markets do not exist. Rising geopolitical tensions between the United States and China reveal the ways that great power competition will complicate cross-border exchange. And the pandemic showed how the global economy can be buffeted by shocks that textbooks typically do not discuss.
A closer look at global value chains reveals ways that both public-sector and private-sector actors have prioritized short-term efficiency at the expense of long-term resilience. But it also reveals a mismatch between a lot of overheated political rhetoric and an actual understanding of how the global economy works. Many of the past year’s issues are temporary—and when it comes to strained global supply chains, globalization is more often the solution than the problem.
When Ford completed its massive River Rouge plant in 1928, it created a factory that controlled every facet of car production, including its own steel mill. Trade volume was high during this era, but very few intermediate goods crossed borders. In the time since then, the industrial organization of production has changed a wee bit.
Whereas trade a century ago was primarily in finished goods, manufacturing now has disaggregated itself into myriad chains of subcontractors. As one MIT Sloan Management Review article summarized the phenomenon, we have a “deeper tiering of supply chains whereby suppliers draw upon their suppliers who in turn draw on their own networks of suppliers in multistage production networks.”
Why did this happen? The end of the Cold War eliminated most geopolitical concerns about where to locate production facilities. Basic trade theory meant an awful lot of facilities expanded in China, the low-cost manufacturing locale. The reduction of transportation and communication costs made it easier for production to be disaggregated and managed at a distance. “Just-in-time” manufacturing encouraged companies to hold minimal inventories and count on suppliers to respond quickly to fluctuations in consumer demand. Management consultants stressed the efficiency of offshore outsourcing.
The most widely cited example of the globalized supply chain is Apple’s iPhon
Article from Latest – Reason.com