The union is in need of better supply chain management. That was one takeaway from President
Joe Biden’s
annual State of the Union address to Congress on Feb. 7.
“Folks, inflation has been a global problem,” Biden admitted to Congress in his
address
. “Because the pandemic disrupted our supply chain and Putin’s unfair and brutal war in Ukraine disrupted energy supplies as well as food supplies, blocking all that grain in Ukraine.”
ENTITLEMENT REFORM POLITICS UPENDED BY BIDEN STATE OF THE UNION EXCHANGE
Things are getting better and steps are being taken, he assured Congress and the people watching at home.
“Here at home,” he said, “inflation is coming down.” Gas prices in particular are “down $1.50 from their peak.” Even the price of food is finally falling, he said, though admittedly “not fast enough.”
Part of the solution simply has to do with things slowly returning to normalcy, post-COVID-19, he suggested. However, the president believes the pandemic has revealed structural problems in the U.S. economy that the government has to move on.
“We’re going to make sure the supply chain for America begins in America,” Biden said. He singled out semiconductors — computer chips whose domestic production used to be much greater.
“They were invented in America, and we used to make 40% of the world’s chips,” the president said. “In the last several decades, we lost our edge. We’re down to only producing 10%.”
Subsequently, “we all saw what happened during the pandemic when chip factories shut down overseas,” Biden said.
What happened was that idle foreign factories or disruptions in the shipping of said chips created a domestic chip shortage that in turn idled many U.S. factories that were depending on those chips to put in their products.
Those businesses that could keep going had to charge more.
“Car prices went up,” Biden said. “So did everything from refrigerators to cellphones. We can never let that happen again.”
His solution is something that Congress and the White House have already pulled the trigger on.
“That’s why we came together to pass the bipartisan CHIPS and Science Act,” he said.
Consultancy McKinsey & Company explained that the law, which Biden signed last August, “directs $280 billion in spending over the next 10 years.”
Of that total, “$200 billion is for scientific [research and development] and commercialization,” McKinsey said.
An additional $52.7 billion is sectioned off for domestic “semiconductor manufacturing, R&D, and workforce development, with another $24 billion worth of tax credits for chip production,” according to McKinsey. Additionally, the legislation has “$3 billion slated for programs aimed at leading-edge technology and wireless supply chains.”
Even by the standards of the spending-prone Biden administration, the legislation represents a decent chunk of change that it felt it had to invest to create a more American-facing market in semiconductors. Why?
“What he is saying is let us have better control over supply chains of products that we need and not let that supply chain start in China or Vietnam or India or Ukraine or Russia,” Hitendra Chaturvedi, a professor of supply chain management for Arizona State University, told the Washington Examiner. “So we are insulating ourselves from global issues like war in Ukraine, on which we have no control. It is about risk mitigation and control over supply chain variables.”
However, Chaturvedi said that U.S. consumers are having to pay “high global market price, even when the cost of production is not high. This global inflationary pressure makes U.S. consumers pay more because we are competing with what global customers are willing to pay, and companies make windfall profits — look at oil companies, shipping companies.”
With truly global markets in many commodities, including semiconductors, Chaturvedi raises the possibility that the self-sufficiency that the Biden administration is promoting by throwing the U.S. into the global spending race for chip manufacturing capacity will matter less than it anticipates.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
“Even though we are self-sufficient in grain,” Chaturvedi said, the “Ukraine war created a global shortage of grain and fertilizers causing global demand,” with people all over the world “willing to pay higher prices.”
Chaturvedi added, “U.S. manufacturers will maximize for profits, so they sold to the global consumers who did not get their grain from Ukraine. This caused a shortage for us in the U.S. and subsequently higher prices.”
