Before the COVID-19 pandemic seized the world, many goods that Americans enjoyed were stamped “Made in China.” Many more might as well have been, with the components sailing from the People’s Republic of China for minimal assembly domestically.
The “Made in China” paradigm shifted with COVID-19 and the repeated and almost total lockdowns in parts of China. American firms that had come to rely on cheap goods from China, shipped on time, ran into trouble.
That trouble translated into large shortages and higher prices for American consumers. In some cases, the shortages were so severe and the corresponding prices were so high that governments took steps to address the problem.
Governments collectively are spending billions to ramp up the production of certain goods and components locally. At the same time, businesses are looking for different ways to source products so that they do not get caught out when one link in a long supply chain breaks.
This great national supply chain arms race is leading to the “reshoring” of many jobs, which is what happens when they shift from one continent to another. One report from the Reshoring Initiative estimated that about 350,000 jobs were reshored to America from other nations last year, for instance, but bear in mind that this is happening everywhere.
South Korea, for instance, has offered major tax breaks for companies that reshore, as well as subsidies for high-tech companies. Japan has been encouraging reshoring since early 2020 and has even been willing to poke the panda over the practice.
“In April [2020], [Japan] included a fund of 248.6 billion yen ($2.33 billion) in its $1,000 billion economic emergency plan to support the relocation of manufacturing activities to Japan, for an amount covering up to two third of the relocation costs,” reported the Japanese Committee of the French Foreign Trade Investors, a civic organization. “Although this fund represents less than 1% of the 108 trillion-yen emergency plan, it put China on its guard.”
In France, Economy Minister Bruno Le Maire this year has pushed for legislation to bring much production back to his country.
In America, the so-called Inflation Reduction Act that President Joe Biden proudly signed had almost nothing to do with inflation and a lot to do with setting up subsidies for a domestic industrial policy.
Biden also bragged in his State of the Union address that “we came together to pass the bipartisan CHIPS and Science Act,” which will spend about $280 million over 10 years on semiconductor research and development, plant and chip manufacturing, and related things.
“We’re going to make sure the supply chain for America begins in America,” Biden promised.
Leaders the world over are making similar promises. Are they going to be able to deliver, or will they spend a lot of money for meh results?
Alok Baveja, a professor of supply chain management at Rutgers Business School, weighed in with some perspective about what might and might not be possible.
“Regarding supply chains beginning in America — I don’t think we can take this statement literally,” he told the Washington Examiner.
Baveja issued this caution because, “In a literal sense, supply chains begin with raw materials, and I don’t think the U.S. will or can be the provider of a majority of the raw materials” since these “come from all over the world, including China, Africa, and Latin America, and I don’t see that changing.”
He offered a “more viable explanation of this statement,” which is that America “will diversify sourcing and manufacturing and control the supply chains’ critical, value-added components domestically.”
Baveja predicted that America “will continue to be the world’s largest and most diverse engine of consumption” and suggested Biden believes “access to our market has to be leveraged strategically to align the supply chains for our country’s strategic objectives.”
