Made in the USA

Made in the USA

In the early days of the coronavirus pandemic, a concerning economic dilemma reared its head…

How do we manage the global supply chain?

The supply chain is a process that we had begun to take for granted in our global economy. After all, it was fast, efficient and cost-effective. It allowed countless businesses, both large and small, to be more competitive than ever.

But in the early days of shutdowns in China, the world woke up to a problem:

The global supply chain is too dependent upon China.

In fact, it’s surprising how many of the things we take for granted in our daily lives depend upon this supply line.

Auto assembly plants across the globe shut down as parts from China became unavailable. It turned out that a long list of things we needed were manufactured in China – like personal protective equipment, medical equipment and pharmaceuticals.

The global supply chain affects much of our daily lives. Bringing it back to the U.S. would mean more jobs… but as things settled it could mean higher prices for you…

Here’s what you need to know.

Let’s look more closely at pharmaceuticals, for example. This is an industry that was the subject of concern going back to late 2019, even prior to the world’s awareness of the approaching pandemic.

It was reported at the time by Politico that “in a rare high-profile public comment, one former central bank adviser suggested that China could curb its exports of antibiotics to the United States as a trade war retaliation tool.”

Clearly, the supply chain danger signals were present even before the pandemic took hold.

According to The Pharma Letter, an online news site covering the pharmaceutical and biotech industries, China “accounted for 95% of U.S. imports of ibuprofen, 91% of U.S. imports of hydrocortisone, 70% of U.S. imports of acetaminophen, 40–45% of U.S. imports of penicillin and 40% of U.S. imports of heparin…”

“It was a blunder of epic proportions that we allowed the manufacture of penicillin to leave our shores,” adds Rosemary Gibson, author of China Rx: Exposing the Risks of America’s Dependence on China for Medicine.

The icing on the cake seemed to be Beijing’s decision in April to clamp down on the export of critical medical supplies to the U.S. — a perilous development given that China is the world’s largest producer of a long list of medical supplies and personal protective equipment such as masks.

Calls have been made in many sectors to bring critical manufacturing back to U.S. shores. Our health, our national security and our access to the goods we use in our daily lives are at stake.

So while it is generally agreed upon that this change needs to happen, it turns out that it is easier said than done…

Take automobile manufacturing, for example, an industry that has evolved to the point that Henry Ford himself would no longer recognize it. It has become heavily dependent on and driven by the latest technological advances.

So much so that auto manufacturers depend upon a long list of highly specialized subcontractors who are not easily replaced. The same holds true for smartphones, precision equipment and medical devices.

These specialized parts are often made in expensive facilities. Willy Shih of Harvard Business Review points to TFT-LCD panels, an essential component of liquid crystal displays in laptop computers.

They are primarily manufactured in six Asian factories that are expensive to build and bring online — the most recent of these had a price tag of around $6 billion.

Despite these hurdles, President Trump is pushing ahead with an initiative to move manufacturing from China. It hearkens back to a promise he had made prior to his 2106 election and has long been a concern he has spoken out about.

“This moment is a perfect storm; the pandemic has crystallized all the worries that people have had about doing business with China,” an unnamed senior U.S. official said, speaking to Reuters.

As part of a push to step away from dependence upon China, the administration is not necessarily advocating that all manufacturing be brought back to U.S. shores but allowing for friendlier trade partners to be considered.

Tax incentives for moving away from China and tariffs for those who do not are under consideration to encourage manufacturers to initiate the desired changes.

U.S. policymakers may be looking to Japan for ideas about how to undertake this onerous process. The Japanese unveiled their own ambitious plan in mid-April to cut trade ties with China and bring manufacturing home.

These Japanese initiatives come on the heels of major supply-chain disruptions affecting the likes of Panasonic, Canon and the Japanese automotive industry.

The Japanese plan includes government subsidies to companies initiating the process as well as direct financial support. This plan is part of a 108 trillion yen stimulus package that also includes other supportive measures to combat the virus.

Clearly, this will be an extended process, fraught with challenges. The ultimate rollout may take a different shape than currently envisioned, and our next national election will undoubtedly have a bearing on how the process will play out.

But given current sentiment, coupled with administrative support, count on the global marketplace to look very different in the coming months and years.

Currently, only about 11% of U.S. gross domestic product comes from manufacturing, down significantly from what it was post-WWII. While we may never reach the 40% level experienced in 1945, look for that 11% figure to begin to tick steadily upward.

Supply chains will likely continue to experience disruption, and some items may be subject to price spikes. But one thing looks more likely than ever: You will be seeing a lot fewer labels saying Made in China.

With purpose,

Dr. Patrick Gentempo

Patrick Gentempo