WASHINGTON—U.S. manufacturing has reached an important inflection point following the global supply shocks caused by the pandemic, and it’s time for U.S. policymakers to help build resilient supply chains, according to a panel of experts.
The COVID-19 crisis has forced companies to reduce their dependence on China as a lone supplier, and U.S. companies have begun to explore sourcing options closer to home.
Gary Johnson, chief manufacturing and labor affairs officer at Ford Motor Co., said that this year has been “the perfect test case” about resilience for manufacturers.
“I’ve been around for a long time, 35 years almost, I’ve seen just about every crisis. This is the most dramatic,” he said on Oct. 1 at a virtual panel hosted by the Hudson Institute. “We’re already looking at our global footprint and locations. And some work has started to come back to the United States.”
Costs of freight, distribution, and duties have escalated recently, Johnson said, surpassing the labor savings overseas, which makes reshoring to the United States or nearshoring to Mexico and Canada more attractive.
However, the automakers need stable and consistent policies from Washington to be able to bring more production back to the United States.
“When we lay a footprint down or a plant down, it’s a three- to five-year plan and then it’s there for 25 years, because it’s very expensive to build and put those locations. So we need a consistent policy.”
Auto factories started to reopen in May with the easing of lockdown restrictions. However, they’re now facing another challenge, as the domestic demand for cars is much higher than normal.
“We are running really heavy overtime,” to meet the market demand, Johnson said.
Meanwhile, some Mexican auto suppliers are still shut as Mexico continues to struggle with lockdowns, putting more pressure on U.S. automakers, he added.
The pandemic has exposed the fragility of global value chains, according to Keith Belton, founder of Pareto Policy Solutions, a consulting firm to advance U.S. competitiveness.
Speaking at the panel, Belton said the risk of supply chain disruption may never be completely eliminated but it could be reduced or minimized through reengineering.
He co-authored a recent paper, titled “Policies to Enhance the Resilience of U.S. Manufacturing,” which lists 15 policy recommendations for the federal government to strengthen supply chains.
One recommendation the paper makes is for the government to develop a “stress test” that manufacturers can use to identify their supply chain vulnerabilities.
Other recommendations include reforming the World Trade Organization (WTO) and designating “a White House-level manufacturing czar and develop a national strategic plan to ensure long-term manufacturing competitiveness.”
According to Belton, U.S. manufacturers that have lost market share to other nations since the turn of the century have been actively pushing for a more aggressive government response.
As the presidential election nears, both candidates have published a range of policy proposals to make U.S. domestic manufacturing more resilient. President Donald Trump called for reshoring manufacturing by promising to offer tax breaks and incentives, while Democratic candidate Joe Biden proposed enhancing “Buy American” rules to support domestic manufacturers.
Speaking at the panel, Rosemary Gibson, author of “China Rx: Exposing the Risks of America’s Dependence on China for Medicine,” said it’s important for the U.S. government to identify “truly strategic assets” and prioritize manufacturing of those assets.
“We haven’t been prepared for years,” she said. “We can’t make antibiotics anymore in the United States. That’s a huge risk to our health security and national security.”
She also noted that 90 percent of chemicals for critical drugs needed in the care of coronavirus patients are sourced from China.
The United States lost its competitiveness in manufacturing as a “result of a conscious effort to globalize production,” Robert Scott, senior economist at the Economic Policy Institute, said at the panel discussion.
“Over the last 20 years, the United States has lost some 91,000 manufacturing plants, and roughly 5 million manufacturing jobs. That’s roughly 30 percent of all of U.S. manufacturing capacity.”
And that’s been facilitated by a number of U.S. policy decisions and failures, Scott said, that include neglecting currency manipulations by other countries, as well as the signing of the North American Free Trade Agreement, which took effect in 1994, and the admission of China into the WTO in 2001.