By Nathalie Voit
In its annual Economic Report of the President released April 14, White House economists said supply chain woes will outlast the COVID-19 pandemic.
The 427-page report, produced by the Council of Economic Advisers, warned about the need to construct resilient supply chains.
“Though modern supply chains have driven down consumer prices for many goods, they can also easily break,” the Council wrote. The group said the COVID-19 pandemic was not the first time that supply chains have been disrupted, nor the last time they will be.
“The production and distribution of goods have been regularly snarled by natural disasters, cyberattacks, labor strikes, supplier bankruptcies, industrial accidents, and climate-induced weather emergencies.” Additionally, these events are bound to continue in increasing frequency in the near future. Just take climate change, which every 3.7 years disrupts global production for at least a month as the prevalence of billion-dollar natural disasters continues to rise from an average of 5 annually to 20 over the past four decades, the economists wrote.
The global health crisis has simply highlighted “just how complex and interconnected modern supply chains have become” and exposed the once-esoteric topic to the general public.
“The year 2021 was when supply chains—the networks of producers, transportation companies, and distribution centers that develop and move products and services—entered dinner table conversations,” the report read. Though the term has been around since the 1980s, “COVID-19 highlighted supply chains’ vulnerabilities, which became front-page news.”
The administration identified potential areas of improvement. One of them was boosting domestic production of key resources like semiconductors and batteries. The U.S., for example, is heavily dependent on Taiwan for advanced semiconductors. Similarly, the U.S. relies on China to source raw materials for high-capacity batteries.
According to a report last year from the Department of Energy, the Chinese dominate global battery production, accounting for 76% of lithium-ion battery output. The U.S.’s share of the market? Just eight percent.
When the COVID-19 pandemic locked down entire cities and ports in China for a small number of outbreaks, production worldwide was disrupted due to over-dependence on one country for key parts of battery supply chains.
“Access to these inputs critical for [national] defense is more assured if the goods are produced domestically,” the White House said.
Currently, “profit-maximizing firms do not take full account of this spillover benefit to domestic production.” The group wrote that the public sector must play a larger role in strengthening supply chains, particularly for goods with few close substitutes.
However, although the government has underinvested in a variety of industries to date, “moving toward 100% domestic production is not necessarily the best response” to [supply-chain-related risks]. “Allies and partners may have a competitive advantage in some goods, and may allow diversification in case of domestic disruption,” they heeded.
“The public sector can be a partner of the private sector, rather than a rival,” the Council concluded.
Click here to access the full report.
