Investment, diversification and excess capacity critical to keeping the US’ global supply chain cost effective and secure
CED Report outlines steps to mitigate security and economic risks, as global supply chains continue to struggle
After a myriad of challenges affecting America’s reliance of global supply chains, which have encompassed the fallout of COVID-19, the Suez Canal blockage and tensions with China, concerns have grown regarding the reliability and resiliency of international trade channels.
To address these a new report from the Committee for Economic Development (CED), Global Supply Chains: Compete, Don’t Retreat, provides five recommendations for decision makers. They believe these can maintain cost savings provided by successful global supply chains while ensuring minimum economic and security risk. They are:
- Cultivate additional sources of materials or intermediate inputs: There is risk in relying on a single source (or multiple sources from a single geographic region). Therefore, businesses must assess the security of their supply chains and seek alternative domestic sources.
- Build stockpiles: To prepare for a larger-scale supply interruption, stockpiles may be necessary. The US already stockpiled key public health and national security materials and goods that have comparatively long shelf lives. Now they must learn to monitor the types, quantities, and the useful lives of stockpiled goods.
- Invest in research and development: The US government's funding for R&D has lagged. Technological progress through research can potentially reveal alternative materials to circumvent supply risks in some applications. The report also detailed how the US must take advantage of their attractiveness to talented workers throughout the world, and use the post-pandemic opportunity to train a highly skilled workforce.
- Invest in production: Manufacturing capacity for goods that truly support national security or public health and that cannot be stockpiled in sufficient quantity may need to be maintained, even if unprofitable. Contingency planning for another global pandemic, in which importing foreign-produced supplies like surgical masks cannot be counted upon, may require prior arrangements with US manufacturers to undertake surge production, potentially with public subsidies to maintain such facilities.
- Maintain standby production facilities: If the probability of a catastrophic national security or public health event is high enough, it might be necessary for public funds to build and maintain production capacity on a standby basis, or to subsidize private backup capacity.
The report notes that reoccurring supply chain failures that pose fundamental threats to the US’ prosperity include: Risks to national security; economic disruption; reduced economic growth from denial of access to technology; predatory pricing following monopoly power; and threats to overall public health.
"Global trade in materials, tools, components, and services deserves an immediate assessment of both security and economic needs for the long term," said Lori Esposito Murray, President of CED. "Given the size of China's economy, its extensive role in global supply chains, its growing military strength, and the growing tensions in its bilateral US relationship, China is at the nexus of these major concerns about supply chain resilience. Security with prosperity must be the goal of any strategy to manage our supply chains."