Manufacturing Policy Initiative

Policies to Enhance the Resilience of U.S. Manufacturing

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__The COVID-19 pandemic has drawn worldwide attention to the fragility of global value chains for manufactured goods. In the United States, it is prompting a policy discussion about resilience—the ability to adjust in real time to supply chain disruptions while minimizing any loss to customers. Manufacturing firms are taking action, but what should the federal government do to enhance resilience? To address this important and timely question, we first define four components of resilience. We then consider more than 100 policy proposals offered over the past several years. Applying specific criteria, we make 15 specific policy recommendations, differentiating those that require congressional action from those that can be accomplished through presidential action. We conclude with some insights for policy makers, including the need for a top-down commitment, the development of a 21st century policy roadmap, and an emphasis on nurturing nascent capabilities in future technologies.__

Long a driver of economic efficiency, globalization has lifted more than one billion people out of poverty (World Bank Group, 2018). It has also shifted production of goods in ways that have harmed US workers and local communities (e.g., see McLaren and Hakobyan 2016). The American mentality of “invent here, manufacture here” that dominated for decades after World War II increasingly gave way to “invent here, manufacture there” in the 21st century (Kota and Mahoney, 2019). And the decline in US global market share due to outsourcing and/or erosion of competitiveness hasn’t been limited to labor-intensive goods providing little added value; the United States has a negative and growing trade balance in broad measures of advanced manufacturing, too (Kota and Mahoney, 2020) (See Figure 1).

But—to borrow a phrase from Bob Dylan—the times they are a changin’. After decades of trade liberalization, nations are raising tariffs. The WTO is no longer able to resolve trade disputes through its dispute resolution appellate panel because of concerns over its interpretation of WTO rules and its
inability to sanction state subsidies and infractions of intellectual property rules. And “trade openness”— world exports as a share of world GDP—has been declining since the Great Recession. The world seems to be at an inflection point, where globalization gives way to a new era, one that emphasizes national security as much as maximizing shareholder value (Irwin, 2020).

It is against this backdrop that the world encountered the COVID-19 pandemic and responded with public health measures including social distancing and a deliberate pause in economic activity. These actions revealed the fragility of global value chains and US reliance on China, the so-called “factory of the world.”

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