Supply chain hurdles will outlast Covid-19 pandemic, White House says

WASHINGTON (NYTIMES) – The coronavirus pandemic and its ripple effects have snarled supply chains around the world, contributing to shipping backlogs, product shortages and the fastest inflation in decades.

But in a report released on Thursday (April 14), White House economists argued that while the Covid-19 pandemic exposed vulnerabilities in the supply chain, it did not create them – and they warned that the problems will not go away when the pandemic ends.

“Though modern supply chains have driven down consumer prices for many goods, they can also easily break,” the Council of Economic Advisers wrote. Climate change, and the increasing frequency of natural disasters that comes with it, will make future disruptions inevitable, the group said.

White House economists analysed the supply chain as part of the Economic Report of the President. The annual document, which this year runs more than 400 pages, typically offers few new policy proposals, but it outlines the administration’s thinking on key economic issues facing the country, and on how the president hopes to address them.

This year’s report focuses on the role of government in the economy, and calls for the government to do more to combat slowing productivity growth, declining labour force participation, rising inequality and other trends that long predated the pandemic.

“The US is among and remains one of the strongest economies in the world, but if we look at trends over the last several decades, some of those trends threaten to undermine that standing,” Ms Cecilia Rouse, chair of the Council of Economic Advisers, said in an interview. The problem is in part that “the public sector has retreated from its role”.

The report dedicates one of its seven chapters to supply chains, noting that the once-esoteric subject “entered dinner-table conversations” in 2021.

In recent decades, Ms Rouse and the report’s other authors write, US manufacturers have increasingly relied on parts produced in low-cost countries, especially China, a practice known as offshoring.

At the same time, companies have adopted just-in-time production strategies that minimise the parts and materials they keep in inventory, in an attempt to maximise returns to shareholders.

The result, the authors argue, are supply chains that are efficient but brittle – vulnerable to breaking down in the face of a pandemic, a war or a natural disaster.

“Because of outsourcing, offshoring and insufficient investment in resilience, many supply chains have become complex and fragile,” they write, adding: “This evolution has also been driven by short-sighted assumptions about cost reduction that have ignored important costs that are hard to turn into financial measures, or that spilled over to affect others.”

In the report, the administration cited its efforts to identify weaknesses in supply chains for key products like semiconductors, electric-vehicle batteries, certain minerals and pharmaceutical products, and to bolster US manufacturing through expanded federal purchasing and other investment.

“The public sector can be a partner of the private sector, rather than a rival,” the report said.

And in a blog post on Thursday, Ms Sarah Bianchi, the deputy US trade representative, said that trade negotiators had been working with officials in Canada, Mexico, the European Union, South Korea, Japan, Britain and elsewhere to identify and address bottlenecks in supply chains.