NDIA Policy Points: Protectionism Won’t Bolster Supply Chains

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The COVID-19 crisis continues to teach Americans a bitter lesson about the fragility of their nation’s industrial supply chains. Crippling shortages in personal protective equipment and other medical gear have bracingly revealed U.S. dependency on foreign suppliers for meeting basic needs.

As the idea of rebuilding domestic manufacturing capacity gains steam, many voices go a step further by calling for protectionist policies to enhance supply chain resiliency.

Rather than a solution to supply chain fragility, trade protectionism will make the problem worse.

Instead, advanced manufacturing technologies offer a better path to strengthening U.S. supply chains. The Defense Department’s advanced manufacturing programs show investment in the capabilities of the domestic manufacturing base can succeed as a long-term strategy for U.S. supply chain resiliency.

Supply chains have suffered from three primary stressors. First, the global, simultaneous and persistent surge in demand outpaced the outflow from producers, creating severe backlogs.

Second, even when available, getting supplies to buyers became an obstacle course of competitive bidding, emergency government export and import barriers, and strained international shipping and delivery networks.

Third, manufacturing capacity proved too limited and inflexible, with established producers unable to scale-up and new producers experiencing difficulties getting operations up and running. The COVID-19 crisis illustrates for all the hazards of relying on a global market and just-in-time inventories to support national emergency management.

In response to this supply chain wakeup call, a growing chorus rightfully advocates for policies to rebuild domestic manufacturing capacity. Unfortunately, much of this advocacy focuses its support on protectionist measures to encourage companies to locate manufacturing facilities and jobs on U.S. soil, to domesticize business supply chains, and to ensure American consumers priority access to American goods when they need them.

Such measures range from modest tax penalties or incentives to nudge companies toward reshoring facilities, to broad U.S. withdrawal from the multilateral trade agreements and institutions that serve as the backbone of modern international trade.

These measures will lead to more supply chain vulnerability, not less. Although not without downsides, globalized production has generally served U.S. businesses and consumers well. Global supply chains allow companies to gain access to labor, raw materials, and intermediate goods and services at relatively lower costs, the savings from which can then be passed onto consumers. Additionally, global production allows for supply chain diversification giving companies choices in cultivating large networks of suppliers from whom they can source production inputs.

This diversity and scale offers the benefit of added resiliency. Global supply chains also enable companies to compete more effectively for business in foreign markets by enabling faster, cheaper and more innovative responsiveness to local demand. More competitiveness in more markets means more profitability, and at least in theory, creating jobs and national growth.

Investment in advanced manufacturing offers a better path to bolstering domestic manufacturing capability.

However, increasing domestic manufacturing capacity does not only have to be a matter of reshoring. Advanced manufacturing technologies can help to expand domestic capacity by leveraging emerging technologies to achieve greater cost efficiency, agility, speed and product quality out of existing manufacturing operations. Advanced manufacturing can boost domestic manufacturing by drawing insights from artificial intelligence and big data to improve the cost competitiveness of domestic producers.

Another technology, additive manufacturing, also known as 3D printing, can improve the agility and flexibility of the domestic manufacturing base by enabling more companies to become manufacturers of custom products.

Leaders seeking to improve U.S. supply chain resiliency can learn from the example of the Defense Department, which has made decades of investments in advancing and maturing industrial base manufacturing capabilities through its Manufacturing Technology, or “ManTech,” program. Since 2012, ManTech has partnered with industry and universities to establish eight manufacturing innovation institutes to catalyze an industrial commons for manufacturing innovation, education and training, and supply chain risk management.

Independent assessments by the Government Accountability Office and Deloitte have heralded the institutes for their success achieving their primary industrial and technological objectives. A 2019 report by the Defense Department Inspector General noted the success military service depots have had using 3D printing for weapon systems sustainment and encouraged even greater use.

The department has also worked to expand advanced manufacturing education and training opportunities by partnering with industry and academia, most recently through its Project MFG Challenge program. The department’s efforts show the possibility to reconcile leveraging a global supply chain to support global operations with investments in improved domestic manufacturing base capabilities.

COVID-19 has exposed alarming vulnerabilities in U.S. industrial supply chains. Protectionism, though, offers a counterproductive answer. Rather than erecting barriers to trade that undermine long-term competitiveness and productive capacities, policymakers should seek to enhance domestic manufacturing to make it more agile, competitive and cost-effective.

Accelerating investment in a national advanced manufacturing technology strategy offers the best option for a future supply chain that will be ready to respond when America needs it.

Chris Smith is the regulatory policy associate at the National Defense Industrial Association.

Topics: Defense Department