About the authors: Christopher S. Tang is a University Distinguished Professor and Edward W. Carter chair in business administration at the UCLA Anderson School of Management. Richard S. Paegelow is the managing director of Inline Translation Services in Glendale, Calif.
The Biden administration took comprehensive actions to reduce supply chain snarls to help American consumers get what they wanted for Christmas. However, as U.S. inflation hit 7% at a 40-year high, the public is now worried about higher prices of essential goods such as food and gas.
What can the Biden administration do to reduce price increases and improve supply chain resiliency at the same time?
President Biden has paid close attention to supply chain problems beginning with PPE to Covid-19 vaccine shortages in 2021, and more recently to shortages of Covid-19 at-home test kits and N95 masks. As he pivoted from port congestions to port investments, Biden ordered a review of America’s supply chains in 100 days in 2021, focusing on four sectors: semiconductors, large-capacity batteries, critical minerals, and pharmaceuticals.
These efforts are necessary, but not broad enough to cover other sectors. To ensure supply chain resiliency and security, Biden needs to focus on three global supply chain related issues.
Biden should first repair the frayed trade relationship with China by announcing a clear agenda. Then the U.S. must diversify its supply base that goes beyond China for developing resilient supply chains. Moreover, the Biden administration must ensure supply chain security in the US to reduce supply chain disruptions.
I suggest the following specifications:
First, Biden must end the tariffs for products imported from China that are jacking up consumer prices in the U.S. He should negotiate a new trade deal with China based on measurable milestones and enforceable agreements.
The trade war launched by the Trump administration against China in 2018 has proven futile at best and backfired at worst.
The reality is that the U.S. will continue to rely on products imported from China in the foreseeable future. Case in point: despite higher import tariffs, the U.S. trade deficit with China rose 25% in 2021 over a year earlier to $396.6 billion. To offset the increased tariffs on products imported from China, U.S. companies have raised their prices, hurting American consumers.
The U.S.-China Business Council urged the Biden administration in late 2021 to dial back tariffs, but Biden responded on January 19 by stating that he is not ready to reduce the tariffs on goods imported from China. Because China failed to fulfill its Phase One trade agreement that was signed in January 2020, President Biden should use the increased import tariffs as a bargaining chip to pressure China to step up purchases of U.S. goods and services in the future.
If such an agreement can be reached swiftly, it can reduce tariffs-induced price increase for American consumers quickly.
Second, Biden must create incentives for U.S. firms to diversify their supply base beyond China. Expanding the multi-lateral free trade agreements with various countries can generate the momentum.
Despite Trump’s hasty withdrawal from the original Trans-Pacific Partnership in 2017 and U.S. Secretary of Commerce Gina Raimondo’s rejection of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in late 2021, the U.S. should reconsider joining CPTPP.
Raimondo hinted that the U.S. is planning to launch an Indo-Pacific economic framework, probably involving India in 2022. However, the U.S. needs to form trading partners beyond China and India. In the post-pandemic era, U.S. firms are likely to diversify their supplier base involving existing CPTPP country members such as Japan, Malaysia, and Vietnam in Asia, as well as Canada and Mexico in the Americas.
With the U.S. as a member, the CPTPP could also counterbalance the Regional Comprehensive Economic Partnership that China has joined in November 2019. For instance, if the U.S. can take up the leadership role, it can exert economic and political influence over its member countries.
Ultimately, multilateral trade can enable the U.S. to develop a more diverse supply base with less trade friction, which is essential for developing resilient and cost-efficient global supply chains.
Third, Biden must address some of the supply chain security issues. After ransomware attacks targeting food supply chains in the U.S. in 2021, the U.S. must improve supply chain cybersecurity.
The physical supply chain operations in the U.S. are not secure due to a recent wave of supply chain robberies that has been brought to light recently. For several months, thieves have been raiding
cargo containers on rails connected between the busiest ports of Los Angeles and Long Beach and other inland ports. Union Pacific reports that the robberies have led
to reroute their logistics operations away from the Los Angeles area.
The federal and the state governments must take swift and strong actions against these organized crimes. These crimes create additional supply chain disruptions, put workers and consumers in danger, and create financial burdens on firms.
Just like those increased tariffs, American consumers will be paying for the financial damages caused by these crimes. Improving digital and physical security of supply chains can reduce price increases.
President Biden’s commitments to develop resilient supply chains are laudable. Closing these supply chain gaps can benefit U.S. firms and American consumers.
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