If you are like me, you’ve heard there’s a supply chain disruption because there is a shortage of truck drivers. However, is it more complicated than that? The short answer is yes.
What Products Have Increased?
I’ve been trying, unsuccessfully, to buy a GPU for almost a year. Frequently during the pandemic, tech hardware stores and online distributors have been sold out, or if they have had GPUs in stock, they are being sold for 150-200% of the normal asking price. Much to my chagrin, price increases have not just been limited to computer parts.
Perhaps, you have also noticed price increases at the grocery store, such as increases in eggs, meat, poultry, and fish for the last consecutive seven months. Or perhaps you’ve tried to buy a new car in recent months? The price has increased. What about a used car? The price has increased because getting a new car is more strenuous. Rental car? Price increase. Uber driver? Price increase along with a shortage of drivers. Furniture, lumber, toilet paper, diapers? Their prices have all been going up consistently for months. There was even a chlorine shortage that threatened the drinking water supply in Oregon!
2020 Shortages Impacts
We all remember April of 2020 when supply chain issues and shortages began. Hospitals ran out of ventilators and then were placed on back-order when trying to order more. There was a run on PPE and the surgeon general even urged the public to stop using masks because there was a shortage for frontline healthcare workers. But how did these shortages happen and why are they still happening over a year and a half later? How did the US’s supply chain become so fragile?
As with any instance when one attempts to explain the happenings of a globalized, highly interconnected economy, there are a lot of factors to consider. Right now in the US, there are labor shortages and numerous worker strikes, like those in Hollywood or at John Deere. The unending arrivals of cargo ships from Asia and a truck driving shortage lead to delayed delivery times. 40% of all shipping containers coming to the US arrive in Los Angeles and, without enough truck drivers, some goods are stuck sitting either in the port or in cargo ships waiting in the sea. All of these complications explain some of the price increases.
Supply Chain Disruption: Over-reliance On China
However, one of the biggest causes for the fragility in our system is American businesses’ over-reliance on China.
After the People’s Republic of China’s admission into the WTO in 2001, the US accelerated its manufacturing sector abroad. Especially in the cheapened labor market of China. While I am not against globalization, I believe that the loss of manufacturing has weakened American society. Additionally, it poses a unique threat to national security. The inability to produce essential supplies and materials leaves us vulnerable to a supply chain disruption during a global pandemic. The Chinese government knows this and plans to prevent similar situations from happening to them, as they aim to nationalize and maintain domestic manufacturing in key industries it deems important to national security in the Made in China 2025 plan. I wrote a blog about this here.
In September of this year, China’s exports had increased 28% from September of 2020, which is higher than anticipated. Even more telling, Chinese exports to the US have increased 31% since the launch of the US-China Trade War in early 2018. The dollar amount of the goods that the US imports from China are equal to about 30% of the US’s total manufacturing GDP. An Asia Times article claims that those levels of import dependency are akin to “Third World countries dependent on former colonial powers.” That is a concerning claim.
American consumer spending hit an all-time high in the second quarter of 2021. Even after a year of the global economy being shut down, American consumerism has hardly slowed. Although the US has experienced consistent shortages throughout the pandemic, the US reliance on Chinese goods has only increased. This month, there has been concern about whether Christmas orders would arrive on time. There’s a great deal of speculation about a worsening supply situation as the year continues.
U.S. Trade To Reinstate Trade Exemptions
The current administration came into office claiming they would be maintaining tariffs on China that the previous administration had set. However, to deal with the numerous supply shortages, the Office of the United States Trade Representative announced on Oct. 5th that they would like to reinstate trade exemptions for 549 Chinese product types that are subject to Section 301 tariffs and posted a Request for Public Comment here. Some of the 549 product types include X-Ray tables, radiation therapy systems, electric motors, water-filtration systems, etc.
It would seem we are insistent on not learning very many of the lessons the pandemic should be teaching us. Even after extensive shortages and price increases, we insist on maintaining our dependence on a major strategic competitor. Instead of forcing American businesses to bring back manufacturing, like domestically producing medical supplies and semiconductors, we create exemptions to continue the import necessities. Instead of encouraging and incentivizing American businesses to further pursue new business relationships with Taiwan or India, we double down on our dependence on the People’s Republic. While you are trying to complete your Christmas shopping two months early, check from where the vendor is sourcing your goods!