Introduction
Since the onset of the COVID-19 pandemic and the market disruptions that followed, a key focus of policymakers in Washington, D.C. has been on how markets failed due to their lack of resilience. Global and local supply chains struggled during the pandemic, but the primary shock to the market was caused by government-mandated shutdowns and intervention. Governments around the world made it nearly impossible for factories to remain open and for goods to cross borders, especially in the United States, where government subsidies for individuals drove up demand for goods and services.
This narrative and misrepresentation of the causes of market disruptions during the pandemic has led to the passage of legislation and consideration of additional bills that lawmakers claim would prevent future disruptions through new spending and subsidies to onshore and nearshore supply chains. Government regulations on factory locations are not market-driven, and subsidies to incentivize production in certain areas could further distort markets.
A newer term – friend-shoring – has emerged as a possible strategy for how to structure supply chains post-pandemic. The idea would be to move production to allies and countries with similar values to those of the United States through government intervention, mandates, and subsidies. While the term is new, the concept that trading more with countries that share U.S. values and norms makes for stronger supply chains has been a cornerstone of U.S. trade policy for decades. In the past, the United States has “friend-shored” by signing trade agreements with like-minded countries that eliminate tariff and non-tariff barriers to trade, thereby making it easier for goods, services, and capital to flow between them.
Instead of returning to this strategy, policymakers are using the post-pandemic economy to advance the same anti-market policies associated with onshoring and nearshoring. Rather than directly subsidizing domestic industries, free trade agreements are a proven model for friend-shoring in a pro-market way. This report will make that case from the perspective of a U.S.-Taiwan Free Trade Agreement.
Background
Between 2020 and early 2022, Americans experienced a variety of disruptions to supply chains, ranging from pandemic-related goods such as personal protective equipment to new automobiles. Some saw these disruptions as a reason to reduce reliance on imports, blaming globalization for the market failures that took place in 2020 and 2021.[1] Today policymakers are increasingly concerned about the security and makeup of private-sector supply chains, leading them to propose legislation to “secure supply chains” by increasing the government’s involvement in the private sector. By securing supply chains, lawmakers aim to reduce reliance on China as a manufacturing hub. While it is important for the private sector to properly calculate risk when investing in capacity abroad, expansive government involvement in these supply chains, especially for consumer goods, is largely misguided. The primary cause for market disruptions during the pandemic was government intervention here and abroad that caused widespread factory shutdowns, as well as government stimulus[2] that put billions of dollars in the hands of consumers. Members of Congress would do well to discern which disruptions were true security problems and exercise caution when considering government intervention.
Early in the pandemic, the shortage of semiconductors was largely due to automotive companies – such as Ford and General Motors – canceling semiconductor orders in anticipation of low consumer demand for new cars. Prior to the pandemic, the automotive sector in the United States was already experiencing a cyclical decline and automakers expected the trend to continue for the rest of 2020 and into 2021.[3] As orders were canceled, semiconductors producers such as Taiwan Semiconductor Manufacturing Company (TSMC) had other customers to fill the excess capacity. TSMC shifted to supplying semiconductors for personal electronic companies for use in products such as the new Xbox and PlayStation consoles, which were in very high demand.[4] Consumer demand for new and used vehicles bounced back in mid- to late- 2020, much quicker than Ford and General Motors anticipated, which left customers waiting weeks to months for new vehicles.
To add insult to injury to these semiconductor disruptions, governments around the world shut down businesses of all kinds throughout 2020. In the United States, many state governments issued stay-at-home orders that forced manufacturing facilities to close.[5] In Michigan, a hub for the automotive industry, factories closed for eight weeks due to such mandates.[6] Moreover, China’s zero-COVID policy (as well as the Chinese Communist Party’s increasingly authoritarian behavior) caused uncertainty and decrease confidence in China as a location for manufacturing supply chains.[7] Semiconductor manufacturers in Taiwan generally remained open during the pandemic, though TSMC and other companies in their ecosystem instituted pandemic protocols to reduce disease spread in their factories, which shielded them to some extent from causing a more severe supply shock.[8] Despite some ongoing challenges around the world, U.S. supply chains have largely recovered from the pandemic.
Proposed Solutions to Address Supply Chain Resilience
Many supply chain shocks seem to be working themselves out, yet lawmakers in Washington are still talking about supply chain resilience. Some are ostensibly concerned with preventing supply chain disruptions of this scale for essential goods from happening again should there be another global pandemic. Increasingly, however, the conversation is becoming more geared toward using supply chain resilience efforts to address the great power competition with China and onshore/reshore manufacturing.
For example, the CHIPS and Science Act of 2022 was signed into law by President Biden on August 9, 2022.[9] It provides $76 billion in funding for domestic semiconductor production ($52 billion for subsidies and $24 billion for tax credits). A version of this bill – the CHIPS for America Act[10] – was originally proposed due to pandemic-related shortages of semiconductors. While Congress was considering this bill, the market was already responding to the original shortage, so the conversation turned more toward supply chain resilience. The White House said the CHIPS and Science Act “will secure domestic supply, create tens of thousands of good-paying, union construction jobs and thousands more high-skilled manufacturing jobs, and catalyze hundreds of billions more in private investment.” Yet private-sector investment in semiconductor production was already on the rise before this legislation, with nearly $80 billion in new planned U.S. investment by 2025 and more than $800 billion in spending globally over the next 10 years.[11] TSMC’s original investment in Arizona to build its first U.S. fabrication plant was estimated to be $12 billion. In December, TSMC announced a second round of investment to build another facility,
SDGs, Targets, and Indicators Analysis
1. Which SDGs are addressed or connected to the issues highlighted in the article?
- SDG 8: Decent Work and Economic Growth
- SDG 9: Industry, Innovation, and Infrastructure
- SDG 12: Responsible Consumption and Production
- SDG 17: Partnerships for the Goals
The article discusses issues related to supply chain disruptions, government intervention, trade agreements, and the need for resilient supply chains. These issues are connected to the SDGs mentioned above, which focus on economic growth, innovation, sustainable production and consumption, and partnerships for achieving sustainable development.
2. What specific targets under those SDGs can be identified based on the article’s content?
- SDG 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
- SDG 9.2: Promote inclusive and sustainable industrialization and foster innovation.
- SDG 12.2: Achieve sustainable management and efficient use of natural resources.
- SDG 17.16: Enhance the global partnership for sustainable development.
The article emphasizes the importance of diversification, technological upgrading, and innovation in achieving economic productivity (SDG 8.2). It also highlights the need for sustainable industrialization and innovation (SDG 9.2) and the efficient use of natural resources (SDG 12.2). Additionally, it discusses the importance of partnerships between countries to strengthen supply chains and achieve sustainable development (SDG 17.16).
3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
- Investment in research and development (R&D)
- Reduction in trade barriers (tariffs and non-tariff barriers)
- Increased trade flows and GDP
- Reduction in reliance on specific countries (e.g., China)
The article suggests that indicators such as investment in R&D, reduction in trade barriers, increased trade flows and GDP, and reduced reliance on specific countries can be used to measure progress towards the identified targets. These indicators reflect the goals of achieving economic growth, sustainable industrialization, and resilient supply chains.
Table: SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 8: Decent Work and Economic Growth | 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation. | – Investment in research and development (R&D) – Reduction in trade barriers (tariffs and non-tariff barriers) |
| SDG 9: Industry, Innovation, and Infrastructure | 9.2: Promote inclusive and sustainable industrialization and foster innovation. | – Investment in research and development (R&D) – Reduction in trade barriers (tariffs and non-tariff barriers) |
| SDG 12: Responsible Consumption and Production | 12.2: Achieve sustainable management and efficient use of natural resources. | – Reduction in trade barriers (tariffs and non-tariff barriers) – Increased trade flows and GDP |
| SDG 17: Partnerships for the Goals | 17.16: Enhance the global partnership for sustainable development. | – Increased trade flows and GDP – Reduction in reliance on specific countries (e.g., China) |
Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.
Source: americanactionforum.org
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