Statement for the Record RE: Supply Chain Resiliency and the Role of Small Manufacturers,

Since March of last year, a common refrain, including from Presidents Trump and Biden, has been that that pandemic‐​related shortages revealed major weaknesses in America’s “economic resilience”

April 28, 2021 • Testimony

Subcommittee on Economic Growth, Tax, and Capital Access
Committee on Small Business
United States House of Representatives

Dear Chairwoman Davids, Ranking Member Meuser, and Members of the Subcommittee:

My name is Scott Lincicome, and I am a senior fellow in economic studies at the Cato Institute. I would like to thank the Subcommittee on Economic Growth, Tax, and Capital Access for convening this Hearing on Supply Chain Resiliency and the Role of Small Manufacturers, on April 29, 2021, and for providing the opportunity to express my views regarding this topic. In particular, I am writing to discuss the how domestic and global supply chains adapted during the pandemic and how the federal government can best assist small manufacturers going forward.

Since March of last year, a common refrain, including from Presidents Trump and Biden, has been that that pandemic‐​related shortages revealed major weaknesses in America’s “economic resilience” — weaknesses caused by past U.S. policies and demanding new federal government action. Surely, these claims have a nugget of truth: Global supply chains and a nation’s openness to trade and investment inevitably involve a risk that a “shock” — war, pandemic, natural disaster, etc. — hits the world or certain key nations and roils domestic supply. Such issues definitely arose a year ago, when factories shut down, container ships sat empty at port, and our grocery store shelves were empty. Such is the nature of a once‐​in‐​a‐​lifetime shock to global supply and demand.

However, the story of COVID-19 and our supply chains did not end in April 2020, though many today act like it did. Since then, governments and markets have responded, using both global supply chains and the significant industrial capacity that — contra the conventional wisdom — still exists in the United States. These experiences and previous ones reveal that federal government attempts to re‐​shore supply chains raise their own risks, especially for small manufacturers, and that freer markets can bolster U.S. resiliency by increasing economic growth, mitigating the impact of domestic shocks, and maximizing flexibility in times of severe economic uncertainty. This reality argues for a different approach to achieving real resiliency — one based on the open and flexible policies that America does best.

    The Reality of American Manufacturing and Pandemic Resilience

    Contrary to conventional wisdom, there is little evidence of systemic weaknesses in the United States’ “industrial capabilities” (i.e., the ability to produce the goods that the country needs in times of war or other national emergency) — the metric that, along with access to similar capabilities abroad, the Department of Defense considers critical for national security In fact, as I explained in a recent Cato Institute policy analysis (see enclosure), the U.S. manufacturing sector remains among the most productive in the world and is a global leader in medical goods production.

    • Data from 2018 — before the trade wars began — show that U.S. manufacturing sector’s output, exports, foreign direct investment, and worker productivity sat on or near the top of the world ladder. American manufacturing also performed well on a historical basis, continuing earlier trends of expansion. Real (inflation‐​adjusted) value‐​added and gross output were up significantly between 1997 and 2018, while investment — capital expenditures, research and development (R&D), and FDI — also has been consistent and historically strong. Finally, the sector experienced improved financial performance since 2001 (the first year of data available), with real gains in revenues, post‐​tax income, and assets.
    • Second, the manufacturing industries most closely associated with the pandemic have generally prospered in recent years. The vast majority of essential medical equipment (hand sanitizer, masks, personal protective equipment, ventilators, etc.) consumed in America in 2018 was made here, and the United States was a top global producer, importer, and exporter of medical goods that same year. Domestic production of medical equipment and supplies saw expanding real output and value‐​added between 1997 and 2018. And there is particular strength in pharmaceuticals — a fact underscored by the development and production of the BioNTech/​Pfizer and Moderna COVID-19 vaccines. Historical data on output, R&D, and capital expenditures show that American pharmaceutical manufacturers have performed well, and the United States is home to more than 500 pharmaceutical manufacturing facilities — among the highest concentrations in the world. The Food and Drug Administration further reports that a significant share of all global pharmaceutical input (“API”) manufacturing facilities are in the United States, and that the United States was home to 510 API facilities in 2019.
    Scott Lincicome - Statement for the Record Cover (4/28/2021)

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