Rethinking Trade - Season 1 Episode 37: Hyperglobalization, COVID and Failed Supply Chains: Now What?
August 24, 2021
In our very first episode, we looked at how corporate-led globalization has fueled shortages in our medical supply-chains and limited our ability to fight COVID-19 Today, we catch everyone up on the latest, discussing two Biden-Harris Administration initiatives aimed at addressing this mess -- a targeted supply chain-review and an executive order on Buy American procurement rules. We also make sense of the latest U.S. trade data, which suggests a record trade deficit in 2021. Yup, that's probably another COVID symptom…
Music: Groove Grove by Kevin MacLeod.
Transcribed by Sally King
Welcome back to rethinking trade where we don't just talk about trade policy, we fight to change it. I'm Ryan, and I'm joined once again by our in-house trade expert, Lori Wallach. Lori, and one of our very first episodes, we talked about how decades of hyperglobalisation have undermined our resilience against the COVID-19 crisis, and how the government has to actively intervene in the economy to rebuild a domestic manufacturing base. Today, we wanted to update listeners on what has been and hasn't been happening since that time. Let's start with an overview of the big picture. What does the pandemic look like today from a trade policy perspective?
So, on the one hand, the expected shift towards more domestic supply chains in response to what proved from COVID, to be enormous vulnerabilities in this country, but around the world created by hyperglobalisation. And these very thin, brittle globalized supply chains. This has not happened as quickly as one might hope and expect. In part, the corporations, the big multinationals, the Amazons and other mega retailers, who've made a lot of money on that race to the bottom hyperglobalized system of sweat labor, supply chains, and just-in-time production, are very keen to maintain that system, which prioritizes their profits, and what they will consider efficiencies, no redundancy, over reliance, reliability of supply and deliverability of critical goods. And so they're pushing back. And also, we've had that system being pushed for the last 25 years of the World Trade Organization, the NAFTA Free Trade Agreement model. So it's a steamline are heading in the wrong direction, it takes a long time to turn. The evidence of that is that we have seen increased imports from China into the US, of the medical supplies we've needed from personal protective equipment, PPE to different kinds of medicines that we've needed to deal with the COVID crisis. We have seen a lot of spending domestically, as people are stuck at home and not spending more on restaurants and travel on kitchen goods, you know, fancy ovens and other things, a bunch of which are imported. So our trade deficit has gone up. Interestingly, the WTO has reported that's contrary to the cheerleaders of the corporate globalization model, there haven't been a lot of enduring trade barriers. So countries didn't use emergency tools to shut down trade and force domestic sourcing. The WTO just issued a report that many of the trade restrictions that emergency restrictions that have been put in place during the height of COVID, have been lifted. And that actually, if anything, there's been more removal of trade barriers and attempt to get the important goods that the production of which is over-concentrated in a few locations. And on the other hand, there have been some very inspiring moves by the Biden administration, which include a supply chain review in some key sectors and also a Buy American executive order. Now, we also saw during the Trump administration, some similar announcements and executive orders. And the proof is always in the pudding. The Trump administration didn't follow through, they had a lot of power and opportunities to do things just unilaterally without Congress. They didn't take them. The bind administration has taken some specific steps, and we're gonna have to watch carefully to see if they actually follow through on all of it.
Those specific steps are what my questions are based on the first big item I wanted to tackle you just mentioned, which is the supply chain review being conducted by the administration. What does this review entail? Like what is it what's its purpose? And what is the status of it?
In the spring, the body Harris administration announced they would do 100 Day Review to figure out the weaknesses in and plans to strengthen certain critical supply chains. And they pick three sectors. And they pick three important sectors: critical medicines, critical minerals, the production and processing of, so for instance, the minerals used in making cell phones and the communications equipment, and then also semiconductors, and then also the supply chain for batteries, electric batteries, which is to say, the sort of advanced batteries that are used for electric cars. And then June 8, they published a report, it was perhaps the first time since Alexander Hamilton, that the US laid out a detailed industrial policy in writing. And I'm only slightly exaggerating, the report itself was incredibly inspiring. It's laid bare, the deep flaws in the current system, in a way that I would say, as someone who's observed these issues for 30 years, one could hardly have ever predicted would come out of the US government, and was quite smart in laying out the ways in which the old regime failed. And I know that wasn't easy, because some of the agencies and for that matter, even President Biden had supported the past policies that led to these problems. So in that regard, it was incredibly impressive and helpful because the only way you get a different outcome is when you start to admit that the status quo didn't work. And it takes you know, it takes bravery if you were part of hoping those old policies would work and pushing them. And some of the proposed changes of how to fix the problem, were also really inspiring and were spot on. And were things you would never expect to come out of any US administration. And by the way, weren't the kind of things that the Trump administration dug into not neither in detail of thinking it through and figuring out the solutions as compared to a bunch of superficial rhetoric that also are not compatible with the status quo big business model. So now the proof is going to be in the pudding about whether those kind of changes actually get made. And if they were changes proposed across the board, using existing authorities, things that the executive branch could do in their own capacity with respect to strengthening the Buy America policies, and Buy American policies, which has to do with the government using government procurement resources to shape the market. It included changes in the tax code, it included uses of the defense production act, for the government to create demand and incentives for changes. And it's really if implemented, could make some big differences. And now we need to see if it gets implemented.
Another big item and you just mentioned this is the modifications the administration is made to Buy American rules. We've covered this at length in previous episodes. So listeners can go back and get even deeper into this topic. But maybe you could give us a quick introduction to what these policies are, and then talk more about what is being done and what hasn't yet been done in relation to the Buy American rules in the context of the pandemic especially.
So again, here, the good news is the administration's executive order on Buy American and Buy America was quite broad. It covered all the programs, it covered a lot of the needed territory, and proposes to increase the domestic content rule for what qualifies is Buy American, which right now is just 55% of the value of a good needs to be American made, which is pretty pathetic. But unfortunately, it didn't really close the biggest loophole. And that is even that 55% rule is waived entirely with respect to any government procurement over a certain threshold value. That's about $180,000, which for the federal government means most of the contracts, most of them are bigger than $180,000. Because under our trade agreements Buy American is waived for 60 countries that have trade agreement, procurement agreements that basically guarantee that these foreign countries, companies and products get treated as if they were made in the US for Buy American is called the Trade Agreements Act waiver. And it is the exception that eats the rule. And the way that works is not only to goods from Hong Kong, which now is China and from Mexico and Japan and Korea in all of Europe, not only are those treated, Taiwan, treated as if they were from the US, and the government gives equal credit, equal purchasing priority to those goods, but almost worse, any good over that threshold, the domestic content rule is waived whether or not that country has a trade agreement. So that means that all that has to happen is the last step in processing has to happen in America. And there are companies have gotten that so skilled in doing this, that they basically like can construct the better part of a whole building, with all of its walls poured the plumbing in there, the electrical in there, different pieces of you know, built-in furniture in there, they ship those on barges. And then as long as like the whole building is put together all that content, all that value, that is considered meeting the Buy American rule for all of those goods that are in that building or with respect to Buy America. That is the final assembly is happening here now Buy America is stricter than Buy American. So I don't want to simplify this. I want everyone who wants to know the details to go to a website at tradewatch.org and go to the procurement section, and we have a memo that lays out all of these issues and where the gaps and flaws are. But the thing to know is that the executive order like Trump's executive order, I'm Buy American doesn't close this huge loophole. And that's a problem. The President did say that they would as a candidate, that they would be closing these loopholes. And in some of his initial statements, they said that they would and now the executive order doesn't. What the executive order does do is ask for a bunch of data. And there's a hearing this very week about what the flaws are and the current data keeping, because it's so sloppy, we don't really know what is really domestic versus what is just assembled here without domestic content versus what is from one of the 60 countries versus what is domestic content and assembled here. So it's really hard to know what's really going on. And as a result, the data makes it look like there's less of a problem than we know that there is. So with respect to the Buy American and Buy America rules, that executive order is one big piece. The other big piece is the infrastructure bill. So the house infrastructure bill explicitly didn't prioritize that trade agreement waiver, but the Senate version does. And now there's a lot of pressure to just use the Senate version, because the vote was so narrow there, and it almost didn't pass at all, the Senate version does expand Buy America. That's the construction money, and it has it go to a lot more programs and my going down to the states. And that's great. And it strengthens the rules with respect to us made iron and steel. And that's great. But it doesn't really fix the Buy America problem. And it doesn't fix the waiver there. So there's a lot more work to be done there. And there is, you know, enormous opportunity in the existing statute where the President just like President Biden can do this. Now President Trump could have and didn't, can use existing authority to simply waive that trade agreement exception, the President can just take that away. And that would certainly be something that would be smart. And if you again, go to our website, tradewatch.org, you can see letters from very senior members of the House and Senate urging him to do that very thing, President Biden.
So my final question also involves reports and data and things you can find on the Public Citizen website, which is the fact that, so a lot of these measures that we've been discussing haven't been fully enacted yet. And so the trade data, the deficit report still shows a rising US trade deficit in manufactured goods. So the reason analysis on the website on the Public Citizen website, suggested 2021, could actually be a record high. Can you talk about the Census Bureau's trade data report? And some of the things you found those meaningful in it what's in the analysis that we published?
Here's the thing for folks to know, it looks like the 2021 annual trade deficit could top $1 trillion for the first time in US history. And that's just horrific and astonishing. However, that says something different than what you'd normally expect, which is to say what that says most and this is where our analysis points out, is that the US has had an economic recovery from the COVID recession that is faster and broader than most other countries. So we're actually our consumers have started to buy stuff, our demand has increased. At the same time, Ryan, as you just pointed out, these initiatives by the Biden administration, which is you know, been in office for seven months now have not had an opportunity to go into effect. So to the extent that the US has had an economic recovery and people want to buy stuff, the supply chains still are largely those old ones. So there aren't, you know, yet great opportunities. If the supply chain review brings those names supply chains home, if the Buy American and Buy America improvements actually happened with a waiver closed, and as a result, there's more domestic government demand for goods. And as a result, there's more investment. And as a result, there more opportunities for folks to be able to buy American made everything, then that change hasn't happened yet, even though the demand is picked up. So as a result, what we see is our imports are way up, because we want to buy stuff, but we don't have it domestically made yet. And you know, please at the Biden administration falls through so that in a couple of years, that data doesn't look like that. At the same time in the rest of the world, there still is much more of a recession going on. So our exports stayed down, there isn't demand for our stuff. And because we have demand here, our imports go up. And so we have a pretty whopping trade deficit. The COVID phenomenon, and the economic implications of it really are overshadowing what otherwise we could see in the trade data. Because for instance, there's another indicator about manufacturing, it's a study that is done that, you know, every month looks at sort of the projections for supply chain and manufacturing. And that and domestically, and that is that that number is up that's that's doing fairly well. So normally, you wouldn't see that number go up in the trade deficit go up at the same time. But that is that is the COVID effect. I think we're all incredibly impatient to see the horrors of the COVID lessons about hyperglobalisation quickly translate into more domestic investment, more domestic manufacturing, more resilience, more reliability. For all of us more good manufacturing jobs, the proof is going to be in the pudding over time, and the Biden administration is going to have a fight in its hands with all these corporations that want to do the same old, same old, you know, "China's too expensive, let's make it in Vietnam," kind of agenda of manufacturing. And I think they're going to stick to their guns only if we really all are pushing to make that happen. Because the counter push is going to be enormous. And there is a lot of inertia of this old system. But I think what we see in what the Biden administration's supply chain reviews and what they Buy America order is showing, is there a lot of people in there now, unlike any pastime, high level Biden administration officials, who deeply understand the problem, and really do you want to change and as frustrating as it may be, that's not going as fast as we want, are there parts of it that aren't done. It behooves us all to basically make common cause with those allies, and really push hard to try and help those folks in the inside who want to make these changes because it's a unique opportunity. It's the first time in 30 years of my doing this work that that possibility even exists, and so we need to make it work for us.
You can check the description of this podcast for links to both of the reports that we discussed in the episode. Rethinking Trade is produced by Public Citizen's Global Trade Watch. To learn more you can visit rethinktrade.org. You can also visit tradewatch.org. Stay tuned for more and thank you for listening.