Coronavirus Crisis Offers an Opportunity to Revitalize U.S./North American Manufacturing, Restore Regional Partnerships, Reduce Dependence on Beijing
Whether between people or countries, co-dependency relationships rarely work well over time when the understandings undergirding them erode. It’s thus unsurprising that the unfolding coronavirus pandemic raises two fundamental strategic and industrial policy questions:
(1) Should American consumers have to rely so heavily on Chinese factories as a virtual sole source of key antibiotics, heart medications, and other potentially life-critical goods?
(2) Have we reached a point at which the People’s Republic of China (PRC) has become sufficiently unreliable as a strategic economic partner that it is time to rebuild key portions of the industrial base in our own hemisphere?
A growing body of evidence suggests the answers are “no” to question 1 and “yes” to question 2.
Key Point 1: Bringing High-End Supply Chains Home Can Help Repair America’s Social Fabric
Crises present unique opportunities to forge long-needed changes. It’s time for federal, state, and local leaders to seize the moment. Policies crafted in response should be based on the core principle of bringing much more of the most vital, sensitive supply chains—for pharma, apex technologies, and other high-end goods back onto American soil, as well as into our two great neighbors. If PRC manufacturers continue to dominate manufacturing of low-end items, that is fine. But the more technologically advanced and life-essential items increasingly should be manufactured at home or just across our southern or northern borders by amicable neighbors easily accessible by a panoply of efficient, resilient transportation links.
This view will attract some pushback, in part based on the idea that even if items are assembled abroad, the lion’s share of value capture still occurs in the U.S. For an iPhone7 sold in 2016, roughly 42% of the device’s total $649 value would have been effectively captured at Apple’s corporate level, according to the 2017 World Intellectual Property Report. But, as the peculiar blanket reopening of Apple stores in China even as they remain closed elsewhere suggests, resting on the current value distribution is a strategic mistake. An enduring reality of industrial development is that “innovation in manufacturing gravitates to where the factories are.” There is a symbiosis and gravitational attraction between the two activities and combining the two within a country becomes a natural driver of jobs and economic growth.
Moving key industrial value chains back onshore will take considerable money, effort, and time. But it also should be viewed as a re-investment in the fabric of economic opportunity that forms the interstitial tissue of the United States’ political system at the local, state, and federal levels. Revitalizing the U.S. industrial base and manufacturing sector can address many of the economic justice concerns that represent central issues in the 2020 presidential election. Overall, a healthy, more balanced economy sets the stage for a more robust society.
In the context of America’s global role, a healthy society at home translates into sustainable projection of positive influence abroad. In the simplest terms, pulling more of our supply chain out of China ultimately helps empower the U.S. and her allies and partners in the contest of systems now unfolding between Washington and Beijing.
Furthermore, as globalism cedes ground to regional realities, our home hemisphere beckons. Given the existing cross-border industrial ecosystems linking the U.S., Canadian, and Mexican economies, an American-led reboot of high-end manufacturing here can begin repairing and deepening key relationships with our vital neighbors. They are already among our greatest trading partners. Indeed, in a time when trade agreement of any kind tends to be elusive, a new “NAFTA 2.0” free trade accord has already been ratified by all three countries: the Agreement between the U.S., Mexico, and Canada (USMCA). Neither Canada nor Mexico will ever attempt to threaten or undercut the U.S. the way China already has. North America is well-placed to do more business, effective immediately!
Key Point 2: The Time is Right for Action
The broader American political climate is likewise ripe for bringing truly critical supply chains home. Growing calls to re-structure our economic and strategic relationships with China are the latest iteration in a disturbing pattern of Beijing regularly reneging on promises and dashing expectations. But this time, a growing rift has generated irreconcilable differences. During prior upsets, disenchantment with China was primarily restricted to specialist communities in Washington, DC, while commercial firms consistently bubbled with anticipation at the chance to enhance and retain access the vast China market. That division led business interests to lobby to restrain the Washington defense and security community’s rising desire to counter worrisome behavior by China. Moreover, well into the early 2000s China was far from being a core public concern with voters. No longer.
China is now a systemic global player in multiple dimensions. Its actions suggest a desire to displace the United States as the pre-eminent power in the Asia-Pacific region (and perhaps beyond) and there carve out a zone excluded from international laws and norms. China’s state-sponsored industrial development policies helped hollow out multiple key portions of the U.S. manufacturing base, including many of the areas now worst affected by the opioid epidemic (and where fentanyl, one of the most lethal synthetic opioids, largely originates from China). U.S. business executives, meanwhile, have recognized that China’s web of policy barriers mean that for most firms it will remain a vast theoretical market that rarely delivers returns commensurate with what was promised.
Beijing’s actions on the military, economic, industrial policy, and technology transfer fronts have created an unprecedented bipartisan consensus whereby U.S. Defense professionals, businesspeople, and lay voters now increasingly agree that China poses a multidimensional challenge that needs to be confronted more directly and decisively. To capitalize on the shift, Washington needs to proactively offer other countries, whether in the EU, ASEAN, or Western Hemisphere, positive economic, investment, and ideological alternatives to a PRC worldview centered on coercion and control.
Legislative stimulus will be a key part of this process. To that end, the Pharmaceutical Independence Long-Term Readiness Reform Act (H.R. 4710) introduced in October 2019 gives a preliminary taste of what after the coronavirus is likely to become a much larger flow of legislative action.
Key Point 3: U.S. High-End Manufacturing Renaissance Can Offer Other Countries a Strategic Economic Alternative to Dependence on China
The global strategic opportunity before us is masked now by the fact that neither Beijing nor Washington are handling all of their key relationships deftly, particularly in Europe. But the difference is stark: America’s sometimes ham-handed messaging may be readily improved, and is periodically renewed. China’s “shotgun diplomacy” in Europe, on the other hand, reflects Beijing’s institutional approach to other countries, which becomes harsher as China’s perception of its own power grows. Indeed, the Chinese Communist Party owns every single PRC policy catastrophe since 1949, and currently appears to only be doubling down. In such an environment, taking steps to ratchet down China’s importance to vital global supply chains and enhancing the availability of industrial investment opportunities outside of the PRC can in turn reduce Beijing’s ability to strongarm and threaten.
The U.S. strategic position does not suffer if China continues to supply much of the world’s Wal-Mart shelves. Being a world-class maker of low-end goods does not support and sustain superpower strength. But remaining a world leader in high technology, biomedical R&D, pharmaceutical production, transportation infrastructure, and other high-end manufacturing is the cornerstone of global economic leadership. Given events to date and looming future risks, leaving core portions of critical supply chains in China has become simply incompatible with core U.S. national interests. We cannot remain co-dependent with an increasingly adversarial great power. Now is the time to generate and sustain a strategic American manufacturing renaissance, closely connected to healthy hemispheric trade with our North American neighbors.