More Protectionism Won’t Fix the Supply-Chain Crisis

Trucks haul shipping containers at the Port of Los Angeles during nighttime operations in San Pedro, California.

Mario Tama/Getty Images

By Scott Lincicome

Critics have seized upon recent supply-chain problems in the United States as proof of both the failures of “laissez faire” policy and the urgent need for federal interventions that boost manufacturing in America. Since the engine of global commerce is sputtering, so the theory goes, the government should throw it out and install an “American” one that avoids the high prices and empty store shelves we’re now experiencing. As simple and compelling as such proposals might sound, however, they ignore economic reality. More important, they miss the sand of current policyclogging the engine’s gears.

The pandemic shocked global supply chains and the U.S. economy. Major exporting and importing countries unexpectedly shut down and reopened, only to shut down again—and all on different schedules. Abnormally high worldwide demand, fueled by fiscal stimulus, economies’ reopening, retailer stockpiling, and increased consumer appetite for goods, ran headfirst into finite production and transportation capacity, lean inventories, and labor shortages. Throw in a few factory and port closures due to Covid outbreaks and other emergencies, and you have a surefire recipe for supply-chain chaos.

Intense stress on the system eventually resulted in limited supplies and higher prices. Those problems chilled economic growth, along with Democrats’ economic agenda and their political prospects. The White House therefore established a supply chain “task force” and “bottleneck czar” to fix the situation, and just this week announced a plan to ease port and transportation backlogs with new federal funds. Meanwhile, politicians of both parties have promised easy, protectionist fixes, including tariffs, subsidies, and localization mandates.

Unfortunately, there is no easy fix. In part, this is because it simply takes time to expand ports, build new warehouses and ships, train workers, and make other capacity expansions—especially where paperwork-heavy federal procurement is involved. The calming of global demand won’t happen overnight either. But just as important, political promises uniformly ignore the many policies that have intentionally diminished U.S. supply chain capacity, efficiency, and flexibility, and thus made our supply chain crisis far worse than it ever needed to be.

First, there are the ports. Longshoremen’s unions on both U.S. coasts have leveraged their political power and ability to shut down ports (and thus the economy) to negotiate contracts that inflate salaries, limit working hours and job flexibility, and prohibit the efficiency-enhancing automation that ports in Asia and Europe adopted decades ago. Unions also used favorable labor regulation to fight ports’ efforts to supplement their workforces with nonunion workers – something that might have come in handy during the current worker shortage.

Furthermore, the Merchant Marine Act of 1920 (aka the “Jones Act”) and the Foreign Dredge Act, which require port dredging to use American-made ships, have inflated costs and deterred port expansion projects. Local zoning laws in California have prevented ports and other companies from expanding container storage.

As a result of these and other policies, not one American port ranks among the 50 most efficient in the world. The largest U.S. port system—Los Angeles/Long Beach—trolls the bottom. No wonder, then, that ports have struggled to process record container volumes, and that port trucks are waiting record times to pick up cargo.

Second, several policies have diminished available trucking and warehouse capacity, which is now so desperately needed. California zoning and environmental regulations have discouraged or delayed warehouse construction around several of the nation’s largest ports, including LA/Long Beach. Mexican trucking companies have the largest and closest supply of potential trucks and drivers. But the U.S. has barred them from carrying freight within the United States or from Mexico to inland U.S. destinations, despite federal government pilot programs qualifying them as safe and environmentally friendly. Immigration backlogs totaling more than a million potential workers add to our current domestic labor shortage, which many port officials, importers, and logistics experts blame for trucking and warehouse bottlenecks. The Jones Act, by mandating that ships carrying freight between U.S. ports be American-built, crewed, owned, and flagged, has pushed domestic freight that could have been shipped by water onto trucks and trains, because the more efficient coastwise shipping is prohibitively costly. This means less ground transportation for international cargos now clogging up American ports.

Meanwhile, high U.S. tariffs have been imposed on intermodal chassis from China. Trucks use them to carry containers from port to warehouse. With the world’s largest chassis supplier effectively banned from the U.S. market and insufficient non‐China production available, a serious shortage has ensued. California environmental regulations, moreover, have reportedly pushed some port truckers, whose rigs were suddenly obsolete, out of the industry.

None of this is good for a supply chain in desperate need of trucks, warehouse space, and workers. Such obstacles would inevitably undermine the efficacy of proposed federal spending. They are also a broader cautionary tale about political promises to fix the current supply-chain mess with protectionism. Domestic supply chains rely on most of the same labor, transportation, and infrastructure that global ones do. Without substantial changes to the U.S. policies that weakened our global supply chains, onshoring would simply trade a vulnerability to foreign shocks for a vulnerability to domestic ones—while making the whole system even more sclerotic, costly, and inefficient than it already is.

If you think high prices and empty shelves are bad now, just wait till we implement policies specifically intended to do that.

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