Remarks by National Economic Advisor Lael Brainard on Making America’s Supply Chains More Resilient

At The Brookings InstitutionAs Prepared for Delivery Supply Shocks and Supply Chain Fragility I am delighted to join you for this discussion on strengthening America’s supply chains as we release the first ever Quadrennial Supply Chain Review. When President Biden came into office, the economy was experiencing the most disruptive supply shocks in a generation. Shipping costs skyrocketed as over a hundred ships queued up at the Ports of Los Angeles and Long Beach, and thousands of containers piled up on our docks. And when Russia invaded Ukraine, we saw further shocks, disrupting global grain and energy markets. Following several decades of relative calm, the Global Supply Chain Pressure Index spiked to unprecedented levels. As disruptions led to shortages and price increases, goods inflation surged, after falling for much of the pandemic shutdown in 2020, tracking supply chain disruptions closely with a short lag. Not since the oil price shocks of the 1970s had the U.S. economy experienced aggregate supply shocks of this magnitude. Both businesses and government were woefully unprepared. Market pressures led businesses to adopt just-in-time, lean inventory practices and to seek out the lowest- cost production location for many components in their far-flung value chains. We now know that this came at a cost. When the pandemic shuttered semiconductor factories overseas, unfinished auto assemblies began piling up in America. Car and washing machine prices spiked, and wait lists lengthened. The government had neglected to make critical investments in the resilience of our supply chains. Rails, ports, roads, bridges, and airports had fallen behind as successive administrations failed to secure the necessary infrastructure funding from Congress and did not take action as some foreign governments provided significant non-market incentives for investments in key strategic industries. A New Playbook for Supply Chain Resilience In short, we needed a new strategy to make our supply chains more resilient-and new partnerships with businesses and labor to make it work, as well as with foreign friends and allies. In his first month in office, the President signed the Executive Order on Supply Chains laying out a strategy to strengthen our supply chains. The new playbook rests on recovery, risk management, investment, and diversification. Recovery The first order of business was to restart the flow of goods. The Administration immediately stood up a Supply Chain Disruptions Task Force to work with state and local officials, businesses, labor groups, and farmers to resolve bottlenecks. An acute shortage of truck drivers was creating a major bottleneck for the 72% of shipments that move around the country by truck. In response, the Departments of Labor and Transportation implemented the Trucking Action Plan, which increased trucking employment by the most in two decades and doubled the issuance of commercial drivers’ licenses. Similarly, with cargo piling up at our West Coast ports, the President appointed a Port Envoy, who worked with businesses and labor to clear the docks and get shipments moving again. As a result, the shelves were restocked in time for the Christmas shopping season. Risk Identification and Management Our goal was not only to restore the nation’s supply chains but also to build capacity to spot emerging risks and to resolve emerging problems sooner. We worked to build durable capabilities in key agencies to enable data analytics and information sharing with the private sector and states and localities. These new supply disruptions capabilities strengthened our ability to respond in 2022 to a significant baby formula supply shortfall due to a production quality lapse. To restore supply, the Administration used the Defense Production Act to get ingredients to manufacturers, coordinated air freight shipments of formula from overseas, and provided expedited pathways for new manufacturers to enter the market. The Department of Transportation built out a new Multimodal Freight Office and a Transportation Supply Chain Indicators Tracker that gathers and publishes metrics in real time on container dwell times, sectoral employment trends, and rail intermodal volumes. Now when we start seeing a back-up in any of our ports, we can take action right away. The Department of Commerce created a new Supply Chain Center with a first-of-its-kind diagnostic risk assessment tool known as SCALE. SCALE utilizes a comprehensive set of over 40 indicators of risk such as supplier concentration, reliance on a single point of entry, and inventory-to-sales ratios to evaluate supply chain conditions across more than 400 industries. With this new data, we can spot looming challenges early and take action before they become a crisis. These data tools are critical for the private sector no less than for the government. When crisis strikes, the hundreds of independent operators that rely on or support our logistics networks must make decisions based on the information that is available to them, which may be only part of the bigger picture. It was vital to institutionalize greater data sharing and coordination to enable the hundreds of independent operators to manage risks more effectively. The Department of Transportation created the Freight Logistics Optimization Works (“FLOW”) program, a public-private partnership that has built a shared data resource picture of live supply chain networks. Today, more than 85 FLOW participants use these data to inform their logistics decision making, helping to avoid bottlenecks, and shorten lead times for American businesses and consumers. The collapse of the Francis Scott Key Bridge in Baltimore last spring was a crucial test of whether the new capacity we had built around supply chains would work in a crisis. Hours after a ship crashed into the bridge at 1:30 A.M., the federal government had already convened the Supply Chain Disruptions Task Force to minimize disruptions to the critical goods moving in and out of the port. We were immediately in communication with state and local officials, and we initiated calls with shipping companies, labor unions, ocean carriers, and other ports along the East Coast. We coordinated with rail and trucking companies to help reroute the flow of critical goods in real-time. This all-hands-on-deck approach kept goods flowing throughout the region, workers at their jobs, and the local economy operating at full capacity until the Port of Baltimore was able to fully reopen in less than three months. Investing in Infrastructure and Manufacturing The pandemic supply chain crisis also highlighted the costs of decades of underinvestment in the supply side of our economy. Our nation’s infrastructure had fallen further and further behind. Companies spread their supply chains to far flung parts of the globe as they focused on the costs of inputs, and not on the risks associated with where they were made. In response, the President secured landmark legislation to revive the federal government’s role in supporting private sector investment in the critical value chains that underpin our economic and national security. Thanks to the Bipartisan Infrastructure Law, the federal government has so far invested more than $568 billion in American infrastructure across 66,000 different projects. We are investing $8.7 billion in 18 of the nation’s most economically significant bridges that are vital to our supply chains, and we have announced $13 billion to improve our ports. These are investments that will pay dividends for decades to come. When the President took office, almost 90% of semiconductors-vital for everything from advanced AI to gaming-were manufactured abroad. In the energy sector, we rely on China for more than 80% of the solar manufacturing supply chain, and there are at least 30 foundational mineral commodities for which the U.S. is more than 75% net import reliant-in many cases on sources that are Chinese or owned by Chinese producers. These aren’t just economic vulnerabilities-they are national security risks, and we cannot afford to wait until there is a disruption to take action. Together, the landmark CHIPS and Science Act and Inflation Reduction Act (IRA) have catalyzed nearly $1 trillion in announced private-sector investments in critical industries. Because of the CHIPS and Science Act, the U.S. is now projected to host nearly 30% of global leading-edge semiconductor manufacturing-up from zero-and we are already seeing the leading global manufacturer achieve production yields in the U.S. that are comparable to those in Taiwan. Similarly, when the President entered office, U.S. producers were only able to supply 5 percent of global lithium demand. Because of the clean energy provisions of the IRA, the U.S. is now on track to supply more than one-fifth of global lithium demand outside of China by 2030, enabling us to power grid storage batteries and electric vehicles. Diversification of Supply Chains We are also working with likeminded partners to diversify our supply chains and manage risks. China has used a wide range of non-market practices to gain significant global share in key supply chains, including legacy semiconductors and electric vehicles. China’s growing overcapacity has caused a proliferation of unfairly low-priced exports that now make it difficult for competitors to meet market hurdles for investment and production. To level the playing field, we have coupled our investment incentives with tough trade enforcement measures like tariffs that are carefully targeted against those unfair trade practices in strategic sectors. Today's Quadrennial Review lays out a comprehensive set of additional actions related to procurement, supply chain transparency, and market standards to counter non-market practices. Importantly, we are partnering with allies to diversify global supply chains and ensure they are not excessively dependent on Chinese companies. By aligning our approaches, we are helping to ensure that the most vital global supply chains are diversified and China cannot undercut American industries, businesses, workers. Building Future Resilience We have come a long way. The Global Supply Chain Pressures Index, which in 2021 peaked at 4.4 standard deviations above its historical average, is now negative-a sharp decrease. The number of container ship stuck off our shores waiting to unload has fallen from almost 150 three years ago to around a dozen today. The days of sales covered by retailers’ inventories has increased by nearly 10% since June 2021 and is now close to the pre-pandemic average. Shipping rates to the West Coast have fallen from over $20,000 per container at the peak of the disruption back down to around $4,400. The work on strengthening America’s supply chains should continue since we are likely to encounter additional supply shocks in the years ahead. In the past 4 years alone, we have confronted supply chain disruptions not only from the pandemic but also from hurricanes, foreign wars, and cyberattacks targeting critical infrastructure and digital supply chains. We saw 28 climate disasters last year that each cost at least a billion dollars-the highest number in U.S. history. Geostrategic instability, including Russia’s war in Ukraine and conflict in the Middle East, continues to disrupt global energy markets. Cyber actors regularly target supply chain operators as a way to take down major companies, including hospitals. And we have seen a variety of disruptions in shipping, including the Houthi attacks on cargo ships in the Red Sea and reduced water levels in the Panama Canal. New dependencies are constantly emerging, and some supply chain chokepoints create national security risks, such as the ability of a foreign adversary to cut off supplies of a key mineral used in defense applications. It will be important to utilize the full scope of our national security tools to protect supply chains when necessary, as with the Department of Commerce’s ICTS rulemaking on data security for connected vehicles, ensuring that foreign adversaries cannot exploit consumer products that Americans use every day for harmful purposes. Certain critical product areas-including minerals, information technology components, and medical supply chains-will require additional investment to achieve an acceptable level of resilience. We can’t repeat the mistakes of the past by allowing future core technologies to completely leave our shores. America’s global position in the strategic industries of tomorrow require ongoing active attention. We need to work in partnership with the private sector when they identify a critical bottleneck. For instance, it is important support the rapid development of the requisite compute power through clean energy in the U.S. for the most advanced AI models. Closing When they are working smoothly, most people don’t pay any attention to supply chains. But when supply chains break down, it can impose tremendous hardship on our households, workers, businesses, and farmers. Supply chain resilience has always been vital to our economic and national security. President Biden once invoked a proverb attributed to Benjamin Franklin: “For want of a nail, the shoe was lost. For want of a shoe, the horse was lost…” and on and on and until, finally, “the whole kingdom was lost, all for the want of a horseshoe nail.” Our nation’s founders recognized that the breakdown of even minor inputs or processes can cascade into monumental national costs. Building resilience in our supply chains is not a partisan effort. It’s a national priority borne out of hard-fought experience. It is also a shared responsibility-government enabled and private sector led. American workers are also vital to these efforts. Today, not only have we recovered, we’ve come out stronger, and have laid the foundation for America’s supply chains to be more resilient in the years ahead. Now it is important to build on this new playbook for resilient supply chains in partnership with business and government and in alignment with friends and partners around the world. The post Remarks by National Economic Advisor Lael Brainard on Making America’s Supply Chains More Resilient appeared first on The White House.