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.