In Congressional Testimony, AAM’s Scott Paul Explains What Caused Supply Chain Woes — and What To Do Now

The Alliance for American Manufacturing president tells Members of a House Energy and Commerce subcommittee that strategic investments and smart policy are needed to rebuild weakened supply chains.

As supply chain shortages continue to create havoc across the country, leading to auto plant shutdowns and widespread product shortages, the House Energy and Commerce Subcommittee on Consumer Protection and Commerce studied ways to get things back on track during a virtual hearing on Thursday.

AAM President Scott Paul testified before the panel, explaining how a “toxic combination” of over-globalization, just-in-time manufacturing and lack of redundancy led to the issues the United States is dealing with today.

“We face an acute crisis,” Paul said. “This is what happens when you offshore a lot of American manufacturing capacity. This began many decades ago; it was turbo-charged by giving China a blank check in 2000 and then not holding China to account, and this was true of Democratic and Republican administrations for a number of years. But, here we are today.”

Indeed, the United States has lost millions of manufacturing jobs and tens of thousands of factories since China entered the World Trade Organization (WTO). That led to diminished production capacity that not only makes it harder to address the current supply chain issues, but also build out the types of things the country needs to compete globally in the 21st century.

For example, there is now only one maker of grain oriented electrical steel left in the United States. That type of steel will be needed to rebuild the country’s electrical grid, which earned in a C- grade in the 2021 Report Card for America’s Infrastructure.

“We have left our capacities incredibly thin,” Paul said. “So, when we face these black swan events, like a public health crisis, or a natural disaster that disrupts supply chains, or political risks coming from the communist party of China, it shows how exposed we are.”

But that doesn’t mean all hope is lost. There’s plenty of things that the United States can do to reshore critical manufacturing and strengthen the production capacity that already exists. Smart policy choices, from public-private partnerships to enforcing our trade laws to create a level playing field that will allow American manufacturers and workers to fairly compete globally, will help strengthen domestic capacity.

The United States also must make targeted, strategic investments in critical areas, and there’s no shortages of opportunities to do just that. The production of semiconductors and lithium ion batteries is one place to start, as well as the things needed to transition to clean energy, including wind turbines, solar panels, and electric vehicles.

National security depends on the performance of American manufacturing, from battleships and missile systems, as well as innovation, Paul noted. Two-thirds of research and development and 90% of all patents are filed by manufacturers. “It has an outsized share in terms of its importance in the American economy,” he said.

The sector also is a creator of good jobs, Paul said.

“Manufacturing is one of the rare drivers of upward for the vast majority of Americans who don’t have a four-year college degree. So when we are foreclosing those opportunities, we are denying the American dream to millions and millions,” Paul said.

While Members of Congress offered varying opinions on the best strategy for addressing supply chain shortages and growing domestic capacity, there was general bipartisan agreement that it is a problem that policymakers can no longer ignore.

Rep. Adam Kinzinger (R-Ill.) noted that while he is typically in favor of free market practices and open trade, it is appropriate for the federal government to play a role in putting an industrial policy in place “as a matter of national security.”

“The federal government’s primary role is to protect its citizens from foreign threats,” he said, adding that China’s government withheld its exports of PPE at the start of the COVID-19 pandemic. Given the increased tension between the U.S. and China, it is likely that could happen again.

“Major supply chain shocks cost lives,” he said. “In order to preserve life, we have to be proactive and not reactive.”

House Energy and Commerce Chairman Frank Pallone (D-N.J.) noted that the United States is less competitive globally because of the loss of domestic manufacturing, while countries like China have seized market share to become a global power. Germany, Mexico and South Korea also have grown their production capacity.

“Some topics that we discuss in committee get more attention in D.C., but this is something that I hear constantly from my constituents about,” he said. “‘Why is it that we’re not manufacturing here? Why is it that we depend on China and other countries?’ I mean, people really, I think at home, are looking for us to act.”

You can watch the full subcommittee hearing below.