Supply Chain Investment is Needed Now – or the U.S. Will Continue to Fall Behind, Industry and Labor Officials Tell Senators

The Senate Finance Committee on Tuesday examined the impact of the tax code on American manufacturing and critical supply chains.

Representatives from both industry and labor warned a key Senate panel on Tuesday that more needs to be done to incentivize domestic production of critical products like semiconductors, electric car batteries and pharmaceuticals – or the United States will continue to face devastating shortages and factory shutdowns.

Supply chain stability dominated the discussion during a virtual Senate Finance Committee hearing that focused on the effect of the U.S. tax code on domestic manufacturing.

The COVID-19 pandemic exposed major gaps in the supply chain, with the U.S. facing shortages of personal protective equipment (PPE) and other medical supplies. In recent months, a global shortage of semiconductor chips has forced factory shutdowns across the country.

Intel’s chief financial officer, George Davis, told the committee that lawmakers should consider grants and refundable tax credits to help the United States produce more of the advanced micro-processing chips.

“If you look to China, Taiwan and South Korea, all areas where there has been substantial growth in semiconductor manufacturing taking place, it has been with a coordinated set of policies taking place to incentivize investment,” Davis said. “The U.S. has not taken that position.”

Donnie Blatt, United Steelworkers District 1 Director and a 40-year veteran of manufacturing in Ohio, echoed those remarks. He told the committee that Congress and the Biden administration should “use all the tools available to retain good manufacturing jobs and the domestic supply chains, including U.S. tax policy.”

“We need to make sure the domestic manufacturers and workers are able to compete globally and to make products from local supply chains. This starts with a better understanding of the supply chains and the improving of procurement policies,” Blatt added. “The tax code could be used strategically to drive investment and investment facilities. Federal investment facilities are extensive and are expected to last for decades, but that upfront capital is hard to come by, especially during a recession.”

It’s not just addressing the current shortages that require attention.

Jonathan Jennings, vice president of Global Commodity Purchasing and Supplier Technical Assistance at Ford Motor Company, noted that the shift to electric vehicles will require significant upfront investment.

And the United States is already behind.

“By 2040, more than half the world’s vehicles will be electric, and the vast majority of new cars sold will be electric. Right now, China is home to 73 percent of the worldwide capacity for lithium-ion batteries, followed by the U.S., far behind in second place, with 12 percent,” Jennings said. “This is simply unacceptable.”

That 12 percent is likely to continue to decrease, as over the next few years manufacturing is expected to grow in Asia at a greater rate compared to the United States, Jennings said.

“The semiconductor situation underscores our supply chain risk. There are dangerous parallels to the way electric vehicle batteries are sourced and developed,” he added. “In short, we must collectively do more to protect the future of manufacturing in America.”

The Benefits of Buy America

While it is clear major investment is needed – and the tax code can play a role in making that happen – Congress also must take steps to ensure that American workers also see the benefits.

Blatt is an advocate of structuring the U.S. tax code to provide advantages and relief for American workers. Too often, the tax code works in favor of large corporations that find it cheaper to close American factories and ship jobs overseas.

“We need to work with our allies while improving our tax code to discourage outsourcing and profit shifting to low tax jurisdictions,” Blatt said. “We should not allow smaller domestic manufacturers to lose out to larger firms who seek to venue shop across the globe for lower tax rates.”

The United Steelworkers supported the Disclosure of Tax Havens and Offshoring Act, which would require multinational corporations to publicly release basic revenue and tax information that they are already required to collect and privately report to the IRS, Blatt noted.

The union also favors the No Tax Breaks for Outsourcing Act, which would “level the playing field for small and wholly domestic businesses by eliminating the deep discount that multinational companies get for shifting profits offshore and outsourcing jobs,” Blatt said.

“It is counterproductive to the goals of a fair and growing economy to allow U.S. companies to pay a lower tax rate abroad than they pay in the United States,” he added.

But Blatt noted that tax reform alone won’t solve the current supply chain crisis.

“Our union can provide many examples of U.S. companies whose prices are legally undercut by foreign competitors,” Blatt said. “Our trade laws need reform, but so do our industrial policies that have not created markets for domestic manufacturers on a large enough scale.

“The U.S. government has long been a supporter of Buy America policy and federal procurement for infrastructure as a way to build markets and ensure that federal money is spent to support American workers. It only makes sense that American workers benefit from projects funded by American tax dollars. These principles are broadly popular.”

Congress should ensure that federal spending in the form of tax credits be used to benefit industries and companies that drive economic recovery in America and grow our manufacturing base, Blatt added.

“Well-paid, American union manufacturing workers are critical to our economy,” Blatt said. “We can see that evidence in hometowns across the country.”