[Senate Hearing 117-622]
[From the U.S. Government Publishing Office]
S. Hrg. 117-622
SUPPLY CHAIN RESILIENCY: ALLEVIATING
BACKLOGS AND STRENGTHENING
LONG-TERM SECURITY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INTERNATIONAL TRADE,
CUSTOMS, AND GLOBAL COMPETITIVENESS
of the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
JUNE 15, 2022
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
55-724--PDF WASHINGTON : 2024
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland RICHARD BURR, North Carolina
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania TIM SCOTT, South Carolina
MARK R. WARNER, Virginia BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
______
Subcommittee on International Trade,
Customs, and Global Competitiveness
THOMAS R. CARPER, Delaware, Chairman
RON WYDEN, Oregon JOHN CORNYN, Texas
DEBBIE STABENOW, Michigan CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland ROB PORTMAN, Ohio
SHERROD BROWN, Ohio PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado TIM SCOTT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
CATHERINE CORTEZ MASTO, Nevada BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
(II)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Carper, Hon. Thomas R., a U.S. Senator from Delaware, chairman,
Subcommittee on International Trade, Customs, and Global
Competitiveness, Committee on Finance.......................... 1
Cornyn, Hon. John, a U.S. Senator from Texas..................... 4
WITNESSES
Paul, Scott N., president, Alliance for American Manufacturing,
Washington, DC................................................. 6
Potvin, Douglas L., chief financial officer, Trinity Logistics,
Inc., Seaford, DE.............................................. 8
Frenkel, Orit, Ph.D., founder and CEO, American Leadership
Initiative, Washington, DC..................................... 11
Louie, Gilman, chief executive officer, America's Frontier Fund,
Arlington, VA.................................................. 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Carper, Hon. Thomas R.:
Opening statement............................................ 1
Prepared statement........................................... 39
Cornyn, Hon. John:
Opening statement............................................ 4
Prepared statement........................................... 40
Frenkel, Orit, Ph.D.:
Testimony.................................................... 11
Prepared statement........................................... 41
Responses to questions from subcommittee members............. 44
Louie, Gilman:
Testimony.................................................... 12
Prepared statement........................................... 45
Responses to questions from subcommittee members............. 48
Paul, Scott N.:
Testimony.................................................... 6
Prepared statement........................................... 52
Responses to questions from subcommittee members............. 58
Potvin, Douglas L.:
Testimony.................................................... 8
Prepared statement........................................... 59
Responses to questions from subcommittee members............. 63
Communications
American Chemistry Council....................................... 65
Center for Fiscal Equity......................................... 66
National Electrical Manufacturers Association.................... 67
National Restaurant Association.................................. 69
SUPPLY CHAIN RESILIENCY: ALLEVIATING
BACKLOGS AND STRENGTHENING
LONG-TERM SECURITY
----------
WEDNESDAY, JUNE 15, 2022
U.S. Senate,
Subcommittee on International Trade,
Customs, and Global Competitiveness,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 3 p.m., in
Room SD-215, Dirksen Senate Office Building, Hon. Thomas R.
Carper (chairman of the subcommittee) presiding.
Present: Senators Wyden, Menendez, Brown, Casey,
Whitehouse, Cortez Masto, Grassley, Cornyn, Thune, and Young.
Also present: Democratic staff: Evan Giesemann, Tax and
Trade Policy Advisor for Senator Carper; and Naomi Zeigler,
Legislative Aide for Senator Carper. Republican staff: Andrew
Cooper, Legislative Assistant for Senator Cornyn; and Bailey
McCue, Legislative Aide for Senator Cornyn.
OPENING STATEMENT OF HON. THOMAS R. CARPER, A U.S. SENATOR FROM
DELAWARE, CHAIRMAN, SUBCOMMITTEE ON INTERNATIONAL TRADE,
CUSTOMS, AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE
Senator Carper. Good afternoon, everybody. It is my
pleasure to call this hearing before the Senate Finance
Subcommittee on International Trade, Customs, and Global
Competitiveness to order.
I want to give a special ``thank you'' to our witnesses for
joining us to testify today from across the country, and a
special ``thank you'' to Ranking Member Cornyn and his team for
working with our staff and with me to plan this hearing, which
is focused on supply chain challenges, an issue that continues
to frustrate me, and it frustrates the folks across our country
and around the globe.
Today's hearing will offer a chance for us to examine why
supply chain bottlenecks have developed since the onset of the
pandemic, and to look at what kind of policies might improve
the long-term resiliency and the security of our supply chains
to prevent these types of shortages in the future.
Many folks have probably heard about supply chain problems
and know that supply chains have something to do with keeping
our economy moving. But I am sure that a lot of folks are still
wondering what we mean exactly when we say ``supply chains.''
Here is what we are talking about. Supply chains include
every step of the process to manufacture and process a product
and move it from point A to point B. Sometimes that is halfway
across town; sometimes it is halfway across the world in order
to move goods from a person's wish list to their doorstep.
One of the reasons why we are eager to address these issues
at today's hearing is because Americans are eager to address
these issues. In 2022, the effects of supply chain challenges
are not some distant policy issue to folks at home. Americans
are seeing it play out in empty shelves at their local grocery
stores that once held baby formula, and gifts delayed and
delivered weeks after a birthday has passed, or new cars and
technology that they have saved up for years to buy but cannot
find on the market.
With Father's Day coming up this weekend--any fathers in
the room? Happy Father's Day a couple of days early. But I am
reminded that about a month or so ago, Mother's Day was
approaching. Going shopping for a Mother's Day card, I went to
our local Rite Aid pharmacy to pick one up for my wife of 36
years, mother of our two sons, at a store where we have shopped
for years, with a huge selection of anniversary cards, birthday
cards, holiday cards, you name it. I walked up and down an
entire Mother's Day card section--empty. I found an employee
and asked what was going on. And she said, ``This year's
Mother's Day cards never made it to the store.'' I said, ``Not
even one?'' She said, ``Not even one.''
That was when I knew we had a problem. That is just one
example of the supply challenges happening all across our
country, and Americans and this committee want to know how we
can get back on track.
So today we are going to explore how we got to this point
and what we can do to ensure that we are better prepared in the
future. I have long believed that one of the jobs of
policymakers is to create a nurturing environment for job
creation and job preservation so that we may enjoy economic
growth.
And one key to maintaining that nurturing environment is
improving the dependability of our supply chains. And while we
know these tremendous supply chain backlogs that we are seeing
today come largely from the economic shock of the pandemic,
many systemic vulnerabilities existed long before COVID.
Fundamental weaknesses in our global logistic systems are the
result of a
decades-long focus on supply chains' efficiencies, just-in-time
manufacturing, and reliance on foreign adversaries for a wide
array of goods.
The result--we have been joined by Senator Cornyn. John,
thank you for being a big part of this, and thank you and your
team for working with us preparing for this day. He has been
busy on some other fronts, and we are very grateful for his
leadership there. We postponed this hearing for a couple of
weeks because of his need to return to Texas for the terrible
tragedy there.
But the result is, the systems have cracked under the
pressure of the worst pandemic we have endured in over 100
years. As Albert Einstein used to say--along with other
things--Einstein used to say the definition of insanity is to
do the same thing over and over again and expect a different
result. That is not my favorite Einstein quote. My favorite
Einstein quote is ``in adversity lies opportunity.'' That has
guided me my whole life--in adversity lies opportunity--and it
should guide us in this case as well.
These challenges have introduced great adversity but some
real opportunity for us to rethink how we move goods across the
globe and create a system that better serves the American
people. And that starts with investing in our own critical
infrastructure. I am proud to say that every member of this
committee, especially the guy here on my left--we have already
taken some historic steps through the passage of a bipartisan
infrastructure law to, among other things, improve the
efficiency of our ports and make our roads and bridges safer,
while expediting the movement of goods and people across
America.
However, it is clear that infrastructure investments are
only one piece of the puzzle. Another piece is expanding
domestic investments in the technologies we rely upon for
semiconductors, for renewable energy products, so that we don't
find ourselves over-
relying on a foreign adversary, or jeopardizing our national
security for the sake of the supply chains.
Through these investments, we can create jobs and support
American manufacturing. That is a real win-win where I come
from. A good place to start is the China Competition
legislation currently being reconciled between the two chambers
of Congress. And I again commend our friend and Ranking Member
Cornyn for his leadership in supporting CHIPS funding, among
other things, through that process.
And while domestic investment is a key part of shoring up
our supply chains for years to come, we have also come to focus
on a fundamental principle central to the supply chain
discussion, and that is working together with our global
partners.
As leaders of the subcommittee, Senator Cornyn and I have
repeatedly called for greater U.S. engagement in leadership
across the globe, especially--especially--in the Asia-Pacific
region. By reaching out to our allies across the globe and
bringing more nations into a shared economic framework, we can
improve the security and resiliency of our supply chains,
leading to a wider range of products and lower costs for
American consumers.
That is part of the reason why I was happy to see President
Biden announce the start of an Indo-Pacific Economic Framework
to bring more trading partners into a stronger, fairer global
economy and create even more diverse, resilient supply chains.
Ultimately, building secure and flexible supply chains requires
both economic cooperation with our allies across the globe and
more strategic investment in critical industries and workers
here at home.
So, we look forward to hearing from our witnesses with
respect to their insight on solutions to these challenges so
that the next generation of American families will not have to
worry about the empty shelves. They will not have to worry so
much about higher prices, because we will be ready for what is
to come.
Once more, my thanks to our ranking member, our respective
staffs, and especially to our witnesses who are appearing
before us today.
And with that, I will turn it over to Senator Cornyn for
any comments he would like to make.
[The prepared statement of Senator Carper appears in the
appendix.]
Senator Carper. Senator Cornyn?
OPENING STATEMENT OF HON. JOHN CORNYN,
A U.S. SENATOR FROM TEXAS
Senator Cornyn. Mr. Chairman, thank you for calling this
hearing. It was a pleasure to work with you and your staff in
organizing it. It is a timely and important topic. Thank you to
all of our witnesses for being here, virtually and otherwise.
This subcommittee continues its work in exploring the
geopolitical benefits and consequences of America's trade
policy with the world, and in particular our foreign
adversaries like China and Russia. The topic of resiliency and
critical supply chains is an important one. And as the COVID-19
pandemic revealed, it awakened many of us to our dependence on
foreign adversaries for critical goods--or from friends, but in
a way that our foreign adversaries could disrupt.
We need to reinforce the rules-based international trading
system for those nations that at least attempt to abide by free
trade agreements like the Comprehensive and Progressive Trans-
Pacific Partnership.
I think I mentioned to you, Mr. Chairman, in my trip to
Japan recently with Senator Cardin and Senator Hagerty, every
single government official we met with talked about the Trans-
Pacific Partnership. And we told them, at least for ourselves,
that we regretted--I regretted that we did not engage when we
had a chance on that. But sometimes you learn lessons the hard
way.
The administration's Indo-Pacific Economic Framework is a
positive step in the right direction, but we cannot play games
with our Nation's survival by outsourcing the crown jewels of
our economy to nations like China, which have used our free
market system against us while not playing by the rules
themselves.
Nearly 20 years ago, our government opened the door to do
business in China, and industry did what it does best: found a
market, captured it, and achieved efficiency and innovation.
What we have learned since is that the Chinese Communist Party,
not its people, perverted that good will through theft and
control to achieve a strategic advantage. Our own people and
home-town industries suffered as a result.
Now we need to come together--labor, business, and
government--as one Nation and put aside past disagreements to
find the right balance in preserving our critical supply chains
while maintaining strong trade relations. This includes
providing incentives in some cases, like the CHIPS for America
Act I authored with Senator Warner--and Senator Wyden is part
of it as well--to bring our semiconductor production back home
to America. It means reducing the regulatory burdens on
American businesses that want to thrive in our domestic and
foreign markets and abide by our rules-based international
trading system. And it means having an honest look and
conversation about the challenges we face.
For example, a few weeks ago the Senate Intelligence
Committee had a hearing where a former Trump administration
official highlighted that U.S. financial investments in China-
domiciled companies totaled $2.3 trillion in market value. It
is pretty clear that U.S. companies have fueled China's
economic rise. Former National Security Advisor H.R. McMaster
recently said that last year venture capital firms invested
$114 billion in Chinese companies that are developing dual-use
and sensitive technologies that are going to be weaponized
against us, or are already aiding and abetting Russians.
I believe it is time to have a conversation, an honest
conversation, about the role that American investment has
played in building the Chinese economy, especially in the areas
of critical supply chains and our over-reliance on those supply
chains in areas such as semiconductors.
The first step that Senator Casey and I have proposed is by
granting the U.S. Government the authority to have visibility
into those investments in the supply chains of our foreign
adversaries through the establishment of an interagency
committee led by the President that provides for a whole-of-
government approach in responding to Chinese economic coercion.
That means, at minimum, a mandatory notification and
circulation of investments by recipients of taxpayer funds
designed to compete with China, such as those envisioned in the
Bipartisan Innovation Act and the CHIPS for America Act, which
will serve as the basic guard rails for protecting those
investments.
This week, Senator Casey and I, along with many of our
colleagues, have introduced a revised version of our National
Critical Capabilities Defense Act, demonstrating our good faith
in trying to come up with a solution that actually works, and
that can gain the necessary support.
This bill incorporates input from industry and represents a
positive step in the push to safeguard our critical
capabilities. I look forward to hearing from more stakeholders
in the coming days, and I am eager to discuss that topic with
today's witnesses as well.
We have before us Mr. Louie, who comes from the
intelligence community, to provide us a national security
perspective. Mr. Potvin, I believe your intimate knowledge of
the supply chain and logistic backlogs will be of great
importance. Dr. Frenkel, your experience in government will
help us understand the rules-based international trading system
and what our agreements will mean and what they do not mean
going forward. And, Mr. Paul, you bring in valuable insight
from a coalition of both the labor and manufacturing
industries.
So I look forward to hearing your testimony and answers to
questions that follow.
Thank you, Mr. Chairman.
[The prepared statement of Senator Cornyn appears in the
appendix.]
Senator Carper. Thank you, Senator Cornyn.
We are joined by Senator Bob Casey, to my right, Senator
Casey from Pennsylvania. I had the pleasure of serving as
Governor with his father, and I have the pleasure of serving in
the U.S. Senate with his son. How lucky can one guy be? It is
great to see you, Bob.
Our first witness today is Mr. Scott Paul, who is the
president of the Alliance for American Manufacturing. The
Alliance for American Manufacturing--it is a partnership, isn't
it? It is a partnership between the U.S. Steelworkers union and
some of America's leading manufacturers. I just find that very
refreshing. It is kind of like sort of the partnership that the
three of us have on a lot of issues as well. As president, Paul
works to support domestic manufacturing initiatives so that
American workers and businesses can thrive.
Mr. Paul is the past chair of the National Skills Coalition
and sits on the board of the visitors of the political science
department at Pennsylvania State University, the home of the
Nittany Lions. This Buckeye welcomes the Nittany Lion to this
hearing.
Mr. Paul, you have the floor. Please proceed.
STATEMENT OF SCOTT N. PAUL, PRESIDENT, ALLIANCE FOR
AMERICAN MANUFACTURING, WASHINGTON, DC
Mr. Paul. Thank you, Chairman Carper, Ranking Member
Cornyn, and Senator Casey. We will punt on the football
opportunities here and get to the testimony.
On behalf of the Alliance for American Manufacturing--which
you indicated is a partnership of the Steelworkers and domestic
manufacturers--thanks for this opportunity to testify today on
an issue of vital importance to our economic and national
security.
Now, the last several years have made all Americans
painfully aware of the tragic inadequacy of our deteriorated
industrial capabilities and broken supply chains. The pandemic
and its economic shock waves also exposed the dangerous
reliance on global suppliers for many consumer and commercial
products, revealing that the United States is ill-equipped to
produce enough semiconductors and other products for everyday
life, let alone the quantities needed to address a future
emergency.
The frailty of on-demand global supply chains and our utter
reliance on them has left us dangerously exposed for the past 2
years, and unprepared for future shocks. These disruptions
should be viewed through the lens of public policy decisions
that both facilitated, and in some cases actively encouraged,
the offshoring of domestic production and critical supply
chains.
Ninety thousand American manufacturing facilities have
closed their doors since the 1990s. China surpassed the United
States as the world's largest manufacturing nation in 2010.
Imports have outstripped GDP and domestic production growth
over the past 2 decades.
This replacement has led to the loss of 5 million good
middle-class jobs and devastated communities across our Nation,
and it has left us increasingly dependent on imports--often
from adversarial countries like China and Russia--for
everything from consumer goods and advanced technology products
to lifesaving personal protective equipment.
In America, we consume 20 percent of the world's goods, but
we make far less than that: ten percent of the world's electric
vehicles, 7 percent of lithium ion batteries, 12 percent of
semiconductors, and 4 percent of printed circuit boards, for
example. There is only one major domestic manufacturer of
electrical steel needed to build out our energy grid, and there
are many other examples of greatly diminished capacity in
critical industries.
To address current supply chain disruptions as well as
anticipate and prepare for future crises, we must acknowledge
how we got here and what went wrong. The pandemic has exposed
in rather dramatic fashion the years of flawed tax, trade,
procurement, and other economic policies that put the United
States in a perilous position of over-dependence on imports.
We recognize that the United States has important security
and trade relationships with our allies, and we can and should
utilize those where it makes sense. But our vulnerabilities
reflect an outdated notion of the benefits of hyper-
globalization where our consumers, workers, domestic
businesses, and national security suffer.
We must break the vicious cycle of implementing policies
that reward imports over domestic production. I cite two
reports by former Homeland Security Secretary Tom Ridge and
retired Brigadier General John Adams in my written testimony,
and I would encourage the subcommittee to study these. The
concerns they highlighted about our supply chains a decade ago
have only grown; for instance, cancer patients facing scarcity
of contrasting materials for essential medical imaging revealed
last month, or the Chinese Communist Party threatening to
weaponize rare earths. And these examples go on and on.
Rebuilding supply chains will chart a course for a stronger
future and create millions of new well-paid jobs along the way.
We must acknowledge that supply chain resiliency is not a
challenge that the private sector alone can fix. There is an
appropriate role for government to provide leadership,
coordination, a supportive policy framework, and funding
directed to domestic production expansion where the
vulnerabilities are most critical.
That is why we support swift and successful conclusion of
conference committee work on the competitiveness legislation
that Senator Carper mentioned. Merging the most attractive
provisions from each of the House and Senate bills offers the
opportunity to create a long-overdue policy framework for
supply chain security, resiliency, and revitalization.
AAM has outlined our conference priorities in a letter to
House and Senate leaders, including the CHIPS Act; expanding
manufacturing research, development, and deployment efforts; a
supply chain resiliency fund; strengthening trade enforcement
tools, including the Leveling the Playing Field Act 2.0; as
well as screening outbound investments in critical sectors, as
Senator Cornyn mentioned.
We have offered additional detailed policy recommendations
in my written submission. And I would just close with this
thought: I think we can have a brighter future for supply
chains and manufacturing. We see examples of where public
policies have invited new investments over the past several
years, and I cite many of these examples in my written
testimony.
Just a generation ago, some economists predicted none of
this--large new factories, or surges in manufacturing jobs--
would ever be possible again due to automation and import
competition. But we should not pretend that a brief focus on
supply chains alone will build on this momentum. It must be a
sustained effort. Public policy support for American
manufacturing is crucial to tackling supply chain challenges,
and we look forward to working with you to ensure a better
future.
Thanks for the opportunity to testify at today's hearing.
[The prepared statement of Mr. Paul appears in the
appendix.]
Senator Carper. We thank you, Mr. Paul. Well done. Thank
you so much.
Our next witness is Doug Potvin, the chief financial
officer of a company called Trinity Logistics. Trinity
Logistics is a third-party logistics provider that is
headquartered in Seaford, DE, and is a company that operates
nationwide.
People say, where is Seaford, DE? What is it famous for?
Seaford, DE was the home of the world's first nylon plant. It
was established by the DuPont Company. Not that many years ago,
4,000 people worked there forever. I think I shook every one of
those hands many times. And we are grateful for what DuPont has
done for our State and Nation, really, and especially in the
Seaford area.
For the past 40 years, Trinity Logistics has offered
freight management, they have offered transportation, and they
have offered innovative supply chain solutions. And as CFO, Mr.
Potvin is responsible for overseeing financial reporting and
payment management, as well as risk management. He also oversaw
the implementation of Trinity's information technology
infrastructure.
And before I say, Mr. Potvin, that you have the floor, I
understand you are joined today by a couple of extraordinary
women whose first name is Sarah, one of whom happens to be your
wife, and the other of whom happens to be the president of the
company. And I am just going to be watching carefully to see if
any lips move when you speak. [Laughter.]
So, we will see how that works out. We welcome both Sarahs,
and we especially welcome you as the front man. I am anxious to
hear what you have to say. Welcome, and great to see you, Doug.
Thanks. Please proceed.
STATEMENT OF DOUGLAS L. POTVIN, CHIEF FINANCIAL
OFFICER, TRINITY LOGISTICS, SEAFORD, DE
Mr. Potvin. Let me introduce myself as the CFO, chief fun
officer, of Trinity Logistics, because we like to have fun
while we are working hard.
Chairman Carper, Ranking Member Cornyn, Senator Casey,
thank you for the opportunity to speak with you today regarding
how policymakers and business leaders are addressing the
existing backlogs in the supply chains in the short term to
bring more resilient supply chains in the long term.
My name is Doug Potvin, and I am the chief financial
officer of Trinity Logistics, a third-party logistics company
headquartered in Seaford. I am privileged, honored, and humbled
here today representing Trinity Logistics; our association, the
Transportation Intermediary Association; and the entire third-
party logistics industry that we serve.
We serve as an intermediary, solving the logistical needs
of our shipper customers by sourcing capacity from motor
carriers and vendor partners. We are proud to report today that
this past year we have generated over a billion dollars in
revenue, have arranged over half a million shipments, and
offered 350 full- and part-time jobs. We truly are a proud
Delaware company.
From Charles Dickens's novel A Tale of Two Cities, ``It was
the best of times and it was the worst of times. A season of
light and a season of darkness. A spring of hope and a winter
of despair.''
Over the last 2 years, the same can be said of the
international supply chain and, from our perspective closer to
home, the domestic transportation industry. In March of 2020,
as both domestic and international companies shuttered
businesses, including the shuttering of the port cities and
operations in China, and the fact that most consumers were at
home facing an uncertain future, freight volumes plummeted.
Motor carrier capacity increased dramatically due to the steep
drop in goods moving, and the transportation market saw prices
to motor carriers fall.
In fact, Trinity Logistics was mentioned on a Facebook post
that stated we were earning an average gross margin of 60
percent, which was simply wrong. In addition, a small number of
motor carriers came to Washington, DC and demanded rate
transparency. Interestingly, after the businesses, ports, and
countries opened up, freight volumes began to skyrocket,
available market capacity tightened up, and rates paid to motor
carriers increased to reflect the change in the market
conditions. Demand for rate transparency went silent.
The pricing in our industry is driven by market
conditions--supply and demand--and no large-scale entity on
either side of the equation has enough market share to drive
rates. In addition, each shipment has its own variable
considerations to take into account, including everything from
available capacity in the various regional markets, lead time
for products, dwell time of shippers and consignees,
commodities being moved, and the type of equipment needed. All
this happens in real time to ensure goods get to market,
keeping the economy moving forward.
Now more than ever, the role of the third-party logistics
professionals is more valuable. Companies like Trinity and the
other 28,000 licensed property brokers are working overtime to
ensure that essential goods continue to be delivered in an
efficient manner to meet their customers' and consumers' needs.
Our industry, along with the motor carriers, is a main
component of why, during the crisis and disruption, the supply
chain bent but never broke.
Turning to the U.S. Senate's and House of Representatives'
bipartisan passage of the Infrastructure Investment and Jobs
Act, a historic investment in transportation and
infrastructure, we were very pleased to see how quickly the
Federal Motor Carrier Safety Administration established the
Safe Driver Apprenticeship Pilot Program. Trinity hopes this 3-
year pilot program will be successful and made permanent so
that individuals ages 18 to 20 will explore interstate
transport careers.
Trinity also believes that if the spending under the
investment act ramps up in the near future, it will provide
enough support in the economy to keep the motor carriers
employed as we are starting to see freight volumes begin to
pull back over the last 30 to 60 days. Trinity would also like
to thank Chairman Carper, Ranking Member Cornyn, Senator
Menendez, and Senator Tim Scott for their support in offering
legislation and getting the Senate to act unanimously in
passing the Customs Trade Partnership Against Terrorism Pilot
Program Act. We appreciate it very much. Thank you.
Currently, the vaccine mandate for truck drivers coming
into the country to deliver freight from Mexico and Canada
continues. These professional drivers spend most of their
professional time in their truck cab, presenting a zero-percent
risk of spreading COVID-19. This should be lifted immediately
to open up capacity and shorten the amount of time it takes for
goods to move across borders.
Another issue that greatly impacts not only the efficient
movement of goods, but also highway safety is lack of a Federal
motor carrier safety selection standard. Currently, because of
broken safety rating systems from the Federal FMCSA, almost 90
percent of trucking companies are considered unrated. That
there are no requirements in place before selecting your
trucking company drastically impacts the overall safety on our
Nation's highways.
The latest report from the National Highway Traffic Safety
Administration noted that the number of accidents involving
commercial motor vehicles increased 13 percent in 2021. The
status quo is not working, and highway safety needs to be
improved.
Trinity Logistics and our trade association, TIA, fully
support legislation to create a motor carrier safety selection
and to amend the safety rating process.
The U.S. trucking spot-market indications have inflected
toward weaker and more normal conditions, but we will see what
the future holds and how that trend continues. Hopefully, as a
result of this meeting and coordinated action taken by the
United States, our trading partners, manufacturers, and supply
chain vendors, our Nation has become resilient and will
continue to be when facing similar conditions of uncertainty.
And again, thank you for your time today, and I look
forward to answering any questions you may have.
[The prepared statement of Mr. Potvin appears in the
appendix.]
Senator Carper. Thank you. Thanks for that testimony and
for joining us today.
Our third witness is Dr. Orit Frenkel. Orit; I have never
met an Orit before. Where did that name come from?
Dr. Frenkel. It actually is Israeli.
Senator Carper. Israeli? Okay; well, good. Welcome.
She is cofounder of the American Leadership Initiative, an
organization founded to advocate for American leadership in
both trade and foreign policy. Orit began her career with the
Office of the U.S. Trade Representative--who was the Trade Rep
when you started working there?
Dr. Frankel. Clayton Yeutter.
Senator Carper. She was a Director for Trade in High-
Technology Products and Deputy Director for Trade with Japan.
Prior to cofounding ALI, she served as the senior manager for
General Electric's global affairs and was responsible for
advising GE on trade and investment policy in Asia.
Dr. Frankel, we are glad you are here. Please proceed. You
have the floor.
STATEMENT OF ORIT FRENKEL, Ph.D., FOUNDER AND CEO,
AMERICAN LEADERSHIP INITIATIVE, WASHINGTON, DC
Dr. Frenkel. Thank you so much to the committee. American
Leadership Initiative really appreciates the opportunity to
testify. Our mission is to put our country and citizens on the
right trajectory for the 21st century, to renew approaches to
trade and foreign policy by strengthening global alliances and
institutions, doubling down on values, and emphasizing
inclusive and sustainable growth at home and abroad.
Current supply shortages have raised awareness of the need
to diversify supply chains and reduce U.S. dependency on
adversarial and unreliable regimes. They have spurred
bipartisan momentum to shore up American competitiveness and
manufacturing, which we see in the bipartisan innovation act,
and we urge the conference to reach agreement and pass this
important legislation.
We should look for ways to streamline supply chains--
including encouraging full implementation of the WTO Trade
Facilitation Agreement signed in 2017--and assist countries to
digitize Customs documentation. Finally, we should explore
eliminating some of our own China 301 tariffs, especially on
consumer goods where they do not compete with American
suppliers.
The supply chain crisis offers the U.S. the unique
opportunity to find the right balance between on-shoring and
right-shoring, and creating sourcing patterns which support our
economic and foreign policy goals.
Friend-shoring is important, especially when moving key
technologies out of China. The effort to coordinate
semiconductor supply chains under the U.S.-EU Trade and
Technology Council, as well as with Japan and Korea, shows how
allies can work together to ensure that sourcing of key
technologies stays in countries that are reliable and share our
values.
Concerns about timely access to certain goods is an
argument for near-shoring. Last week the U.S. launched an
initiative to encourage private-sector investment in the
Northern Triangle countries to encourage economic development
and reduce the incentive for migration.
To expand sourcing in that region, the U.S. must invest in
capacity building to upgrade infrastructure, and expand trade
facilitation. This initiative can be a model for U.S. sourcing
in Africa and the rest of Latin America to counter China's
heavy investment in those regions.
U.S. supply chain policy should be used to advance U.S.
standards. The newly launched Indo-Pacific Economic Framework,
IPEF, has a pillar focused on supply chain resiliency and seeks
to advance labor, environmental, and digital standards in Asia,
giving those countries an alternative to China's regressive
standards.
To expand those sourcing partnerships, the U.S. will need
to, again, invest in capacity building to train workers, raise
standards, and partner with the U.S. private sector. We have
suggested offering IPEF countries that meet key standards a
preferred supplier status, allowing their goods to be expedited
for U.S. Customs.
The Uyghur Forced Labor Prevention Act, going into effect
next week I believe, seeks to ensure that imports into the U.S.
from Xinjiang are not produced with forced labor. This
restriction is leading U.S. companies to find new sourcing
destinations, and is an example of how the U.S. can advance
labor rights and human rights in the supply chain.
Supply chains can also encourage green sourcing. And in a
recent path-breaking agreement on steel and aluminum, the U.S.
and EU agreed to address carbon intensity and overcapacity of
high-carbon steel and aluminum. This arrangement can also be a
model to achieve low-carbon production in other sectors.
China's Digital Silk Road has brought authoritarian digital
standards of surveillance, monitoring, and censorship. The U.S.
must be a standard-setter in the digital space by negotiating
agreements and offering countries its model of transparency,
openness, and democracy.
The U.S. should continue to strengthen relationships with
allies and expand its network of plurilateral arrangements to
create new opportunities for friend-shoring, near-shoring, and
supplier resiliency. Rethinking supply chains offers the
opportunity to build new sourcing paradigms that protect key
technologies, pursue American standards, benefit American
consumers and workers, and advance U.S. values.
Thank you.
[The prepared statement of Dr. Frenkel appears in the
appendix.]
Senator Carper. Thank you, Dr. Frenkel. Thanks for your
presence today. Thanks very much for your testimony.
Finally, Gilman Louie, chief executive officer and co-
founder of America's Frontier Fund--I believe a public-private
partnership created to ensure that America remains the next
wave of technology innovation. Mr. Louie previously cofounded
and served as CEO of In-Q-Tel, a venture capital fund created
to invest in new technologies critical to national security.
Mr. Louie currently serves as a member of the President's
Intelligence Advisory Board, among many other distinctions.
Mr. Louie, it is great to meet you today, and you have the
floor. Welcome.
STATEMENT OF GILMAN LOUIE, CHIEF EXECUTIVE OFFICER,
AMERICA'S FRONTIER FUND, ARLINGTON, VA
Mr. Louie. Thank you, Chairman Carper, Ranking Member
Cornyn, and members of the committee, for inviting me here
today. It is an honor to serve as a witness and to share my
perspectives on supply chain resiliency, national security, and
emerging technologies.
I am the CEO of America's Frontier Fund, a new nonprofit
public-private investment fund focused on deep technologies and
platforms critical to the security and prosperity of the United
States and its allies. I am here in my personal capacity, not
on behalf of the U.S. Government or any of my other
affiliations.
After serving on the National Security Commission on
Artificial Intelligence, I am convinced that the United States
faces a new full-spectrum great-power competition against
nation-states committed to out-investing and out-innovating the
United States.
Our supply chains are vulnerable. We are losing our lead in
technologies, and our future is at risk. We need all of America
engaged in this competition. We need the technologists, the
philanthropists, the investors, the hardworking Americans from
Wall Street to Silicon Valley, and the entire heartland in
between--everyone.
This is the U.S. Government's moment to do what Americans
do best: that is, to lead. The time to act is now. But first we
should ask how we got here in the first place.
The challenges we face today arose from decades of just-in-
time lean manufacturing approaches to incrementally improve
profits while moving our key manufacturing capabilities and
risks offshore. We now have a highly efficient but increasingly
brittle global supply chain. These well-intentioned decisions
by individual corporations created challenges to our economic
security through three market failures.
First, underinvestment in foundational technologies has
stifled innovation and deterred talent in key areas. Second,
countries in East Asia have created artificially attractive
offshoring investment environments. And third, the U.S. has
high barriers to entry for domestic advanced manufacturing.
Take microelectronics as an example. There are only two
leading-edge microelectronic firms globally, and no leading-
edge fabrication facilities domestically, while overseas fabs
are at real risk.
Samsung's fabs in South Korea are within North Korea's
artillery and missile range, and TSMC is producing the vast
majority of cutting-edge chips. Ninety percent of the cutting-
edge chips are produced at TSMC, and it is only 110 miles off
of China's missile batteries.
Today the U.S. risks losing access to critical technology
components that we have used every day. Russia's invasion of
Ukraine highlights the perils of a fragile supply chain. And we
do not want to become Russia if we find ourselves in a future
conflict. Over the long term, we face an even greater risk of
being surpassed technologically by China.
Imagine you are driving along in the Texas hill country and
your GPS suddenly stops working. It is a minor inconvenience.
Unfriendly foreign nations, on the other hand, could shut down
our weapons systems, prevent our planes from flying, cut off
our communications, and inspect our information and our data.
We invite trouble by falling behind our adversaries. The
situation is unacceptable.
Fortunately, there are still reasons for optimism. Threats
create opportunities for revitalization, and now I will propose
a framework with four pillars to move forward.
First, we must reimagine U.S. manufacturing capabilities.
Public funding should be a signal to unlock necessary private
capital, that $45 trillion of American capital sitting could be
invested here in the United States. We need to also expand our
talent pools at all levels of education, not just STEM. We need
the scientists and engineers, but we need the trades, the
skilled labor, the technicians, the plumbers, the electricians,
to rebuild our manufacturing capabilities here in the United
States.
Second, we must invest in promising technology hubs across
America. Five coastal cities have generated 90 percent of the
innovation jobs in the United States over the past decade. But
the next wave of innovation must include more technology hubs
beyond those coasts. There are 35 great technology centers
between the coasts. We need to invest in those centers.
Samsung's new facility in Texas is a step in the right
direction, but there is more to do to unlock the potential of
the American heartland.
Third, we must disclose the risk of investing in
authoritarian nations. It is important that companies and funds
should report to their stakeholders and investors any
partnerships that they have with adversarial nations. I believe
we should add ``d'' for democracy to Wall Street's
environmental, social, and governance criteria to help identify
the material business risks created by investing in an
autocratic nation. Whether a nation commits to democracy and a
rules-based international trading order should shape American
investments for the future.
Finally, we need to deepen our technology engagement with
allies and partners. This means prioritizing friend-shoring and
creating new pathways through the cloud and other coalitions
that are investing jointly in emerging technologies. Just as we
have TSA Precheck for trusted fliers, we need similar systems
for fast-
tracking allies and investors to do business here in the United
States.
In conclusion, we need to solve key market failures by
reimagining U.S. manufacturing, investing in deep technologies,
investing in promising technology hubs across the United
States, redirecting capital to democracies, and deepening
allied engagement.
As this committee considers options for supply chain
resilience and long-term technology leadership, you have an
important role to play. With your leadership, this can be
America's moment. Let's get everyone in this room and across
our great country involved to seize this initiative.
I look forward to your questions. Thank you.
[The prepared statement of Mr. Louie appears in the
appendix.]
Senator Carper. Thank you so much, Mr. Louie. It is great
to meet you, and we appreciate your presence and your
testimony.
One of the things that Senator Cornyn and I--and Senator
Casey, and Senator Cortez Masto, and Senator Young, and Senator
Whitehouse, who was here and is probably coming back--the thing
we focus on is finding consensus on difficult issues, and we
are pretty good at it.
The Committee on Environment and Public Works that Senator
Whitehouse serves on with me, we reported unanimously out of
our committee infrastructure legislation on roads, highways,
bridges, and climate change, unanimously. And we are doing the
same thing on the Rural Water Resource Development Act.
I do not know at the end of the day if we will be able to
find consensus on some of the issues, all the issues that we
are talking about here today, but I wanted to start off by
asking each of you the same question.
When we have a panel this good, this smart, this well-
versed on the issues--what do you think are a couple of areas
where there is just really strong consensus and agreement? In
the Navy, we used to, when we were in training, getting our
training for whatever, doing Naval aviation in a classroom, the
instructor going through stuff that we needed to know, he would
stomp his foot on the issues that we were going to be tested on
and had to really know how to conquer and take care of.
But anyway, what are one or two of the issues where you
think there is a real consensus here from the witnesses that
you would say, ``We agree on this, and you ought to take that
to heart?'' Do you want to lead us off, Mr. Paul?
Mr. Paul. Absolutely, Senator Carper, and thank you for the
question. I think there are a number of things, but let me
highlight two or three.
I think one that you have mentioned specifically--and I
will state it more broadly--is investments in the
competitiveness of our economy. Infrastructure, I think, was a
first step, some of the provisions in the bipartisan innovation
act that look at supporting research and development efforts
and other supply chain resiliency efforts for manufacturing.
Research and development, and not only that but deployment,
which has been the missing part here. If you are just investing
in R&D but you are not investing in producing that in America,
that is leaking tax dollars. I think that is also important.
And I think that we can find consensus on reducing dependence
on adversaries for key goods that have commercial, military,
and other applications that are essential to our future.
I will just give a quick example here: lithium ion
batteries. There is an issue where China has dominated the
market. The government and State-related firms are behind. It
will take a public investment to catch up to that. It is an
energy storage feature of the future, and something that is
going to be in demand. And I think if we focus on some efforts
like that, we can make progress as we move ahead.
Senator Carper. That's good. Thanks.
Mr. Potvin, the same question: consensus. What do you see?
Mr. Potvin. What I am hearing is simply, we cannot be
relying on just a couple of sources providing us goods and
services. The simple fact of the matter is it's based on a free
market, and therefore we need to be able to source goods and
raw materials from other places and not be worrying about
whether there are semiconductor chip plants shut down in a
foreign country, or the simple fact that we are relying on this
company, or that company to provide them.
One thing we like in the third-party logistics industry is
the fact that no one player controls more than 4 percent of the
entire market that we play in. The people have choices. They
can go places. If something should happen, they can go to
someone else and look for it.
So we agree that there is consensus that the near-shoring,
bringing domestic manufacturing back to the U.S., is very
strong. It needs to happen so, again, we are not relying on
single-sourcing, or even double-sourcing a monopoly out there.
So, we do believe that the free market needs to grow and
prosper in that nature.
We also believe in the support of small industries to drive
those types of businesses as well. So again, it is not just the
large companies but again, we are sourcing items from different
sectors of the economy, from different sizes of the economy as
well. The owner-operators, people owning one truck, they
answered the call very strongly and very powerfully when COVID
first came. They were the ones primarily willing to go pick up
the goods during the time of COVID. The larger companies' HR
departments said, ``Hey, wait a second. Let's see where this is
all going.'' So everything we see associated across the
spectrum of the economic providers should also be consensus. We
don't care where it comes from, as long as it comes from a
great place working hard to support the consumers.
Senator Carper. Thank you.
Dr. Frenkel?
Dr. Frenkel. Yes, I am going to agree with Mr. Paul on a
number of things. I think here we need to really increase our
investment in R&D. I think China is really outpacing us in that
investment area, which is scary.
We need to invest in key technologies like semiconductors,
as we see in the CHIPS Act. We need to think strategically
about what we want to friend-shore, near-shore, and on-shore.
We need to think about what key technologies we want to
decouple from China. We need to work with our allies, because
we need to make sure the key technologies, in addition to being
on-shore, are manufactured in countries that are reliable, and
safe, and share our values.
Lastly, we need to give other countries in Latin America or
Asia an alternative to China, and reach agreements with them
that can allow them to be preferred suppliers.
Senator Carper. Thank you.
Mr. Louie?
Mr. Louie. I think we can all agree on what the list should
be of the deep technologies the U.S. cannot afford to lose
leadership position in. We have to continue to lead in
microelectronics. We have to lead in AI and quantum sciences
and advanced manufacturing. We cannot afford to have 5G happen
again to us on the next 6G innovations of important
communications capability. And we need to lead in the
biosciences.
I would also say we can also agree that a dollar invested
in the U.S. is not the same as a dollar invested overseas in
adversarial nations. Those other dollars have significant risks
attached to them. And not only national security risks, but
economic risks. Disclosure should be foundational for where we
need to go to go forward, not just in public companies, but any
public funds that are being used to fund technologies in
adversarial nations.
And finally, I think we all can agree that we need to
actually extend the promise of the innovation economy to all of
America. It cannot just be on the edges of our coasts. It
really does need to involve every American at every level of
education, to move forward not only our ability economically,
but to maintain our national security.
Senator Carper. That's good. Thank you. There is a lot of
consensus here, and that was very helpful, so, thank you.
Senator Cornyn?
Senator Cornyn. Mr. Louie, I wanted to ask you about the
proper balance between outbound investment for the United
States, in terms of its investments in places like China.
You heard me say that in the Intelligence Committee a few
weeks ago we had an expert witness who pointed out that the
market value of U.S. companies' investments in China is roughly
$2.3 trillion. But as we know, China does not play by the
rules. And when it comes to protecting our crown jewels--that
is the balance we are trying to achieve, not to prevent
investment in China or any other place. But we do not want to
give them something we cannot afford to lose.
What is the right balance, in your view?
Mr. Louie. I think your points are well-taken. U.S.
companies invest 100 times more in Chinese companies than China
invests in American companies, to give you a sense of what that
ratio is. I think the right balance here is--we have seen what
took place in the days after the Ukrainian invasion. But
American companies, for the most part, acted responsibly. They
pulled back. They understood the dangers--not just to their
brand, but to democracy--of having continued activity over in
Russia.
I think you need to give American companies the opportunity
to make the right decision. But this is not the U.S. choosing
to decouple from China. China has a date. They have a policy
called Made in China 2025. They set the date. They are going to
decouple. And our investment over there will be at risk.
Now, we are not saying that it is not appropriate in
certain industries for American capital to go to China to build
great products for the rest of the world. Those companies have
to make those decisions for themselves.
But in areas of national security, where the technologies
are political, in determining whether or not our systems are
going to prevail against a competitor, or an adversarial
system, we need to have sharp tools. We need to be decisive.
And an industry needs to be able to get the signal quickly from
government, with precision. We cannot use tools that are blunt.
We cannot have our U.S. industries held back. But at the same
time, U.S. industries have to be responsible not only to their
stakeholders, but to democracy and the American public.
Senator Cornyn. Again for Mr. Louie: we hear nearly every
day about the need for ESG: environmental, social, and
government analysis. Wall Street uses that term, and so do
various companies. But you make an intriguing suggestion that
we need to add a ``d'' to that for ``democracy.''
How would that actually work? I mean, does the U.S.
Government have a role in that? Or are we looking for good
corporate citizens to include that? Or are we looking for Wall
Street to try to do that for us?
It just strikes me as a fascinating idea, but I do not know
how you would implement it.
Mr. Louie. I think a combination of things. So the first
one is disclosure, right? If you are investing capital overseas
in places that are at risk, where a country can simply make a
decision to have a crackdown, and investors could lose 60
percent of their market cap values overnight--American
investors, by the way, American pension funds, American
endowments that are at real risk. So how do you implement an
ESG+D?
The first one is disclosure.
Number two, to educate investors of the risk. Investors
will make good decisions. That is the whole principle of ESG.
It is not about Chinese-style authoritarianism of telling
companies what to do, but trusting our companies to do the
right thing as long as stakeholders have visibility and the
information they need to have good decisions be made.
And finally, having corporate America and Wall Street set
standards. I am a big believer in standard setting, and I think
industry has something to say about that. The ``d'' part, how
much of your capital is at risk? How much manufacturing is
dependent upon another nation that can make your supply chain
brittle? Every investor needs to understand what that risk
factor is.
Senator Cornyn. Thank you very much.
Senator Carper. Thank you, Senator Cornyn.
I will just run through the lineup here. Senator Menendez
was here earlier, so he will be next in line. Senator Grassley
was here earlier. He may be coming back. Senator Casey would be
next after Senator Menendez, followed by Senator Cortez Masto,
Senator Whitehouse, and Senator Young.
So, Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman. Thank you for
hosting this important hearing.
Dr. Frenkel, thank you for hosting me at the American
Leadership Initiative to introduce my Economic Statecraft for
the 21st Century Act. It is a new whole-of-government approach
to confront and compete with China's predatory international
economic policy. Included in my legislation are provisions to
prohibit the export of semiconductor manufacturing equipment to
China, and to direct the State Department to coordinate with
like-minded partners in securing global supply chains vis-a-vis
China.
Last month the President announced the Indo-Pacific
Economic Framework, known as IPEF, one of its four pillars
generally focusing on supply chain resiliency and coordination.
So I see my Economic Statecraft bill and the President's
IPEF as two sides of the same coin, dual efforts to revitalize
the United States' leadership in the global economy.
So, what else do you believe needs to be done to secure our
supply chains around the world?
Dr. Frenkel. Thank you, Senator. It was our pleasure to
host you.
So, I think IPEF is an excellent first start in terms of
U.S. leadership in Asia, setting American standards and
focusing on supply chain resiliency in that region. As I
mentioned earlier, last week the administration launched an
initiative with Latin America to look at standards, et cetera.
And I think it would be great if that would be upgraded to be
more like IPEF, and if we had a stronger initiative with those
countries in our backyard.
As you probably know, China is investing very heavily in
Latin America at this point, buying ports and mines and key
strategic infrastructure. So I think U.S. engagement and trade
agreements with Latin America would be really important.
I think the U.S.-EU Trade and Tech Council is an excellent
initiative, and I think strengthening and doubling down on key
technologies that we want to friend-shore and make sure stay in
countries where we have strong alliances and shared values is
very important.
And that picks up on your point of looking at what
technologies we want to on-shore. Some of those also need to be
friend-shored. So I think that is important.
So to my mind, I think the U.S. engaging in more
plurilateral initiatives like IPEF is going to be very
important. I also mentioned full implementation of the Trade
Facilitation Agreement, which is a WTO agreement that was
signed in 2017. Its implementation was paused for a couple of
years because of the pandemic, and I think fully implementing
that would be very helpful. It is an initiative to help,
primarily, developing countries digitize their Customs
processes and learn how to provide capacity building to them to
really upgrade their supply chain initiatives and Customs
processes.
Senator Menendez. Thank you.
Let me ask one other question further on IPEF. I applauded
the President's leadership on economic engagement in the Indo-
Pacific. I was out there about a month ago, and I heard time
and time again that our presence is important but our
engagement economically is critically important.
It is a good first step towards working with like-minded
allies and partners to set global standards, improve
competitiveness, and strengthen supply chains. However, I,
along with 51 other Senators, sent a letter to President Biden
urging him to include Taiwan in IPEF. Taiwan is a key trading
partner of the United States, one with whom we have a strategic
relationship that is intimately intertwined with our economic
security, particularly as it relates to trade in
semiconductors.
Now, Taiwan was not included in the initial IPEF rollout,
but I am hopeful that the recently announced U.S.-Taiwan
Initiative on 21st Century Trade can result in a bilateral
IPEF-like agreement.
How beneficial would it be for our supply chain security if
Taiwan were extended the same benefits and the same standards
as other IPEF countries?
Dr. Frenkel. I think it would be enormously successful. I
mean, I understand--I mean, Taiwan, as you pointed out, is a
very important trade partner, particularly in semiconductors.
And I think we really should have quite a robust agreement with
them.
I understand the political sensitivity around maybe not
including them in IPEF at this point, and I know that the
administration has to do a delicate dance between supporting
Taiwan, wanting a robust economic relationship with them, and
maybe not alienating, not risking a strong military encounter
with China. But I definitely support strong engagement with
Taiwan and applaud the agreement that was negotiated. And you
know, hopefully maybe one day that would progress into full
inclusion into IPEF.
Senator Menendez. Thank you. I agree. I see Mr. Louie was
shaking his head ``yes,'' I think. I also concur.
Thank you, Mr. Chairman.
Senator Carper. Thank you, Senator Menendez. As the
chairman of the Foreign Relations Committee, he certainly knows
of what he speaks.
Senator Casey, who also knows of what he speaks, is next.
Senator Casey?
Senator Casey. Mr. Chairman, thanks for calling this
hearing. We appreciate your leadership on these issues, and it
is great to be working with you and Senator Cornyn in
particular on the legislation about investment review. I
appreciate the testimony and the presence of all of our
witnesses.
Mr. Paul, a question for you. I was noting the sobering
data in your statement of 90,000 American manufacturing
facilities closing since the late 1990s; as of 2019, China
having 29 percent of global factory output and the U.S. only
17; the loss of 5 million good-
paying middle-class jobs; and on and on. The data is almost
incomprehensible.
And we have to ask ourselves some difficult questions,
especially after the pandemic. I mean, all these questions were
relevant before the pandemic, and even more so in the
aftermath, or what we hope will soon be the aftermath.
The U.S. has ceded manufacturing capacity to other
countries, especially China, and a number of these countries do
not play by any rules. Whether it is PPE shortages, or whether
it is car or smartphone shortages we are facing today, it is
affecting every facet of our economy, and that is resulting in
higher prices, among other causes.
One of my biggest concerns is, we do not even know the
quantum of American capital or innovation and know-how that is
being transferred overseas. That is why we have our critical
capabilities legislation that Senator Cornyn and I spoke of.
We have to find out how much we are relying upon these
foreign adversaries, with regard to the design and manufacture
of goods that are critical to both economic and national
security, and the good news is, we have consensus. We have both
Democrats and Republicans here in the House and the Senate who
are ready to come together on a proposal.
So I would ask you this question about outbound investment.
How does that outbound capital flow, and also the transfer of
the know-how and intellectual property to places like China,
undermine our supply chain resiliency?
Mr. Paul. Senator Casey, thank you for the question. I want
to commend the leadership that you, Senator Cornyn, and others
have provided on this issue. I think it is important, and we
hope it gets across the finish line.
I would say the impact of that investment has an outsized
effect on our abilities in the United States to produce and to
innovate. And it is important for these reasons.
First of all, shareholder interests and national security
interests are rarely ever aligned. In fact, they are often
misaligned. There is just not that ``d'' component, as Mr.
Louie said, that goes into that factor.
Second, when these investments are being made, there is not
a level playing field for them. There is an attraction of state
capital and other incentives in China, many of which are not
supposed to be there because of obligations to the World Trade
Organization. And the compound effect of it is this. We know
from good research that when production moves, innovation moves
as well. And you lose that ecosystem for innovation in the
United States, which is a pressing concern for the industries
of the future.
We also know that, in China in particular, it is subject to
theft and replication, and of building up of national
champions, and then it is used against us in another way as
well. So our companies that have invested there are being
replaced by firms that are national champions, that are either
state-controlled or state-related. And this goes well beyond
what I would call traditional kind of national security
applications, because there is so much civil-military fusion in
China it is almost impossible to disaggregate those.
And so, this type of investment certainly deserves far more
scrutiny than it has. And I hope that a strong provision can be
included in the final bipartisan innovation act.
Senator Casey. Thanks very much, Mr. Chairman. I will give
back 11 seconds.
Senator Carper. All right. Thank you, Senator Casey, very
much.
Senator Cortez Masto, please?
Senator Cortez Masto. Mr. Chairman, thank you to you and
Ranking Member Cornyn for holding this hearing.
It is clear the best way to source and actually secure a
stable supply of resources and goods that not just Nevadans but
Americans need is to make investments domestically. We have
been talking about that.
One of the areas I am curious about your thoughts on--and,
Mr. Paul, let me start with you--is I believe we have to grow
the mining and production of critical minerals and rare earth
materials domestically to secure our supply chains, to lower
prices, and actually create good-paying jobs right here in the
United States. That is one of the reasons why I was proud to
support the Senate version of the U.S. Innovation and
Competition Act, because it did include dedicated funding for
research and development of new technologies for extraction and
processing of minerals.
I am also planning to introduce the Rare Earth Magnet
Manufacturing Production Tax Credit Act, which would create a
new credit for the production of rare earth magnets right here
in the U.S. to help us grow this critical component of our
domestic supply chain and create new jobs.
Investing in rare earth mineral production here at home is
also a matter of national security. And so, Mr. Paul, can you
discuss the importance of investing and growing our domestic
production of critical and rare earth minerals for our national
security?
Mr. Paul. Senator, thank you so much for raising up that
question. I think it is important, and thank you for your
leadership on it.
We have seen over the last couple of decades how vulnerable
we are because of our lack of domestic capacity with respect to
these critical rare earth minerals, from lithium to names that
are hard for anybody to pronounce. But at any rate, the problem
is twofold.
We do not make enough here, and for too much of that, we
are dependent on the supply from China, which obviously can be
weaponized or withdrawn at any time. And an additional concern
is that the way in which some of these rare earth minerals are
extracted around the world is ethically troubling as well.
And so, the more control we have over production and supply
chain, I think the more that aligns with not only our national
security interests, but our values as well. It will take
investment, because we are essentially starting from scratch
again, as you pointed out.
I remember, because I was raised in Indiana, not far from
one of the last rare earth magnet manufacturing facilities in
the United States--and it is hard to incubate new industry.
That requires intent. That requires investments, because there
are lots of capital barriers. And it probably does require some
trade protections as well. In order to do that, there needs to
be, perhaps, a transition period. But we need to ensure that
the utilizers of these rare earths are going to be comfortable
and supportive of building up that domestic supply as well.
So I applaud your efforts, and I think that this is an
essential thing, not only for our national security, but for
the industries we want to build in the future. A lot of these
renewable energies and EVs are going to depend heavily, heavily
on these rare earth minerals.
Senator Cortez Masto. Thank you.
I noticed, Dr. Frenkel, you are also shaking your head.
Anything else to add?
Dr. Frenkel. No. I also applaud your effort. And as you
know, many of these minerals are also critical for our clean
climate initiatives. So if we want to really be able to go
green, it is also essential that we develop domestic
capabilities.
Senator Cortez Masto. Thank you. And, Dr. Frenkel, let me
ask you this: how can we use preferential supply arrangements
to diversify sourcing away from China and Russia?
Dr. Frenkel. So IPEF, for instance, sets out certain
standards. It is looking to raise labor, digital, and
environmental standards. And it gives those countries
opportunities to move away from some of the regressive Chinese
standards. I would like to see some of those countries get
preferential supplier status so their products can be expedited
to the U.S., number one.
Number two, they should be preferred sourcing destinations
for the U.S. When we have countries that meet our standards, we
should really provide incentives for U.S. companies to locate
in countries that meet our standards.
Senator Cortez Masto. Mr. Louie, do you have any comments
on that as well? Thank you.
Mr. Louie. Yes, I agree. As I said earlier in my testimony,
we need to have these fast paths to make sure that we have the
advantage, not just here in the U.S., but with our allies.
I would particularly point out the importance of using
next-
generation technologies for processing of these rare earth
minerals. Many of the rare earths that we actually source here
in the U.S., we actually shifted to China to do the processing.
So this is more than just a theory of what the Chinese could
do.
Ask Japan what happens to rare earth supplies if Japan runs
afoul to the Chinese will. They shut them off. That could be
us. So this investment that we are talking about is an
investment that will have long-term benefits. Those rare earths
are critical for many of the emerging technologies that the
U.S. has to lead in. If we lead in the technologies but we do
not have access to the raw materials, we cannot maintain our
leadership, much less complete our supply chains.
Senator Cortez Masto. Thank you.
Thank you, Mr. Chairman.
Senator Carper. You're welcome. Thank you so much.
Next is Senator Whitehouse. Thanks for coming back.
Senator Whitehouse. Thank you, Mr. Chairman. And thank you
for your kind words about our work on the infrastructure bill.
You were a terrific leader in that, and it is much appreciated.
Rhode Island is facing really significant supply chain
problems. Much of them are in the manufacturing sector. And
some of the things that have been more resilient have been
protected by pretty old-school stuff. So, Rhode Island used to
be the textile center of the universe, and we still have a
vibrant textile industry. And the Berry Amendment requires that
certain defense materials be made here in the United States,
that being various textiles and like that. But it has really
helped us quite well.
So I guess my first point is, the solutions do not have to
be enormously complicated. You can take a Berry Amendment and
do a lot of good with it. And it is really quite easy and
straightforward.
It has also been a launching pad for innovation. We have
something called 401 Tech Bridge, which is an innovative and
smart textile design and innovation function that we work with
the Office of Naval Research on. They will have a lot of very
complex textile needs in the future. And that is supported by
the Rhode Island Textile Innovation Network, which is supported
by the Rhode Island textile community, which is there because
of the Berry Amendment.
So, as we look at exotic ways to improve supply chains,
let's not forget the extremely simple ways to protect supply
chains which work.
Dr. Frenkel, I just wanted to check in with you on--you
have been talking in wonderful ways about our climate
responsibilities--the use of the Defense Production Act to
defend our solar installation industry and to protect battery
materials.
Has that been a good idea? And should we do more?
Dr. Frenkel. I think it is a good idea. I think we need to,
however, use it very selectively. I would not at all advise
widespread use, but only for certain critical technology. And I
do think those technologies are critical for us. I would
support using it.
I just wanted to mention, as you know, we have a government
procurement code for the United States, and our regulations do
specify in general that selling to the U.S. Government,
companies that sell must have a certain percent of U.S. content
in their product. I think it was increased from 50 percent to
75 percent by the administration. I just mention that in
response to your comment about the the Berry Amendment.
Senator Whitehouse. Yes, exactly.
Mr. Paul, should there be an Office of Supply Chain
Resiliency, given that this is a perennial problem? And would
national security effects and choke point concerns be two of
the telltales that the Office of Supply Chain Resiliency should
focus on, look out for?
Mr. Paul. Absolutely, Senator Whitehouse. Thank you for the
question. There should be such an office, and I appreciate your
leadership on that, and I know that there is a version of this
in the House bill of the COMPETES Act as well. I think it is
important for a couple of reasons.
First of all, the Commerce Department does have expertise
in this area and is accustomed to supplier scouting.
And second, I think it is very difficult, given the private
sector in the United States, to provide that kind of
transparency outside of a trusted actor. And so I think that is
important for both early warning signaling and to flag
vulnerabilities, and to also look for market opportunities for
firms that are looking to enter into such things as well. They
may not know that there is an opportunity in a second or third
tier for small and mid-sized manufacturers.
So I think the office would be very, very helpful.
Senator Whitehouse. I will close out with one observation,
which is that an important part of a lot of companies' supply
chains is produce: grain, things that are grown, things that
are caught. And what we have right now is a very significant
hazard to our agricultural production because of climate
change, drought, wildfires, flooding. Cargill has made really
dark estimates of how the Midwestern grain belt will be less
productive, and what that will mean. And that has an
inflationary effect, obviously, because it does not reduce
demand when there is less supply. But it also is a supply chain
problem. Again, I will close by just observing that it connects
to the comments that Dr. Frenkel has made about the need for
energy transition. If we want to ignore the energy transition,
good luck with your agricultural supply chain and good luck
with inflation.
Senator Carper. Senator Whitehouse, thank you very much.
Let me say to our witnesses, Senator Whitehouse and I are
passionate about climate change. We focus on it every day.
Senator Brown and I are passionate about baseball, and our
favorite teams are both American League teams. They are both
American League Central Division teams, and we have a great
time playing--we do not play baseball anymore. We have a great
time talking about it. Among the other things that we are
passionate about is the subject of today's hearing. We are
delighted that you are here.
Senator Brown. Thank you, Mr. Chairman. Thanks for your
flattery of the substance of Senator Whitehouse and the
shallowness of my interests. [Laughter.]
It is always an honor to be in this subcommittee, so thank
you. And thank you, my friend, Sheldon.
Mr. Paul, I want to focus my questions on you and to you,
if I could. Your testimony covers a lot of what we need to do
to undo decades of harm to our economy. We have had these
conversations before. They are crystallizing in so many ways
what we have seen happening, beginning in the 1970s and 1980s.
I used to walk the halls at Johnny Appleseed Junior High School
in Mansfield with the sons and daughters of literally hundreds
of steelworkers from Empire Detroit, autoworkers from GM,
machinists from Ohio Brass, and the children of laborers and
operating engineers and pipefitters and plumbers and sheet
metal workers.
During that period, starting in the 1970s and 1980s, large
corporations lobbied Congress for trade deals and tax policies,
always with their eye on cheaper labor. First, they shut down
production in Mansfield, OH and around, particularly the
Midwest, to go to Alabama, or Mississippi. Labor was not cheap
enough there, so then it was Mexico, passing NAFTA. Then it was
PNTR, going to China.
Ohioans, individually in Mansfield, OH and other places,
paid the price in the form of lost jobs. Communities paid the
price in the form of devastation of their public education
systems and their neighborhoods. And now the whole country pays
the price. Much of the inflation right now is caused, or made
worse, by supply chains that are too spread-out, too long, and
too fragile.
We ask American companies to compete against nonmarket
economies like China that use unfair trade practices. I blame
China for sure, but I blame U.S. companies that betrayed this
country more so, that lobbied this Congress, and the
politicians who went along.
Bank of America has said--and this is pretty amazing--that
stock prices on Wall Street are more likely to go up when we
invest in China's economy than if we invest in America's
economy. That is not some progressive from northern Ohio
talking; that is Bank of America talking.
You mentioned the importance of trade enforcement tools--to
include Leveling the Playing Field 2.0 that Senator Portman and
I had worked on--in the Bipartisan Innovation Act. Expand on
your testimony and tell us why trade enforcement is an
investment in American workers and American innovation.
Mr. Paul. Senator, thank you for the question. It is an
important one. I know it is important to Ohio and to the
workers and the businesses around the country.
Trade enforcement is important because it prevents leakage.
And it provides--one of the principal roles of government is
also to ensure that private-sector firms in the United States
have the opportunity for that level playing field when
competing abroad. They are the advocate for our private-sector
firms abroad.
And so too often, as you indicated, we have seen that
either through trade policy, or through other measures, that we
have lost good jobs. We have lost capacity. This has impacted
our national security. It has impacted the communities,
measurably, in terms of social and economic decline. And the
reason for trade enforcement is that we have to have a rules-
based system that we know our private businesses can count on.
That also sends a market signal to them that if they invest in
the United States, we will stand up to unfair trade practices
that may affect them in our market, in a third market, or with
respect to China or other countries.
The problem has been that a lot of the importers have
figured a way around these laws over the years. They are very
crafty. It is like Whac-A-Mole at the carnival. You know, if
you put one trade enforcement measure up, they will figure out
another way around it through circumvention, or a slight
alteration of the product, as I know you well know. And so, the
Leveling the Playing Field Act 2.0 builds on a bipartisan
effort from 2015 that you and Senator Portman and many others
were engaged in that would provide our government with new
tools to be able to modernize our trade laws to keep up with
this Whac-A-Mole strategy that a lot of the importers who
engage in unfair trade practices have.
I think it is an essential part of competitive legislation,
because we can invest all we want in our domestic industries,
but if we do not have a level playing field for them, those
efforts will be for naught, or the impact of them will be
dramatically diminished.
Senator Brown. Thank you, Mr. Chairman. Thank you.
Senator Carper. Senator Brown, thank you very much.
We have been joined by the chairman of the full committee,
Senator Wyden, who knows a lot about these issues, and whose
State in these issues is incredibly important. So, Senator
Wyden, thank you, Mr. Chair, for joining us.
Senator Wyden. Thank you very much, Chairman Carper. I
think this is an enormously important hearing, and I so
appreciate your taking the lead on the supply chain efforts.
Let me start with you, Mr. Paul. Your testimony highlights
the critical nexus between strengthening American manufacturing
and creating more resilient supply chains. That is just
enormously important.
It is especially true when it comes to clean energy. Our
country needs to put points on the board right now against the
climate crisis. That means investing in clean energy, like
solar power, and bringing manufacturing back to the country so
we are not swapping dependence on Russian and Saudi oil for
dependence on Chinese solar panels.
Now we know the Chinese Government is pulling out all the
stops to run the U.S. solar manufacturers out of business. For
years the Chinese Government and its state-owned enterprises
have cheated and bullied and stolen from our U.S. solar
manufacturers, decimating our domestic industry.
Here is my question to you. You may be familiar with a bill
that we wrote here in this room and the room next door, the
Clean Energy for America bill. This is a bill where we
essentially took the 45 provisions in the Federal tax code and
we threw them in the trash can, and we said, for the future we
would have a technology-neutral private market, and we would
say for the first time that the more you reduce carbon
emissions, the bigger your tax savings. And for 100 years--and
by the way, Chairman Carper was enormously important to this.
Basically everywhere he has gone for over a year, he said this
can be the future: technology-neutral,
private-market, and using incentives to drive down carbon
emissions.
We also have a special focus in the bill on solar
manufacturing. And I especially want to credit our colleagues
from Georgia who were really talking about a different energy
future: Senator Warnock, Senator Ossoff. They would like to
have a different energy future because the South, for reasons
like lacking transmission capacity and others, has not been
able to tap the future.
So we are very serious about promoting solar manufacturing
in this committee, in the United States, in Georgia and Oregon,
and all over the country.
So, tell us what other steps besides Clean Energy for
America--which, by the way, will hit more than 50 percent of
the President's carbon emission reduction target in one fell
swoop. And when you add Senator Carper's methane reductions, we
are more in the ballpark of 70 percent of the President's
target. So this is a high-stakes area.
What else would you do in terms of promoting solar
manufacturing--manufacturing, not just buying panels from
overseas--here in the United States?
Mr. Paul. Senator Wyden, thank you for the question. Thank
you for your leadership on this. I know that you have solar
manufacturing in Oregon. And I want to state the fundamental
problem so that folks are aware of this, that we have seen
solar installations escalate dramatically over the last decade.
We have seen solar manufacturing jobs in the United States
decline slightly over that same period. And so the market share
is dominated by China or pass-through countries where these
Chinese solar panels are coming into the United States.
I think that the fundamental principle--and I think you get
this right--is that the incentives for both installation and
production must be aligned. And so there must be tax credits
for production in the United States, along with the incentives
to install for utilities or residential or commercial. So I
think that is very important.
I think the second important aspect of this is, obviously,
the trade enforcement. And so I do think that we have to take
steps to ensure that Chinese solar panels are not being
circumvented and entering the United States improperly that
way.
And I think the third is this utilization of the Defense
Production Act, which I think is important. It could also spur
procurement. And from a procurement perspective--I know Senator
Whitehouse mentioned this, the Berry Amendment as well--I
think, because of Buy American requirements, that the
government can set an example by purchasing these Made in
America solar panels throughout the Federal Government. And
that is a sizeable public market. And they could also ensure
that grants or loans made to States or some Federal entities
have that linkage as well.
I think those are some concrete steps that could build up
solar manufacturing.
Senator Wyden. My time has expired, and I do not want my
comments directed to Mr. Paul to in any way suggest that our
other three panelists are not making important contributions.
You are doing it. Continue to do it. This issue that Senator
Carper is taking the lead on for the full committee is
absolutely crucial.
So I am going to review your comments, and I thank all of
you.
Senator Carper. Thank you, Mr. Chairman. Senator Wyden
chairs the full committee, and there are more times than the
Senator and I can recall when we have used all of our time, and
he has generously extended additional time to us, so I would
never cut you off, my friend. So, thank you. Thanks for your
kind words and for your leadership of this committee.
Senator Thune, thanks for joining us.
Senator Thune. Thank you, Mr. Chairman, and thanks for
having the hearing. The supply chain challenge is a very real
issue, and thank you all for being here to talk about it.
In early February, Senator Klobuchar and I introduced the
Ocean Shipping Reform Act, which passed the Senate in March,
passed the House on Monday, and is headed to the President's
desk this week. It is a bipartisan bill that provides the
Federal Maritime Commission with new tools to curb unreasonable
or anticompetitive behavior, which we believe will improve
fluidity at our Nation's ports and across the entire supply
chain.
Beyond reforms at the Commission, our Nation's ports are
desperately in need of two things: modernization and
transparency. Failure to invest in terminal automation and port
efficiency initiatives such as data sharing, compounds the
problems that we are facing today and puts the United States
below the global average in vessel wait times, which is why my
legislation also includes provisions to improve the movement of
freight across the supply chains.
Mr. Potvin, do you believe that increased data sharing and
better utilization of technology would help to mitigate
inefficiencies in our Nation's ports?
Mr. Potvin. I believe data analytics and data generation to
be very helpful across the board, especially in dwell times
when you have ships there and it is taking longer and longer to
unload. We notice from the report, we are looking at close to 7
days, when it used to be 5 days dwell time turnaround on a
ship, at times going on for weeks.
Sharing data across the ports would allow for the movement
of vessels into different ports to utilize capacity for the
dray carriers to make sure they are ready to move the products
quicker from the ports to the consumers in the United States.
So, sharing of data analytics, sharing of visibility, of
transparency, of where your cargo is, can be very helpful to
get the goods moving sooner and quicker in the process.
Senator Thune. Thank you.
Mr. Paul, outside of ports, where are you seeing the most
significant strain on the manufacturing supply chains?
Mr. Paul. Senator Thune, thank you for asking that
question. A lot of this is related to inventory misalignment.
And we have seen that in particular with respect to
semiconductors. And the challenge essentially is that our
domestic capacity on semiconductors is quite limited.
Our domestic consumption of semiconductors is quite high.
Asian customers, where many of these semiconductors are
produced, obviously are first in line for this, and also, you
know, it is an ocean away. And so, I think efforts to invest in
additional domestic capacity in critical commodities like that
that are involved in so many aspects of our daily life are
going to be essential.
So I am hopeful that the Bipartisan Innovation Act can
include some provisions that would be of value there, because I
think essentially, the more control we have over our supply
chains, I think the better off we are going to be in terms of
that type of inventory management. Because we have seen it,
from cars to semiconductors to smart appliances; it is a real
vulnerability. And so, taking steps to identify where we can
and should be producing more in the United States is something
that I think is a valuable use of the Senate's time.
Senator Thune. The baby formula shortage has shown a need
to look at supply chain failures and how to prevent this kind
of a public health crisis from happening again. Obviously there
are a number of factors at play, but one of the largest is the
FDA's inability to anticipate the shortage and to ensure
sufficient production was up and running, which is sort of
incomprehensible to determine how we got to this point in the
first place.
But it has been a major crisis, I think as everybody knows,
for American families. And I think the administration has been
far too slow to respond. The administration finally encouraged
overseas manufacturers to ship formula to the United States,
easing regulations that had effectively prevented shipments
from many of those companies.
Now there is a lot of talk about re-shoring and supply
chain resiliency. This crisis has shown that the importance of
having strong economic relationships with other countries is
just absolutely critical.
So let's ask Mr. Potvin how important it is for America's
supply chain to maintain and strengthen the free flow of goods
and services with trusted nations? And are there particular
tariffs or regulatory barriers that Congress should consider to
better streamline baby formula imports, to better protect food
security?
Mr. Potvin. Senator, thank you for the question. I am not a
real expert on the subject matter of the nature you are talking
about, but I do know the free flow of goods is a requirement--
you know, the near-shoring, bringing it back to the United
States. One thing I do know, we have got to take into
consideration one of the most essential workers in this space:
the American truck driver.
The American truck driver needs to be protected to make
sure there are enough of them. So we appreciate the
infrastructure, the 3-year pilot program for the 18- to 20-
year-olds to go across interstate lines as opposed to
intrastate. We also believe that there needs to be some type of
safety mechanism to take the bad actors off the road so we can
drop the insurance costs the motor carriers are paying to help
them also to continue to operate in this type of economy with
the fuel prices going up.
Again, it is about the American truck driver. We can do all
this bringing manufacturing back, but the fact of the matter
is, we need trucks on the road and drivers in those seats to
make sure the goods get moved. You may be able to bring them to
the port, you may bring them in to manufacturing, wherever you
may be, but without that American truck driver and the third-
party logistics industry being able to move those goods across
the country, it is not going to matter.
We need to take a serious look at the fuel prices, look at
insurance, look at driver wages, making sure that we are
competitive in nature so that we can supply the goods that the
consumers need.
I apologize that I can't answer the question you had,
Senator, but I just wanted to share that with you.
Senator Thune. Yes; thank you.
Very quickly, as the chairman is trying to wrap up here,
Dr. Frenkel, this has to do with the Indo-Pacific Economic
Framework. It is nonbinding, and it may have potential, but it
just seems that enforceable market access commitments in
particular would help lower costs for consumers, increase pay
for workers, and build more reliable supply chains.
So, could you talk for a moment about how enforceable
market access commitments benefit supply chain resilience for
producers and consumers?
Dr. Frenkel. Yes; thank you for the question. I think the
administration was hesitant, or did not want to launch a market
access agreement in the classical sense because I think there
was a lot of concern about the reaction and the lack of support
in the public, and in certain sectors of Congress, about that.
So I think what they have launched is a positive first step
forward. I do hope, in the fullness of time, that this could
evolve into a market access agreement. And I do think that in
offering market access to countries, we're looking to them to
make very significant concessions in certain areas, and it is
important that we be able to offer incentives for them to do
that.
It is also equally important that we be able to get better
access into their markets. So I think what the administration
is doing with IPEF is important. And as I said, I do hope, over
the fullness of time, that it can evolve into a more
traditional market access agreement.
Senator Thune. I would just offer, Mr. Chairman, in
wrapping up, that if the United States does not have a
meaningful market access presence in the Indo-Pacific, I think
that China very definitely can threaten our supply chain
priorities in that area. I think that is a concern. And as we
think about that region and particularly what I think is a very
weak agreement, a lot more needs to be done in terms of
tangible solutions that actually do offer market access for our
exporters and hopefully give them an incentive to join us in
some of these deals.
Thank you, Mr. Chairman.
Senator Carper. Thank you, Senator, so much for joining us,
and I would have extended even more time to you. So, thanks for
coming.
I think Mr. Potvin talked a little bit about truck drivers,
and I could not agree with you more. I would also note,
Delaware actually happens to be a State where there are more
Amtrak employees who live in Delaware than any State in the
country. So trains are important to us.
I was reminded of this statistic: you can move a ton of
freight by rail from Washington, DC to Boston, MA with 1 gallon
of fuel. It is pretty impressive--1 gallon of fuel.
Okay. We have about 2 dozen more questions and we will wrap
it up. It will not last that long, but are you guys okay for a
couple of more questions? Thanks. You are doing a great job, by
the way, so thank you.
My first question would be for Mr. Potvin, if I could. In
your testimony you noted over the last couple years that supply
chains, and this is a quote: ``bent but never broke.'' And that
is thanks to the resilience and flexibility of companies like
Trinity Logistics in the face of systemic supply chain
weaknesses both here and across the globe.
We need to find out what works and do more of that. I
always say that. I say it probably once or twice a day; find
out what works and do more of that. Over the last couple of
years, how has the private sector innovated in response to the
supply chain crisis? And how can policymakers like us in this
body work with logistics operators and other private-sector
stakeholders to strengthen our supply chains moving forward,
Mr. Potvin?
Mr. Potvin. Senator Carper, I appreciate the question. We
have seen over the last 2 years a lot of movement on the
domestic manufacturing side. We saw companies such as Costco,
Home Depot, Walmart, Ikea, actually charter or buy their own
ships to make sure they could get their goods moved.
We have seen manufacturers change packaging and adopt
better ways to transport their goods at lower costs for them;
innovation and greater visibility in supply chains through
technology so that people can see where their goods are moving,
or tracking on these trucks so that they could see every 15
minutes where that carrier was, what they needed to do, if the
carrier got stopped, immediately to think about shipping
another order out to make the needs met.
Better technology through the matching of our carrier
capacity with the shippers in the various locations--so again,
better visibility so we could move that motor carrier, send
that motor carrier to get that load, less dead-head miles for
you, less fuel being consumed as well.
We saw a lot of manufacturers move from a business-to-
business model to a business-to-consumer model; changing their
technology, getting more into the e-commerce to meet the needs
of the individual consumer who is staying home and not being
able to make it out to the store.
They altered their manufacturing production location to be
closer to the raw material they could get their hands on, to
make sure, again, they are supplying their product. They took a
lot of risk, but they wanted to make sure their consumers'
demands were met that way.
We have seen a lot of innovation around data analytics and
data generation, transparency, and efficiencies that led to
increased productivity and additional savings of that nature.
If we were to take the technology and share data, as Senator
Thune was indicating, among the ports, among the shipping lines
so that goods could be rerouted, moved from where congestion
was happening, or ports were shut down or something, a natural
disaster--real-time visibility, real-time communication to move
and react in a situation, to share data across the board in a
safe and secure way.
We talked about the innovation of smaller fleets and the
owner-operators. The simple fact is, they were the first ones
to return when production started to pick up. They were hungry
for money, hungry for loads. And the simple fact of the matter
is, they moved quickly to make sure that the goods kept moving.
We need to make sure that the goods continue to flow across
interstate lines, and certainly we want to just look at a way
of making sure that the government promotes interstate shipping
and not get hung up in the intrastate government issues to make
sure the goods flow across this country and do not get stuck in
State laws.
Senator Carper. Mr. Potvin, thank you. Thank you for all of
that.
I would ask Mr. Paul another question, if I could. It is a
question dealing with government coordination of supply chains.
One challenge in addressing supply chain issues is that the
U.S. Government does not effectively track supply chain
vulnerabilities before they become a full-blown crisis.
A provision under consideration in the so-called China
competition bill led by our friend, Delaware Congresswoman Lisa
Blunt Rochester, would authorize a new office in the Department
of Commerce to monitor and also to respond to supply chain
gaps.
My question would be for you, Mr. Paul. How can greater
government oversight and attention to supply chain challenges
improve economic resilience and support domestic manufacturing
in critical industries?
Mr. Paul. Senator Carper, thank you for the question. And I
have had the opportunity to tell the Representative herself
that we strongly support this provision. We do hope it becomes
part of the final Bipartisan Innovation Act, and we appreciate
your support for it.
I think that it is important to have an office in the
Commerce Department tracking this because, again, this is not
something where the--it is going to take a public-private
partnership.
Businesses are reluctant to share supply chain information.
Many times they view it as proprietary information. I think
having a trusted actor, at least to be able to understand what
some of the vulnerabilities are, is going to be critically
important. And I would add, in my experience in working with
the Manufacturing Extension Partnership as part of the
Department of Commerce, I know that there are many State
affiliates of this--including one that serves Delaware--and
that suppliers' scouting and the ability to identify
manufacturers are important. And so it is important not only to
understand what the vulnerabilities are, but also what the
opportunities are.
If there are supply chain weaknesses, or large OEMs who
say, ``I can't find a third-tier supplier, I can't find a
second-tier supplier,'' this type of supplier scouting can be
valuable in seeking out new market opportunities for small and
mid-sized firms that don't have massive marketing or sales
staffs that can seek this out.
And so I think that can be helpful as well. And so I am
hopeful that as part of this innovation package, this becomes a
piece of it. Because this is one of the most helpful things for
the small and mid-sized firms in particular: to be part of
opportunities in the future and to help contribute to supply
chain resiliency.
Senator Carper. All right. Well, I am hopeful and will pass
on your kind words to our Congresswoman.
Dr. Frenkel, if I might, on medical product supply chains,
COVID-19, as we know, has laid bare serious concerns about our
medical product supply chains. We need to work with partners
around the world as we attempt to put this pandemic behind us
and to ensure that we are better prepared for the next one that
we know is coming somewhere down the line.
Senator Cornyn and I sent a letter to the President, about
a year ago, in which we urged the administration to reduce
barriers in order to help shore up these supply chains.
So my question is, Dr. Frenkel, what measures would you
recommend that Congress and the administration consider to
strengthen medical product supply chains?
Dr. Frenkel. Thank you. I think--and I have to say, I am
not an expert on medical supply chain issues, but I think, just
in general, there are things that we can do, as you mentioned,
to reduce barriers.
Number two, obviously we need to decide which products we
want to either on-shore or near-shore. I know that many of
those products are now coming from China and elsewhere, where
they are, again, more subject to the shutdowns in Shanghai and
political issues and things like that.
I think we need to offer, for things that are really
critical--we need to offer incentives to manufacture here. I
read, for instance, that at the height of the pandemic the U.S.
offered incentives--since all our PPE tends to be imported, we
offered incentives to manufacture masks in the United States,
and a number of companies invested based on that and started
producing masks. But then, after those incentives went away,
hospitals started buying cheaper masks from China again, so a
number of those facilities actually had to close down, even
though they had made significant investments.
So I think we need to think long-term. You know, we cannot
just be thinking short-term, like you give an incentive but
then you need to sustain it if you want to have that capacity
the next time that a pandemic rolls around.
I think also in terms of near-shoring, again some of the
textile companies in Central America are interested in
potentially producing PPE, but again, they need support to do
that.
So I think we need to look critically at the supply chain,
decide what things are really important to manufacture in the
U.S., manufacture close by, and for those things that we are
still importing, we need to reduce trade barriers and
facilitate trade.
Senator Carper. For somebody who did not know much about
medical product supply chains, that was pretty good.
[Laughter.]
I have another one. I want to ask you one more question, if
I could. This one deals with environmental standards and supply
chains.
I serve as the chairman of the Committee on Environment and
Public Works, and serve with a couple of people who have been
here with us today, including Senator Whitehouse. But we have a
heightened interest on that committee in the intersection of
trade and the environment, as you might imagine.
Dr. Frenkel, in your testimony you noted that rethinking
our supply chains can encourage green sourcing, or procuring
goods and services in a more sustainable way. I am heartened by
the recent agreement between the U.S. and the EU to decarbonize
steel and aluminum production. And my question would be this:
moving forward, what other opportunities exist to make our
global supply chains more environmentally sustainable?
Dr. Frenkel. Well, one thing that I would strongly support
is the reopening of the environmental goods negotiations.
During my time at GE, I spent a lot of time--the company had
many green products, from wind, solar, other batteries, and I
was very involved in those negotiations, which actually got
quite far. But they stopped, came to an abrupt stop in 2016
when the administration did not support trade or environmental
issues.
But I think it is time to really reopen that. I would
advise expanding it beyond environmental goods to include
environmental services, which I think are very important. You
know, one of the main stumbling blocks to completing the
negotiation during the first time around was the inclusion of
China. I think it probably makes sense this time around not to
include China. And you know, that would probably necessitate it
not being a WTO agreement, which I think would really
facilitate completing it. And I think we should do a
plurilateral agreement with as many countries as possible to
lower tariffs on as many----
Senator Carper. Did you say ``plurilateral''?
Dr. Frenkel. Correct.
Senator Carper. I have been a Senator a long time. I do not
think I have ever heard a witness use that word.
Dr. Frenkel. Okay; sorry.
Senator Carper. There is a first for everything.
Dr. Frenkel. Sorry about the jargon. Multilateral, you
know, is like everybody. Plurilateral is maybe more like IPEF.
IPEF is a plurilateral agreement.
So I think we need to do an agreement with as many
countries as we can get onboard for environmental goods and
services to really promote and facilitate cheaper and easier
trade in those products and services.
Senator Carper. Okay; thank you. I have one last question I
am going to ask each of you. The first question I will ask each
of you is, where did you find there was consensus amongst the
four of you?
And the last question that I am going to ask is, what is a
question you wish you had been asked but were not asked? So
think about that.
And while you are thinking about that, Mr. Louie--I like
saying your name. Mr. Louie knows that one of my favorite songs
as a kid growing up had his name in it two times, ``Louie,
Louie.'' And so, I am grateful for that great memory. And also
for your responses. Here is one more opportunity for you to
respond, and that would be on cybersecurity and the supply
chain, something you know a little bit about, I am told. As a
senior member--actually as the former chairman of the Senate
Committee on Homeland Security and Governmental Affairs, I know
the nexus between trade and national security is a policy area
that requires our attention.
Over the past several years, we have seen a rise in state-
sponsored cyberattacks, including those on our supply chains.
My question is this, Mr. Louie: what steps should the Federal
Government take proactively to reduce cybersecurity
vulnerabilities in supply chains? And how can information
sharing between the private sector and the Federal Government
help identify potential weaknesses in our critical supply
chains?
Mr. Louie. That is a great question. One of the critical
tools we have is, we have some great agencies that do a great
job in protecting the U.S. Government. CISA is a great
organization. But you need to think about that umbrella of
protection to extend to our commercial companies and our
critical infrastructure beyond those that are government-
related.
And when we think about supply chains--particularly helping
companies understand their third-party risks that could be
exposed because the third-party suppliers do not have the tools
necessary, typically smaller companies--we need to do the kind
of cyber-
protection necessary to protect those chains. It puts at great
risk not just our smaller companies, but some of our most
important systems. So that umbrella of protection needs to be
broader. We need to have better information sharing. I think
the Solarium report had some terrific recommendations. But we
have to move beyond the recommendations and into
implementation.
We need a public-private solution that has larger companies
being willing to help the smaller companies and the industry
partners to make sure that they are secure. The Chinese and the
Russians have particularly attacked the supply chain. I do not
need to attack the U.S. Government if I can attack the
companies that the government depends on. And we need to,
again, extend that umbrella of protection.
Senator Carper. Around here we have the opportunity to
change leadership of subcommittees and committees, depending on
who is in the majority and who is not, who stays, who retires
and leaves and goes on to do other things. And about 7, 8, 9
years ago, it was announced that I was going to be--a new
Congress was about to start, and I was going to be the chairman
of the Homeland Security and Governmental Affairs Committee.
There was a wonderful article in, I think, The Wall Street
Journal that talked about the changes in leadership in the
different committees. It mentioned the Homeland Security
Committee and said I was going to be the chair for the next 2
years at least of Homeland Security. And the article went on to
say that I was the Senate's expert on cybersecurity.
I cut the article out, and I brought it home, and I showed
it to my wife. I said, ``Honey, look at this. It says I am the
Senate's expert on cybersecurity now.'' I will never forget
what she said. She said, ``In the land of the blind, the one-
eyed man is king.'' [Laughter.]
So we all need somebody to keep us in our place, I suppose.
I am not an expert, by any stretch of the imagination, on
supply chains, but thanks to all of you, I am a good deal
smarter than I might have been a couple of hours ago, and we
will hopefully continue to build on that going forward.
Now the question that I want each of you to answer for me.
I will start with you, Mr. Louie. Can you think of a question
that you would like to have been asked but were not asked?
Mr. Louie. The question I would have loved to be asked is,
how does a reimagined U.S. advanced manufacturing
infrastructure change the way we think about supply chains?
Senator Carper. That's great. Thank you.
Dr. Frenkel, is there a question you might like to have
been asked?
Dr. Frenkel. Sure. Two quick things. One is, you know we
talked a lot about investing in manufacturing and R&D. I think
we really need to invest in our people, and I wish that we had
been asked about that.
Secondly, I think we really need to invest in and reform
the WTO. We should not forget that, and I think we should have
been asked about that.
Thank you.
Senator Carper. Very good. Thanks.
Mr. Potvin?
Mr. Potvin. Well, I had hoped I would be asked, ``Are you
glad to be here today?'' [Laughter.]
And the answer would be ``yes.'' This is my first time
here, and it is an absolutely humbling experience and a
pleasure to be here.
Senator Carper. It is humbling to do this kind of stuff, a
couple of guys from Delaware.
Mr. Potvin. It is. It is. Honestly, I think for me--and
again, my colleagues here are much more learned in the space of
the wider scope of the supply chain. I think for me is the
question simply, how do we ensure that the goods, wherever they
come from, wherever they are manufactured, can be delivered the
best way with efficient operations? How do we pull those
resources together to make sure that happens? That would have
been the question.
Senator Carper. Thank you so much.
Mr. Paul?
Mr. Paul. Senator, thank you. I think the question that I
would have liked to have been asked is, is there hope? Because
my testimony laid out a number of dire, I think, data points
that should be very concerning. And I will answer it briefly,
if you don't mind, with your indulgence.
I do think there is hope. And I will just give an example.
I remember seeing you just a couple of months ago at the
Department of Transportation as they unveiled the electric
vehicle charging network grants through the infrastructure
bill, which I know you led on. And I think that is the perfect
example of how public policy can drive investment in the United
States towards secure, important supply chains, and it is just
having that intent. So, yes, I do think that there is hope.
Senator Carper. That is great. There is a reason and a
method to my madness. One of the things that we do is, after
this hearing we will send you questions for the record, as you
may or may not know. And somewhere in my notes it says--let me
just get this straight--for Senators who wish to submit
questions for the record, those questions are due 7 days from
today. We will assemble those questions.
Our witnesses will have 45 days--that is a long time--to
respond to any questions for the record. And we are going to
use those questions, among others, to follow up with you. So
you will have a chance to respond to those questions.
I think most people who do not have the opportunity to sit
in a room like this, or watch a hearing on television or over
the Internet, they think all we do here is fight among
ourselves--we don't work together, we never get anything done,
we never take on difficult and challenging issues.
And I hope today would be an antidote to those perceptions.
We like each other, for the most part, and we like working
together, and that includes across party lines. The stakes are
pretty high on the issues we are discussing here today. Lincoln
used to say that the role of government is to do for the people
what they cannot do for themselves.
Another one of my favorite witnesses was a fellow who, not
long ago--he's from Wyoming, a good friend, Senator John
Barrasso. And he had been nominated for a post in the last
administration at the Department of the Interior, and he said,
``Bipartisan solutions are lasting solutions''--bipartisan
solutions are lasting solutions. And that is what we work
toward. We do not always succeed, but that is what we work for.
So, you have given us a lot to work with. And for that, we
are deeply, deeply grateful.
We have a member of our team who is sitting right behind
me. Her name is Noami Zeigler. She will not be sitting back
there next week. She has accepted a position to go to work for,
I want to say OMB? Is that right?
Ms. Zeigler. Yes, sir.
Senator Carper. OMB. And she will not have my back like she
has for the last several years. We are going to miss her, and
we wish her Godspeed as she leaves from this place.
Thank you all. It was great to be with all of you--and
especially those whose name is Sarah. I look forward to seeing
you back in Delaware. And you can bring your husband with you
and your other colleague.
And with that, it is a wrap. We are concluded. Thank you.
[Whereupon, at 5:02 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Hon. Thomas R. Carper,
a U.S. Senator From Delaware
Good afternoon. It's my pleasure to call today's hearing before the
Senate Finance Subcommittee on International Trade, Customs, and Global
Competitiveness to order.
Thank you to our witnesses for joining us to testify today, and a
special ``thank you'' to our ranking member, Senator Cornyn, and his
team for working with our staff and with me to plan this hearing
focused on supply chain challenges, an issue that continues to
frustrate folks across our country and around the globe.
Today's hearing will be a chance to examine why supply chain
bottlenecks have developed since the onset of the pandemic, and to look
at what kind of policies might improve the long-term resiliency and
security of our supply chains to prevent these types of shortages in
the future.
Now, there may be some folks out there who've heard about supply
chain problems, who might know they have something to do with how we
keep our economy moving--but who don't know just what we mean when we
say ``supply chains.''
Here's what we're talking about: supply chains include every step
of the process to manufacture a product and move it from point A to
point B--sometimes halfway across the globe--to get goods from your
wish list to your doorstep.
One of the reasons why I'm eager to address these issues at today's
hearing is because Americans are eager to address these issues. In
2022, the effects of supply chain challenges aren't some distant policy
issue to folks at home. Americans are seeing it play out in empty
shelves at their local grocery store that once held baby formula, in
gifts delayed and delivered weeks after a birthday has passed, or in
new cars and technology they've saved up for years to buy but can't
find on the market.
About a month ago, the week before Mother's Day, I went to my local
Rite Aid pharmacy to pick up a card for my wife Martha. And at a store
where we've shopped for years--with a huge selection of anniversary
cards, birthday cards, holiday cards, you name it--I walked up and
found an entire Mother's Day card section empty. I found an employee
and asked what was going on, and she said this year Mother's Day cards
never even made it to the store. This is just one example of the supply
challenges happening all across our country. And Americans want to know
how we can get back on track.
So today, we will explore how we got to this point, and what we can
do to ensure that we're better prepared in the future. I've long
believed that one of the jobs of policymakers is to create a nurturing
environment for job creation and economic growth--and one key to
maintaining that nurturing environment is improving the dependability
of our supply chains. And while we know that the tremendous supply
chain backlogs we are seeing today come largely from the economic shock
of the pandemic, many systemic vulnerabilities existed long before
COVID.
Fundamental weaknesses in our global logistics systems are the
result of a
decades-long focus on supply chain efficiencies, just-in-time
manufacturing, and a reliance on foreign adversaries for a wide array
of goods. The result is a system so brittle and fragile that it cracked
under the pressure of the worst pandemic we've endured in over 100
years.
But in adversity lies opportunity, and these challenges present a
great opportunity for us to rethink how we move goods across the globe
and create a system that better serves the American people. That starts
with investing in our own critical infrastructure. And I'm proud--as
I'm sure every member of this committee is--that we have already taken
steps through the Bipartisan Infrastructure Law to improve the
efficiency of our ports and make our roads and bridges safer. However,
it's clear that infrastructure investments are only one piece of the
puzzle.
Another piece is expanding domestic investment in the technologies
we rely on--from semiconductors to renewable energy products--so that
we don't find ourselves relying on a foreign adversary or jeopardizing
our national security for the sake of a supply chain. At the same time,
we can create jobs and support American manufacturing--a win-win. A
good place to start is the ``China competition'' legislation currently
being reconciled between the two chambers of Congress. And I commend
our friend, Senator Cornyn, for his leadership in supporting chips
funding in that bill.
And while domestic investment is a key part of shoring up our
supply chains for years to come, we also have to focus on a fundamental
principle central to the supply chain discussion: working together with
our global partners. And as leaders of this subcommittee, Senator
Cornyn and I have repeatedly called for greater U.S. economic
engagement and leadership across the globe, especially in the Asia-
Pacific region.
By reaching out to our allies, bringing more nations into a shared
economic framework, we can improve the security and resiliency of our
supply chains--leading to a wider range of products and lower costs for
American consumers. That's part of the reason why I was happy to see
President Biden announce the start of an Indo-Pacific Economic
Framework--to bring more good-faith trading partners into a stronger,
fairer global economy and create even more diverse, resilient supply
chains.
Ultimately, building secure and flexible supply chains will require
both economic cooperation with our allies across the globe, and more
strategic investments in critical industries and workers here at home.
So today, we look forward to hearing from our witnesses with
respect to their insight on solutions to these challenges--so that the
next generation of American families won't have to worry about empty
shelves and higher prices. We'll be ready for what's to come.
Once more, let me thank our ranking member and the witnesses
appearing before us today. And with that, I'd like to turn it over to
Senator Cornyn for his opening statement.
______
Prepared Statement of Hon. John Cornyn,
a U.S. Senator From Texas
Thank you, Chairman Carper, for working with me to organize this
hearing on such an important and timely topic. And thank you to our
witnesses for joining us--both virtually and in-person.
This subcommittee continues its work in exploring the geopolitical
benefits and consequences of America's trade policy with the world and,
in particular, our foreign adversaries such as China and Russia.
The topic of resiliency in critical supply chains is an important
one, as the COVID-19 pandemic awakened us to our dependence on the
concentration in foreign adversaries of the goods we need in a time of
crisis. We must reinforce the rules-based, international trading system
for those nations that at least attempt to abide by it through free
trade agreements like the Comprehensive and Progressive Trans-Pacific
Partnership.
The administration's Indo-Pacific Economic Framework is a positive
first step in that direction. But we cannot play games with our
Nation's survival by outsourcing the crown jewels to nations like China
that have weaponized our free market system against us.
Nearly 20 years ago, our government opened the door to do business
in China, and our industries did what they do best--found a market,
captured it, and achieved efficiency and innovation. What we have
learned since is that the Chinese Communist Party, not its people,
perverted that goodwill through theft and control to achieve a
strategic advantage. Our own people in homegrown industries suffered as
a result.
Now we must all come together--labor, business, and government--as
one Nation and put past disputes, jurisdictions, and political contests
aside to find the right balance in preserving our critical supply
chains while continuing to trade with the people of China. That
includes providing incentives, like the CHIPS for America Act I
authored with Senator Warner, to bring semiconductor production back
home.
It means reducing the regulatory burdens on American businesses
that want to thrive in our domestic and foreign markets that abide by
the rules-based international trading system. And it means having an
honest look and conversation about the problems at hand.
For example, a few weeks ago at the Senate Intelligence Committee,
I heard from a former Trump administration official who highlighted
that U.S. financial investments in Chinese-domiciled companies totaled
over $2.3 trillion in 2020.
Former National Security Advisor H.R. McMaster recently stated:
``Last year, venture capital firms invested $114 billion in Chinese
companies that are developing dual-use and sensitive technologies that
are going to be weaponized against us or already are aiding and
abetting the Russians.''
I believe that it is time we had an honest conversation about the
role that American investment has played in building the Chinese
economy, especially in the area of critical supply chains and our over-
reliance on those supply chains, in areas such as semiconductors.
The first step in doing that is granting the U.S. Government the
authority to have visibility into U.S. investments in the supply chains
of foreign adversaries through the establishment of an interagency
committee, led by the President, that provides a whole-of-government
approach in responding to Chinese economic coercion. That means, at a
minimum, mandatory notification and circulation of investments by
recipients of taxpayer funds designed to compete with China, such as
those envisioned in the Bipartisan Innovation Act and the CHIPS for
America act. This will serve as the basic guard rail to protecting
those taxpayer funds.
Yesterday, I released a revised version of the National Critical
Capabilities Defense Act I co-authored with Senator Casey and my House
colleagues that responded to industry feedback and does just that. I
look forward to hearing more from industry in the coming days on that
legislation and this topic from today's witnesses.
We have before us Mr. Louie, who comes from the intelligence
community, to provide us with a national security perspective.
Mr. Potvin, I believe your intimate knowledge of the supply chain
and logistics backlogs will be of great importance.
Dr. Frenkel, your experience in government will help us to
understand the rules-based international trading system and what our
agreements will mean moving forward.
And, Mr. Paul, you bring valuable insight from a coalition of both
the labor and manufacturing industry.
I look forward to hearing your testimony and questions to follow.
______
Prepared Statement of Orit Frenkel, Ph.D., Founder and CEO,
American Leadership Initiative
The American Leadership Initiative (ALI) appreciates the
opportunity to testify before the Senate Finance Committee's
Subcommittee on International Trade, Customs, and Global
Competitiveness on the important topic of supply chain resiliency.
ALI's mission is to put our country and citizens on the right
trajectory for 21st-century realities. We champion a holistic vision
that: embraces a long-term alternative to populist isolationism that
undermines American interests; strengthens and reforms our global
alliances and institutions; doubles-down on our shared American values;
addresses climate change collaboratively; and demands inclusive and
sustainable growth--at home and abroad.
This hearing's topic is extremely important and timely, as we have
witnessed waves of shortages over the past few years, from toilet paper
to bicycles, from semiconductors to baby formula. These supply chain
shortages, spurred by a variety of factors, including the pandemic,
Russia's invasion of Ukraine, and lockdowns in China, have led to a
bipartisan momentum to shore up American competitiveness and encourage
U.S. manufacturing. national security concerns about China, combined
with Russia's invasion of Ukraine, have raised awareness of the need to
reduce U.S. supply chain dependency on these autocratic regimes.
In late February, the White House released a plan \1\ to revitalize
American manufacturing and secure critical supply chains. This policy
shift towards restoring American competitiveness and manufacturing,
providing important funding to expand U.S. semiconductor production,
and constructively working with allies to address the China challenge.
is also seen in the United States Innovation and Competition Act
(USICA) \2\ and the House-passed America COMPETES Act \3\ of 2022. ALI
applauds both these initiatives and urges the conference to reach
agreement and pass this critical legislation. The U.S. should also look
for ways to streamline its import processes where possible, including
exploring whether to eliminate some China 301 tariffs on consumer goods
where they don't compete with domestic suppliers.
---------------------------------------------------------------------------
\1\ https://www.whitehouse.gov/briefing-room/statements-releases/
2022/02/24/the-biden-harris-plan-to-revitalize-american-manufacturing-
and-secure-critical-supply-chains-in-2022/.
\2\ https://www.congress.gov/bill/117th-congress/senate-bill/1260.
\3\ https://www.congress.gov/bill/117th-congress/house-bill/4521.
Fully implementing the Trade Facilitation Agreement is an important
step to streamline import and export processes globally. This
agreement, which entered into force in 2017, specifies that technical
and financial support should be provided to developing countries to
help them implement the provisions to streamline their customs
procedures. Implementation has been delayed over the past couple of
---------------------------------------------------------------------------
years due to the pandemic and should now be expedited.
USICA includes several important provisions to facilitate the
diversification of supply chains and facilitate the onshoring of
critical manufacturing, and the Congress should consider funding to
support these initiatives.
Having stable and secure access to critical products like
semiconductors or medical equipment is essential to both the U.S.
economy and national security. This crisis offers the U.S. an
opportunity to think strategically about our economic and foreign
policy goals and recreate our supply chains to support those goals.
Current trade tensions with China provide an ideal time to begin
reevaluating our trade policies with partner countries to strengthen
those relationships and build more resilient supply chains.
Not everything can be produced in domestically, and the U.S. should
strive to find the right balance between onshoring and right-shoring
global supply chains to achieve a range of foreign policy goals.
Different solutions will work for different sectors, so it is important
to consider the particular needs of each one when looking at supplier
diversification.
As Treasury Secretary Janet Yellen said recently in her comments to
the Atlantic Council, ``friend-shoring'' of supply chains to trusted
countries allows us to securely extend market access and lower the
risks to our economy, as well as to our trusted trade partners.\4\
Friend-shoring is an important part of supplier resilience, especially
when moving sourcing for key technologies out of China. The effort to
coordinate semiconductor supply chains under the U.S.-EU Tech and Trade
Council, as well as efforts to coordinate with Japan and Korea, are
important examples of how allies can coordinate moving sourcing of key
technologies out of China and keep these technologies within countries
that share U.S. values.
---------------------------------------------------------------------------
\4\ https://www.atlanticcouncil.org/news/transcripts/transcript-us-
treasury-secretary-janet-yellen-on-the-next-steps-for-russia-sanctions-
and-friend-shoring-supply-chains/.
Concern about the ability to access certain goods quickly is an
argument for turning to countries closer to the U.S., such as Canada
and Mexico, to allow for ground shipment and eliminate port delays.
This near shoring can also be used to encourage growth in developing
countries that have strategic importance. The Biden administration has
initiated a program \5\ to encourage private sector investment in the
Northern Triangle--El Salvador, Guatemala, and Honduras--with the goal
of spurring economic development to reduce the incentive for migration
from those countries to the United States. This program engages the
State Department, USAID and other agencies to support U.S. companies
looking to invest or source there.
---------------------------------------------------------------------------
\5\ https://www.whitehouse.gov/briefing-room/statements-releases/
2021/05/27/fact-sheet-vice-president-harris-launches-a-call-to-action-
to-the-private-sector-to-deepen-investment-in-the-northern-triangle/.
For companies wanting to relocate textile manufacturing from
Xinjiang, the Northern Triangle countries are an option to explore. To
make the Caribbean and Central America an sourcing attractive
destination for near shoring, the USG must invest in additional
capacity building to upgrade infrastructure, facilitate investment
---------------------------------------------------------------------------
financing and invest in expanded trade facilitation programs.
Supporting sourcing in countries of strategic interest is an
important tool to counter China growing global footprint. The
administration's Northern Triangle initiative can be a model for
supporting other developing countries, notably in Africa and Latin
America, to counter China's heavy investment in those regions. Such
sourcing investments not only strengthen our economic relationships,
but also our national security by bring jobs and investment and
creating stronger relationships in those regions.
The Indo-Pacific Economic Framework (IPEF), launched earlier this
week, is also a key tool in the U.S. supply chain strategy. In addition
to strengthening U.S. leadership in Asia, it has a pillar focused on
supply chain resiliency that will help the U.S. work with regional
allies to ensure that key supply chains are reliable and secure.
U.S. supply chain policy should be used to advance U.S. standards,
especially labor, environmental and digital standards. The IPEF
framework seeks to advance those standards in Asia and provide
countries a vital alternative to China's regressive standards.
To fully develop new sourcing partnerships, the U.S. will need to
invest in capacity building to train workers, provide assistance in
raising standards, and partner with the U.S. private sector to
facilitate these countries becoming new sourcing destinations. ALI has
suggested offering IPEF countries who meet key standards in the
framework, a ``preferred supplier'' status, allowing their goods to be
expedited through U.S. customs.
Investing in digital trade facilitation as part of IPEF and in
other countries the U.S. sourcing destinations, is an important tool to
reduce Customs bottlenecks. The U.S. should assist these countries to
transition to e-invoicing, as well as to implement digital rules of
origin, sanitary phytosanitary certificates, and other digital customs
documentation to expedite the customs process, as well as reduce
opportunities for corruption.
In December, President Biden signed the Uyghur Forced Labor
Prevention Act,\6\ which bans imports from Xinjiang and seeks to ensure
that goods produced wholly or in part with forced labor in other areas
of China do not enter the U.S. The law also calls on the United States
to lead international efforts to end forced labor practices around the
globe and to coordinate with Mexico and Canada to implement the USMCA
prohibition on importing goods produced by forced labor into the three
countries.\7\ This prohibition on imports produced with forced labor
creates a necessity for U.S. companies to find new sourcing
destinations with higher labor standards and is an important example of
how the U.S. can advance labor rights and human rights through supply
chain regulations.
---------------------------------------------------------------------------
\6\ https://www.congress.gov/bill/117th-congress/house-bill/6256/
text.
\7\ https://ustr.gov/trade-agreements/free-trade-agreements/united-
states-mexico-canada-agreement.
A rethinking of supply chains can encourage green sourcing as well.
In a recent path-breaking agreement on steel and aluminum, the United
States and the European Union agreed to address carbon intensity and
overcapacity of high-carbon steel and aluminum. This arrangement is
meant to discourage the production of high-
carbon steel and aluminum and ensure domestic policies to lower the
carbon intensity of these industries, and it could be a model for the
---------------------------------------------------------------------------
U.S. to achieve lower-carbon production in other sectors.
U.S. leadership on digital standards is of critical importance. As
China's Digital Silk Road \8\ has expanded, it has brought
authoritarian standards of surveillance, monitoring and censorship with
the Internet and telecommunication equipment it sells. The U.S. must be
a standards setter in the digital space and offer countries its digital
model of transparency, openness and democracy or risk ceding this
critical space to China.
---------------------------------------------------------------------------
\8\ https://www.cfr.org/china-digital-silk-road/.
The U.S. should continue to strengthen constructive relationships
with allies as well as expand its network of plurilateral arrangements
to create new opportunities for friend shoring and supplier resiliency.
Rethinking supply chains also offers the opportunity to emphasize trade
facilitation, align standards, and strengthen near shoring in the
Western Hemisphere to create economic opportunity and build new
resilient sourcing paradigms that benefit American consumers and
---------------------------------------------------------------------------
workers, as well as advance American values.
______
Questions Submitted for the Record to Orit Frenkel, Ph.D.
Questions Submitted by Hon. Thomas R. Carper
Question. We talked a lot about investing in manufacturing, but our
economic strength also depends on investments in our workers and
families.
What investments should we make in our people, as part of our
effort to build resilient supply chains and a fair and well-functioning
economy?
Answer. The most important step that the U.S. can take is to invest
more in educating its children and workforce. As the American
Leadership Initiative discusses in its report, A Global Digital
Strategy for America,\1\ increasing automation and digitization across
the economy means that more jobs are require digital skills, a trend
that will continue to accelerate. A deep digital divide that drives
economic inequality is undermining American economic competitiveness.
This divide is especially profound in rural America, among communities
of color, and other disadvantaged communities. As of 2021, Pew Research
Center reported that roughly a quarter of adults with household incomes
below $30,000 a year do not own a smartphone. And more than 4 in 10
don't have home broadband services or a computer. This reality
increases U.S. economic inequality, leaving the U.S. unable to harness
the full potential of its human capital, and weakening U.S. global
competitiveness.
---------------------------------------------------------------------------
\1\ https://static1.squarespace.com/static/
5c9904eaebfc7f03f980b72a/t/60341bbf7245f02766f5c99b/1614027711334/
ALI++GDSA++Full+Report++Rev+02.22.21.pdf.
The Bipartisan Infrastructure Law allocated money for universal
broadband, which is an important first step, however this needs to be
matched with comprehensive digital skills training, starting with K-12
schools, community colleges, and company training programs. It is
especially important that these trainings be available to underserved
---------------------------------------------------------------------------
communities in the U.S.
The U.S. ranks near the bottom among OECD countries on public
spending on labor market programs as a share of GDP; and the trendline
is headed in the wrong direction. During the past 15 years, the
Department of Labor's (DOL) budget for grants to States to support job
training programs has fallen by more than half after counting for
inflation. Worse, the past several decades has seen steady declines in
private-sector investment in workforce training--with a falling share
of workers receiving on-the-job or employer-sponsored training. The
U.S. should provide incentives for companies to expand their training
programs, especially for underserved communities. We should also
significantly increase federally sponsored apprenticeship programs,
which have been shown to be effective training for all levels of
workers.
Question. What reforms should we make at the WTO to strengthen
supply chain resiliency and improve global economic cooperation?
Answer. The United States should work with the EU, Canada, Japan,
and other allies to reform the WTO to be more relevant to today's
economy, including negotiating tougher rules on subsidies and state-
owned enterprises, and reforming the dispute resolution system so that
it can function. The WTO plays an important role in the international
trading system, setting basic standards of trade and promoting global
economic cooperation. However, it is unlikely, given the size and
diversity of economies of its members, that parties will successfully
conclude significant multilateral agreements in the near term. The WTO,
should use and is using its convening power to draw attention to the
underlying causes of supply chain disruptions. In 2022, the WTO held a
Global Supply Chains Forum to discuss the role it can play in
strengthening global supply chains. In addition to its monitoring
function, the Director-General noted that the WTO can contribute by
enhancing trade facilitation, supporting the quick clearance of goods
at borders and promoting further liberalization of trade in transport
and logistics services to bolster supply chain infrastructure.
At the same time, the U.S. should continue to seek to negotiate
agreements with countries that are like-minded and willing to uphold
agreed upon standards and values, in order to strengthen supply chain
resiliency, particularly for key technologies.
The WTO Trade Facilitation Agreement was completed in 2017 and is
focused on upgrading and digitizing customs processes for signatories,
especially in the developing world. Full implementation will go a long
way to streamlining supply chains.
______
Prepared Statement of Gilman Louie, Chief Executive Officer,
America's Frontier Fund
Chairman Carper, Ranking Member Cornyn, and members of the
Subcommittee on International Trade, Customs, and Global
Competitiveness, thank you for inviting me to testify on the important
topics of supply chain resiliency, national security, and emerging
technologies.
My name is Gilman Louie, and I am the CEO of America's Frontier
Fund, a new nonprofit public-private investment fund focused on deep
technologies and platforms critical to the security and prosperity of
the United States and its allies. Before I begin, I should note that I
am offering these remarks in my personal capacity. I am not speaking on
behalf of the U.S. Government, the President's Intelligence Advisory
Board, or any other organizations with which I am affiliated.
The United States is in a new full spectrum great-power competition
against peer nation-state competitors committed to out-investing and
out-innovating the United States. We can no longer take our supply
chains for granted, nor can we assume continued U.S. technology
leadership. We need a whole-of-nation approach to aligning public- and
private-sector incentives that address the root causes of our eroding
global leadership, secure our critical supply chains, and catalyze the
next generation of innovation.
Before looking for solutions, we must first ask how we reached this
point. The truth is, the challenges we face today arose from decades of
supply chain optimization, just-in-time manufacturing, and fractional
improvements in cost savings and profitability. The result has been a
highly efficient but increasingly brittle global supply chain. These
well-intentioned decisions by individuals and corporations have created
a systemic challenge to our economic security centered on three market
failures:
1. Decades of underinvestment in foundational technology
startups have stifled innovation and deterred talent in key sectors.
2. Other countries, especially in East Asia, have created an
artificially attractive offshore investment environment.
3. The U.S. has high barriers to entry and challenging economies
of scale for domestic leading-edge manufacturing.
Microelectronics offers a case in point for understanding these
three market failures.
Underinvestment in hardware: For the past 3 decades, U.S. venture
capital investment has heavily skewed towards software development
rather than hardware advancements, leading to a lack of access to
capital for domestic chip startups. In 2021, U.S. venture capital
investment in hardware startups was just $9 billion. By comparison
nearly 14 times the investment went to software, or $124 billion.\1\
Chinese venture investment in microelectronics tripled from 2019 to
2020.\2\ And last year, microelectronics startups in China received six
times the amount invested in comparable U.S. firms.\3\ This makes
investing in a U.S. hardware company less attractive, which partially
explains the skewed investment in software.
---------------------------------------------------------------------------
\1\ ``National Venture Capital Association 2022 Yearbook.''
National Venture Capital Association, March 2022, nvca.org/wp-content/
uploads/2022/03/NVCA-2022-Yearbook-Final.pdf, pg. 28.
\2\ Lu, Shen. ``Chinese Chip Companies Raised a Record $11 Billion
in 2021.'' Protocol, 2 March 2022, www.protocol.com/bulletins/china-
chip-funding-11-billion; as a comparison, entrepreneurs in China
launched 22,800 new semiconductor companies, in 2020 up 195 percent
from 2019. See Ravi, Sarah. ``Taking Stock of China's Semiconductor
Industry.'' Semiconductor Industry Association, 13 July 2021,
www.semiconductors.org/taking-stock-of-chinas-semiconductor-industry.
\3\ Liu, Coco. ``China Venture Funding Hits Record $131 Billion
Despite Crackdown.'' Bloomberg, January 9, 2022, www.bloomberg.com/
news/articles/2022-01-09/china-venture-funding-hits-record-131-billion-
despite-crackdown.
Artificially attractive overseas investment environment: U.S. firms
recognized it is cheaper and faster to establish microelectronics
manufacturing centers offshore, especially in East Asia. Without the
funding proposed in the U.S. Innovation and Competition Act (USICA),
the 10-year total cost of ownership of a fabrication facility (fab) in
the United States is 30-50 percent higher than in East Asia.\4\ And
during the same period, U.S. industry invested $14 billion in
electronics manufacturing projects in China. For comparison, China
invested only $141 million in similar projects in the United States.\5\
The Chinese government has also translated its position as a low-cost
manufacturing hub into strategic advantage. China often requires that
joint ventures with foreign manufacturing firms must establish
operations in China. This in turn grants local Chinese firms access to
foreign IP.\6\ China has also flooded the market with capital for
strategic technology sectors and manufacturing. In exchange for access
to China's market and low-cost manufacturing, firms from the U.S. and
our allies have deferred investing in manufacturing at home in favor of
the cheaper and readily accessible market in China. This shifts the
cost burden for manufacturing and other high capital expenditure
projects from U.S. and allied shareholders onto the Chinese Government.
---------------------------------------------------------------------------
\4\ Varas, Antonio, et al. ``Government Incentives and US
Competitiveness in Semiconductor Manufacturing.'' Boston Consulting
Group and Semiconductor Industry Association, September 2020, https://
web-assets.bcg.com/27/cf/9fa28eeb43649ef8674fe764726d/bcg-government-
incentives-and-us-competitiveness-in-semiconductor-manufacturing-sep-
2020.pdf, pg. 1.
\5\ U.S. Department of Commerce and U.S. Department of Homeland
Security. ``Assessment of the Critical Supply Chains Supporting the
U.S. Information and Communications Technology Industry.'' U.S.
Department of Commerce, February 24, 2022, https://www.commerce.gov/
sites/default/files/2022-02/Assessment-Critical-Supply-Chains-
Supporting-US-ICT-Industry.pdf, pg. 72.
\6\ Bradsher, Keith. ``How China Obtains American Trade Secrets.''
The New York Times, January 15, 2020, https://www.nytimes.com/2020/01/
15/business/china-technology-transfer.html.
High barriers to entry and challenging economies of scale: In
recent years there has been a drastic increase in the cost, complexity,
and time to introduce, develop, and scale new semiconductor
technologies.\7\ This is in addition to the rising capital expenditures
and R&D intensity required to remain competitive. Only two firms in the
world--Taiwan Semiconductor Manufacturing Corporation (TSMC) and South
Korea's Samsung--can currently fabricate leading-edge logic chips. Of
significant concern is the location of Samsung's semiconductor
fabrication facilities in South Korea within North Korean artillery and
missile range.\8\ Similarly, TSMC produces the vast majority of
cutting-edge chips, a mere 110 miles from China, our principal
strategic competitor.\9\ Proposed Federal incentives in USICA would
help mitigate the cost of locating a fab in the United States.\10\ But
additional measures are necessary to make the United States an enduring
home for advanced manufacturing. The lack of coordination between
Federal, State, and local regulations are making it difficult to on-
shore advance manufacturing capabilities such as fabs. For example, it
takes approximately 5 months longer on average to build a fab in the
United States compared to Japan, in large part due to permitting.\11\
---------------------------------------------------------------------------
\7\ As an example, complexity--as measured by number of process
steps--is roughly double for a 5 nm chip compared to a 10 nm chip.
``CMC Materials Investor Presentation.'' CMC Materials, December 2020,
s23.q4cdn.com/881970339/files/doc_presentations/2020/12/CMC_Investor
Presentation_Dec_2020_FINAL.pdf, slide 11 .
\8\ Mazarr, Michael, et al. ``The Korean Peninsula: Three Dangerous
Scenarios.'' The RAND Corporation, 2018, https://www.rand.org/content/
dam/rand/pubs/perspectives/PE200/PE262/RAND_PE262.pdf, pg. 9.
\9\ National Security Commission on Artificial Intelligence, Final
Report, March 2021, https://www.nscai.gov/wp-content/uploads/2021/03/
Full-Report-Digital-1.pdf, pg. 3.
\10\ Varas, Antonio, et al. ``Government Incentives and US
Competitiveness in Semiconductor Manufacturing.'' Boston Consulting
Group and Semiconductor Industry Association, September 2020, pg. 1.
\11\ VerWey, John. ``No Permits, No Fabs.'' Center for Security and
Emerging Technology, April 1, 2022, https://cset.georgetown.edu/
publication/no-permits-no-fabs, pg. 5.
Today the U.S. is at risk of losing access to the critical
technology components that we rely upon every day. This impacts
everything from our personal communications devices to our Nation's
defense systems. Russia's invasion of Ukraine highlights the peril of
depending upon supply chains that can be severed by an adversary.\12\
The United States has rightly responded to Russian aggression by
imposing sanctions designed to eliminate Russia's access to the
technological goods that are critical to a diversified economy as well
as Vladimir Putin's ability to project power. By blocking key
technology imports--including semiconductors--in coordination with the
European Union, South Korea, Japan, Taiwan, and others, the United
States is bringing Russia's technological development to a screeching
halt. The cautionary tale here is that we must continue to innovate and
protect our supply chains, otherwise another nation may one day do the
same thing to us. We must do whatever it takes to avoid a future
scenario in which the United States can be cut off from key
technologies by an authoritarian regime such as Russia or China.
---------------------------------------------------------------------------
\12\ Inboden, William, and Adam Klein. ``A Lesson from the Ukraine
War: Secure Our Semiconductor Supply Chains.'' The Hill, May 22, 2022,
https://thehill.com/opinion/technology/3494860-a-lesson-from-the-
ukraine-war-secure-our-semiconductor-supply-chains/.
Over the long term, we face an even greater risk of being surpassed
technologically by China. This situation is unacceptable. We face a
renewed era of great-power competition in which the primary
battleground is ``winner-take-all'' technologies. We have never failed
as a Nation to answer such a challenge, whether in war or in peace. I
am encouraged this committee is taking a leadership role to address
---------------------------------------------------------------------------
these urgent issues.
Fortunately, there are still good reasons for optimism. The threats
to our national security and economic competitiveness that I have
described are also creating opportunities for revitalization in the
United States and allied nations. Addressing underlying market failures
and securing supply chains over the long-term can be the catalyst to
grow our domestic manufacturing industry, create high-paying jobs, and
deepen our security and economic partnerships with allies around the
world. I'll now offer a framework with four pillars for tackling these
problems.
First, we must redesign and reimagine U.S. manufacturing
capabilities. Bringing advanced and agile manufacturing home means
producing goods closer to consumers. This transition would lower
transportation costs while accelerating the product design and
manufacturing cycle. What we need is public funding to act as a signal
to investors, along with credits for trade and investment. These are
important tools to unlock the necessary private capital. We also need
to expand our talent pool at all levels of educational attainment, from
knowledge workers to trade skills. Plumbers, electricians, and
construction workers are all critical enablers for our R&D and capacity
investments.
Second, we must invest across America to promote promising tech
hubs. Currently, five coastal cities have generated 90 percent of the
innovation sector's growth over the last decade.\13\ But the next wave
of innovation must be broader than Silicon Valley and include more
technology hubs across the country. Samsung's announcement of a $17-
billion semiconductor fabrication facility in Taylor, TX is an
excellent example of what is possible.\14\ The FinTech Innovation Hub
under construction at the University of Delaware is another example of
a promising center of excellence.\15\ These are steps in the right
direction toward creating new hubs but there is more work to do to
unlock the potential of places like Delaware, Texas, and the American
heartland.
---------------------------------------------------------------------------
\13\ Atkinson, Robert, and Mark D. Muro. ``The Case for Growth
Centers: How to Spread Tech Innovation across America.'' Brookings,
March 9, 2022, https://www.brookings.edu/wp-content/uploads/2019/12/
Full-Report-Growth-Centers_PDF_BrookingsMetro-BassCenter-ITIF.pdf, pg.
23.
\14\ Sayers, Justin. ``Taylor Has Annexed 1,200-plus Acres for
Samsung Site.'' Austin Business Journal, January 26, 2022, https://
www.kxan.com/news/texas/taylor-has-annexed-1200-plus-acres-for-samsung-
site/; ``Samsung Electronics Announces New Advanced Semiconductor Fab
Site in Taylor, Texas.'' Samsung, January 24, 2022, news.samsung.com/
global/samsung-electronics-announces-new-advanced-semiconductor-fab-
site-in-taylor-texas.
\15\ Weir, Polly, et al. ``UD Requests $6.5M from State for FinTech
Fit-Out.'' Delaware Business Times, April 1, 2022, https://
delawarebusinesstimes.com/colleges-and-universities/ud-requests-6-5-
mfrom-state-for-fintech-fit-out.
Third, we must disclose and internalize the risk of investing in
authoritarian nations. As the sanctions on Russia have shown, U.S.
firms investing and operating in nondemocratic nations face material
business risks. Wall Street is increasingly applying Environmental,
Social, and Governance (ESG) assessments to guide investment decisions,
identify growth opportunities, and identify material risks. Building on
the ESG framework, I believe it is important to add ``D'' for
``Democracy,'' or ESGD. Whether a nation is committed to democracy and
a rules-based international trading order should shape firms'
investment decisions. Firms should also report on resiliency as a
measure of supply chain effectiveness for risk committees. Ultimately,
additional transparency would raise the cost of capital for investing
in authoritarian nations and make investing in democratic nations more
---------------------------------------------------------------------------
attractive.
Finally, we need to deepen our engagement with our allies and
partners on emerging technologies and supply chains. We cannot become
resilient on our own. Reshoring the entire supply chain for
microelectronics--just one of several critical industries--would cost
$1 trillion. We need to prioritize ``near-shoring'' and ``friend-
shoring'' with our allies. As we work together with our allies on
supply chains, we should also create new pathways for investing jointly
in emerging technologies. Coalitions will be vital forums for pooling
capital and creating new networks of democratic investors. The U.S.-EU
Trade and Technology Council, the Quad Security Dialogue, and AUKUS
will play a key role. In addition to increasing disclosure and vetting
requirements for our competitors, we must also make it easier for
trusted partners to invest in the United States. Just as we have
developed TSA Pre-Check for prescreening fliers, we need a similar
system to make it easier for allied investors to do business in the
United States. Such a program would allow us to fast-track joint
ventures, technology partnerships, and transactions with allies and
like-
minded democracies. These types of programs will make more capital
available for re-shoring and near-shoring, while also building support
for restricting truly sensitive technologies from being transferred to
our competitors. In my role as a Commissioner on the National Security
Commission on Artificial Intelligence, we submitted several
recommendations to Congress and the President aligned with these
goals.\16\
---------------------------------------------------------------------------
\16\ National Security Commission on Artificial Intelligence, Final
Report, March 2021, https://www.nscai.gov/wp-content/uploads/2021/03/
Full-Report-Digital-1.pdf, pg. 495.
In conclusion, we must target solutions against three market
failures: underinvestment in foundational technologies, an artificially
attractive offshore investment environment, and high barriers to entry.
We must reimagine U.S. manufacturing, invest in promising tech hubs
across America, redirect capital from autocracies to democracies, and
deepen allied engagement. As the subcommittee considers policy tools
for improving supply chain resiliency and long-term technology
leadership, you have an important role to play in improving our
national security while generating economic growth, creating good jobs,
and reinforcing the rules-based international system. The time to act
---------------------------------------------------------------------------
is now.
______
Questions Submitted for the Record to Gilman Louie
Question Submitted by Hon. Thomas R. Carper
Question. How does a reimagined advanced manufacturing
infrastructure in the United States change the way we think about
supply chains?
Answer. The return of advanced manufacturing infrastructure back to
the United States will generate immense economic and national security
benefits. Manufacturing closer to the point of consumption reduces our
reliance on long supply chains across thousands of miles that include
competitors and risks of disruption. By bringing manufacturing back to
the United States, we can also develop new digital tools and advanced
clusters of infrastructure that will enable agile, tailorable, and
scalable manufacturing.
This return will ultimately create a virtuous cycle of innovation
and improve supply chain resilience. Economically, clusters of advanced
manufacturing in regions across the country will expedite the product
design cycle and accelerate the pace of innovation. In addition,
shortening the distance between producers and consumers reduces both
transportation costs and emissions.
To realize this vision requires public funding coupled with tax and
trade credits. These actions are critical because investors will
perceive them as positive signals that will unlock private capital.
Simultaneously, steps must be taken to expand workforce skills at all
levels. Opportunities from construction to operation and maintenance of
facilities will require an increase in our talent pool across every
region of the country and every educational attainment level. Building
and operating advanced manufacturing facilities across the country will
create good, high-paying jobs in growing industries.
Finally, the United States still requires cooperation with U.S.
allies and our partners, even under a new paradigm for advanced
domestic manufacturing. Cooperation and trade among allies and partners
will lower costs and further increase resilience across all inputs to
the supply chain.
______
Questions Submitted by Hon. Sherrod Brown
Question. In your opening testimony, you said that ``five coastal
cities have generated 90 percent of the innovation sector's growth over
the past decade.'' You also acknowledged that there are ``35 great
technology centers between the coasts'' that we should be investing in.
Ohio is an example of the potential for growth-driving innovation in
the American heartland. In January, for example, Intel announced a $20-
billion investment to build a semiconductor plant in New Albany. This
will leverage Ohio's expertise in manufacturing and the skilled
workforce graduating from the State's colleges and universities.
Could you please explain and elaborate on the importance of
investing in innovation between the coasts, in States like Ohio?
Answer. Competition and diversity are critical to U.S. economic
competitiveness. The U.S. Government should foster an environment in
which innovative startups in all parts of the country are empowered to
develop new products, create new categories, and grow into global
industry leaders. A thoughtful combination of policies and incentives
can reduce the barriers to entry for startups, especially companies at
the cutting edge of deep tech sectors. Such an approach would
accelerate and expand innovation in industries critical to U.S.
leadership.
As the National Security Commission on AI (NSCAI) highlighted in
its final report, the current practice of clustering technology firms
in regions like Silicon Valley has created dynamic and globally
competitive industries. However, this trend has benefited some regions
and demographics more than others. For example, there are untapped
reservoirs of highly capable talent across the country in emerging
centers of technological excellence. We have a massive opportunity to
harness the best and brightest across America to lead the next
generation of deep tech innovation. Existing regional clusters, outside
of the coastal cities in places like Ohio, are on the cusp of becoming
world-class innovation hubs. They are supported by public and private
capital, incubators, university and lab networks, and shared tools and
services. The creation of new jobs in a wider swath of the country will
also help these hubs reach their potential and bolster U.S. economic
competitiveness.
As a specific example, there is a tremendous opportunity in Ohio to
capitalize on Intel's recent announcement, the expertise of the Air
Force Research Laboratory, and the Ohio State University's world-class
faculty in radiation-hardened microelectronics. Combining these key
ingredients with government support, industry partners, and private
capital is an ideal ecosystem to develop and scale the next generation
of trusted radiation-hardened microelectronics for advanced defense
systems.
Question. The House-passed America COMPETES Act, currently being
conferenced, includes the CHIPS for America Act that I co-sponsored
with Senator Portman. This bill will make a once-in-a-generation
investment in American science, technology, and innovation.
How does the CHIPS for America Act help the U.S. preserve its
competitive edge? Getting the CHIPS for America Act signed into law is
critical to both addressing the current chip shortage and supporting
American competitiveness in the future, and it's essential that we get
this legislation to the President's desk for his signature as quickly
as possible. Can you please share what a delay in passage of the CHIPS
Act could mean for domestic semiconductor chip manufacturers and those
industries that rely on its products?
Answer. Fully funding the CHIPS for America Act is a critical step
toward bolstering our U.S. economic competitiveness and national
security. Computational power is the foundation of the technology stack
which underpins all emerging technologies. Therefore, microelectronics
are at the heart of the competition to design, prototype, and scale
advanced technologies, including AI, 5G, biotechnology, and advanced
energy systems. The CHIPS Act provides an opportunity to increase
domestic innovation by accelerating the pace of hardware development,
lowering barriers to entry for hardware startups, and creating new
talent clusters throughout the country. Implemented effectively, it
will create a lab-to-fab pathway for new capabilities in
microelectronics and related technologies while also increasing the
resilience of the domestic semiconductor supply chain.
As Senator Cornyn has pointed out, we should act quickly to
mitigate the risks we face today. If the U.S. were to lose access to
the advanced semiconductors we import from East Asia in a single year,
our GDP could shrink by 3.2 percent and we could lose 2.4 million jobs.
In a scenario where the United States is cut off from advanced
microelectronics, the estimated GDP loss would be $718 billion.
Compared to the chip shortage last year, this could be roughly three
times larger than the estimated $240 billion in lost U.S. GDP. In the
event we no longer had access to advanced chips for 3 years, we would
lose more than $2 trillion of U.S. GDP and over 5 million jobs. In
total, this would mean a GDP loss of over 9 percent and an employment
loss of 3.5 percent.
Even if the U.S. is not cut off from importing advanced
semiconductors, our lack of domestic capabilities for prototyping and
scaling microelectronics presents a risk to our long-term economic
competitiveness. Innovation is the key to future capabilities and the
United States faces a lab-to-fab capabilities gap. While I am pleased
to see Congress pass CHIPS Act funding, passing this legislation is
just the beginning. We must ensure the money is spent swiftly and
wisely. We must utilize this funding to target the most strategically
important sectors of the microelectronics industry and unlock private
capital to further leverage U.S. capital markets.
______
Questions Submitted by Hon. Todd Young
Question. Over the years, China has dominated the market for rare
earth elements, creating a global over-reliance on one country for
refined products. As you can imagine, this creates major pitfalls as it
relates to our national security.
In your opinion, what strategies should the U.S. be focused on to
reinvigorate our supply chain for critical minerals in order to prevent
a single point of failure should China economically weaponize its share
of the market?
Answer. Rare earths and related supply chain inputs such as noble
gasses are the building blocks for developing advanced technologies.
Without resilient access to these key supply chain inputs, the United
States is allowing the future of its technological development to be
controlled by other nations. The United States needs a multi-pronged
strategy to reinvigorate our supply chain for critical minerals focused
on friend-shoring, reshoring, innovation, and domestic stockpiling.
In the short term, we must work with our allies and partners to
ensure more resilient supply chains for rare earth mining, processing,
and magnet production in nations outside of China. Allied nations such
as Australia is home to mining industry leaders and we should deepen
our cooperation in strategically important areas. Over the longer term,
we should also prioritize onshoring rare earth mining and processing.
However, onshoring will take time, which highlights the need for
friend-shoring in the near term.
China's substantial market share in rare earth minerals extraction
and processing is partly due to its willingness to pay the high
environmental costs associated with this industry. With greater Federal
support for innovation and R&D in this sector, the U.S. and its allies
can work towards cleaner approaches to mining and processing that would
make domestic mining more attractive and environmentally sustainable.
R&D at all stages of the mining value chain could also enable smart
mining and processing for rare-earth deposits in the United States,
including Alaska, Nevada, and Arizona. For example, innovative new
techniques for surgical mining and multiple extractions could enable
every molecule to be used rather than extracting and processing a
single target with the rest lost as waste.
Finally, as an immediate response while we develop new techniques,
we should launch an urgent domestic stockpiling effort to hedge against
the risk of conflict or a decision by China to deploy its economic
leverage in rare earth minerals. The United States government should
move out now to establish a stockpile of rare earth minerals for each
Department of Defense major defense acquisition program by 2025.
Question. Currently, there is no certification scheme, or unified
global standards, for rare earth minerals. As a result, producers have
to navigate a patchwork of requirements.
With this in mind, do you believe there's a use for advanced
technology--such as blockchain--to track rare earths from mining to
end-of-life?
Answer. The lack of standards and data for rare earth minerals
makes it difficult for firms and the U.S. Government to match supply
and demand while also identifying and mitigating supply chain risks.
Advanced technologies, such as the blockchain, could help with tracking
rare earth minerals. But advanced technologies are only as good as the
data they have available to process. With this in mind, the U.S.
Government should begin with additional disclosure requirements for
rare earth minerals. For example, contractors delivering systems to the
U.S. military should be required to disclose the origins of their rare
earth magnets.
Armed with better data sources and standards, tools such as the
blockchain could enable rare-earth minerals to be ``fingerprinted'' at
the point of origin. This would allow them to be tracked throughout
their lifecycle and confirm they have not been altered or contaminated.
In addition, the U.S. Government should work closely with allies
and partners to develop and coordinate global standards for rare earth
minerals that allow greater visibility into the supply chain. A clearer
system of global standards will also help to root out unfair trade and
labor practices around the world.
Question. The Fourth Industrial Revolution--or Industry 4.0--refers
to a new phase that focuses heavily on machine learning, automation,
interconnectivity, and real-time data.
Given your experience with deep technologies and AI, what are the
most influential technologies of Industry 4.0 for creating more
responsive and resilient supply chains?
Answer. The National Security Commission on AI highlighted the risk
the United States faces from losing our edge in microelectronics, AI,
5G, biotechnology, advanced materials, and quantum. We cannot take this
risk as our nation's technological advantage is a strategic advantage.
We are also on the cusp of a new wave of innovation that will create
new industries and categories of good jobs. Companies are reinventing
supply chains, governments are increasing frontier tech funding, and
disruptive technologies are emerging from labs across the country. Each
critical emerging technology sector--microelectronics, AI, 5G,
biotechnology, advanced materials, and quantum--has overlapping but
unique supply chains. In formulating a comprehensive approach to
responsive and resilient supply chains for Industry 4.0 technologies,
we should consider the lessons of the U.S. microelectronics industry.
Fortunately, we are preparing to revitalize the domestic
microelectronics industry with the support of CHIPS Act funding. A
thoughtful, coordinated approach to each emerging sector now would
allow us to put in place incentives for U.S. and allied industries to
maintain strategic supply chain nodes domestically. Acting now will
help prevent a situation where we are forced to reshore strategic
sectors in the future after they have already shifted offshore when the
risks and costs are higher.
Question. Do you believe the passage of the U.S. Innovation and
Competition Act would encourage the adoption of Industry 4.0
technologies?
Answer. The U.S. Innovation and Competition Act is a critical piece
of legislation for the United States and our allies to achieve a
leadership position in Industry 4.0 technologies. Many Industry 4.0
technologies feature winner-take-all dynamics that require us to move
quickly or risk losing out to committed competitors such as China.
Achieving the promise of Industry 4.0 technologies also depends on
more closely linking the physical and the digital worlds using advanced
technologies, specifically the Internet of things (IoT), AI, robotics,
drones, autonomous vehicles, 3D printing, cloud computing,
nanotechnology, and more. Combined, these capabilities enable us to
communicate, analyze, and execute decisions faster, more flexibly, and
more intelligently.
With the support of CHIPS Act funding, reshoring domestic
microelectronics innovation will enable the United States to develop
and scale Industry 4.0 technologies far more rapidly. Combining
advanced manufacturing with digital engineering and digital twin
capabilities generated by AI and high-performance computing will also
unlock a new wave of innovation across Industry 4.0 technologies. To
encourage the widest adoption of Industry 4.0 technologies, we should
focus on democratizing the process for designing, manufacturing, and
scaling new products. AI has the power to dramatically simplify product
design, empowering humans without deep engineering expertise to focus
on the creative elements of the process while algorithms tackle the
technical aspects. Broadening access to the tools of innovation will
also ensure all Americans enjoy the benefits and jobs generated by
Industry 4.0 technologies.
Question. For months, agencies have focused on a top-down review of
our supply chains, but I believe we need something more permanent, more
comprehensive, and more accessible.
As I have said before, I believe this can be achieved through
aggregated demand mapping for industries critical to our economic
health and national security.
Included in the trade title of the U.S. Innovation and Competition
Act, I've authored a provision to establish a voluntary database and
online toolkit to support the identification of suppliers of certain
inputs and/or finished products in the U.S. and abroad.
From a national security perspective, can you explain the merits of
implementing a voluntary database for supply chain mapping?
Answer. A voluntary database with shared standards for supply chain
mapping is a critical first step toward identifying and mitigating
risks, especially in critical sectors such as technology, health care,
and defense. A voluntary database would also help the U.S. Government
expand the data available for supply chain analyses using machine
learning and other advanced analytic techniques. It is also important
that the U.S. Government develop broad standards and shared interfaces
for supply chain reporting, thereby allowing easier access among
government and industry stakeholders who can identify potential issues.
Working with the private sector, the U.S. Government has an opportunity
to develop and deploy new tools and analytic techniques to identify
high-risk nodes in its complex and rapidly evolving supply chains. This
is already an area of promising investment in the commercial sector,
especially in light of the business challenges and supply chain
disruptions created by COVID-19.
Even with the most advanced analytic tools, our understanding of
the supply chain is only as good as the data available. Today supply
chain data is not easily accessible, in part because it is not
transparently reported and lacks standard interfaces. The U.S.
Government would benefit from greater awareness of the vendors and sub-
vendors supplying critical goods in a range of product categories.
Without visibility into the supply chain, the government and Nation as
a whole will be unable to adapt to disruptions of all types, from
natural disasters to interference by other nations.
Moving beyond voluntary reporting, the National Security Commission
on AI recommended that the U.S. Government consider revising the
Defense Federal Acquisition Regulation Supplement to require additional
disclosure and reporting requirements on the location of manufacturing
centers for firms supplying critical systems and subsystems for the
U.S. military. Additional disclosures would enable the U.S. Government
to better identify vendors and sub-vendors in nations that pose risks
to the United States. Combined with broader voluntary reporting, this
increase in transparency would empower officials to weigh the risks and
respond more effectively before unexpected supply chain disruptions
occur.
______
Prepared Statement of Scott N. Paul, President,
Alliance for American Manufacturing
Chairman Carper, Ranking Member Cornyn, and members of the
subcommittee, on behalf of the Alliance for American Manufacturing,
thank you for the opportunity to testify today on an issue of vital
importance to our economic and national security: strengthening the
resiliency of our supply chains to respond to new realities and the
chaotic events of the past several years.
AAM is a non-profit, non-partisan partnership formed in 2007 by
some of America's leading manufacturers and the United Steelworkers.
Our mission is to strengthen American manufacturing and support new
private-sector jobs through smart public policies. We believe that an
innovative and growing manufacturing base is vital to America's
economic and national security, as well as to providing good jobs for
future generations. AAM achieves its mission through research, public
education, advocacy, strategic communications, and coalition building
around the issues that matter most to America's manufacturers and
workers.
domestic supply chain resiliency is an economic
and national security priority
The last several years have made all Americans painfully aware of
the tragic inadequacy of our deteriorated industrial capabilities and
broken supply chains for respirators, ventilators, medicines, and other
products essential for pandemic response. The pandemic and its economic
shock waves also exposed a dangerous reliance on global suppliers for
many other consumer and commercial products--revealing that the United
States is ill-equipped to produce enough semiconductors, automobiles
and parts, building materials, and consumer goods for everyday life,
let alone the quantities needed to address a future emergency.
The frailty of on-demand global supply chains and our utter
reliance on them has left us dangerously exposed during an
international health emergency and unprepared for future shocks. These
disruptions should be viewed through the lens of years of public policy
decisions that both facilitated, and in some cases actively encouraged,
the offshoring of domestic production and critical supply chains.
As a result, over 90,000 American manufacturing facilities have
closed their doors since the late 1990s. China surpassed the United
States as the world's largest manufacturing nation in 2010, and in 2019
held nearly 29 percent of global factory output while the U.S. share
had shrunk to 17 percent.\1\ With our high domestic consumption rates,
this means imports have replaced domestic production throughout our
supply chains at an alarming rate. We imported $1.2 trillion in goods
in 2000. By last year, that total surged to $2.8 trillion, a 133-
percent increase, while our GDP grew over the same period at a slower
(115 percent) rate. Not only has this replacement led to the loss of 5
million good, middle-class jobs and devastated communities across our
Nation, it has left us increasingly dependent on imports, often from
adversarial countries like China and Russia, for everything from
consumer goods and advanced technology products to lifesaving personal
protective equipment.
---------------------------------------------------------------------------
\1\ ``China Is the World's Manufacturing Superpower,'' Felix
Richter. Statista. May 4, 2021. Accessed via weblink: https://
www.statista.com/chart/20858/top-10-countries-by-share-of-global-
manufacturing-output/.
For example, even though the United States generally accounts for
20 percent of the world's consumption, our global market share for
making things falls woefully short of that. We manufacture about 10
percent of electric vehicles, 7 percent of
lithium-ion batteries, 12 percent of semiconductors (down from 37
percent in less than a generation), and 4 percent of printed circuit
boards. There is only one major domestic manufacturer of electrical
steel needed to build out our energy grid, and there are many other
examples of greatly diminished capacity in critical industries such as
---------------------------------------------------------------------------
machine tools.
To address these supply chain disruptions, as well as anticipate
and prepare for future crises, we must acknowledge how we got here and
what went wrong. The pandemic has exposed in rather dramatic fashion
that years of flawed tax, trade, procurement, and other economic
policies have put the United States in a perilous position of over
dependence on imports. As the United States looks to address supply
chain challenges, we must move away from the status quo approach that
fosters continued and growing over reliance on imports, and instead
focus on efforts that increase our own production capabilities. While
we recognize that the United States has important security and trade
relationships with our allies, and we can and should utilize those
where it makes sense, the primary solution should not be to double down
on imports or more globally integrated supply chains. Our
vulnerabilities reflect an outdated notion of the benefits of hyper-
globalization, where our consumers, workers, domestic businesses, and
our national security suffer. We must break the vicious cycle of
implementing policies that reward imports over domestic production.
Experts Have Been Warning That Offshoring and Reliance on Imports is a
National Security Risk
The unfortunate, yet entirely predictable, reality we now face is
that decades of offshoring have contributed to ongoing supply chain
shortages and risks that continue to hinder growth and have forced some
factories to go idle. This is an alarming economic and national
security issue that experts have predicted for years.
In a 2012 report, entitled ``Preparing for 21st Century
Risks,''\2\ former Department of Homeland Security Secretary Tom Ridge
warned that the United States was at risk of being unprepared to
recover from disaster--whether it was terrorism, natural disaster,
cyber disruption, or pandemic influenza--due to its dependence on other
countries for critical manufacturing. Governor Ridge argued that at the
root of the problem was an increasing reliance on foreign suppliers for
products needed in the wake of catastrophic events. His report
highlighted case studies on the domestic steel industry, our water
infrastructure, and the commercial power grid which, because of its
dependence on foreign sources, has reduced the number of domestic
producers of electrical steel used in transformers to one. Governor
Ridge warned that hostile trading partners may make a deliberate choice
to not supply needed products, materials or technologies during a time
of domestic crisis--citing U.S. reliance on imports as a national
security risk.
---------------------------------------------------------------------------
\2\ https://www.americanmanufacturing.org/wp-content/uploads/2017/
02/Homeland-Security-Report.July23.2012.pdf.
In a 2013 report, entitled ``ReMaking American Security,''\3\
Brigadier General John Adams, U.S. Army (Ret.) found that U.S. national
security is at-risk due to our military's reliance on foreign nations
for the raw materials, parts, and products used to defend the American
people. He examined the risks and vulnerabilities associated with 14
defense-critical natural resources, inputs, and components--including
semiconductors and rare-earth minerals--and presented recommendations
to help mitigate the risks to our national security posed by the
pervasive outsourcing of our defense industrial base.
---------------------------------------------------------------------------
\3\ https://docs.house.gov/meetings/FA/FA14/20130725/101216/HHRG-
113-FA14-Wstate-AdamsB-20130725.pdf.
Regrettably, these reports proved prescient, and the authors'
warnings and recommendations were largely ignored. It took the COVID-19
pandemic to bring these concerns to the national spotlight, as the one-
two punch of our gutted domestic supply chains and over reliance on
foreign sources are impacting Americans in countless ways. We must be
better prepared for the next crisis, and that requires taking bold
action, starting right away. Moreover, the United States has a once-in-
a-
generation opportunity to take concrete steps to strengthen domestic
manufacturing and rebuild critical supply chains, from semiconductors
---------------------------------------------------------------------------
to face masks to batteries to solar panels.
We must also prioritize the expansion of all stages of
manufacturing in the United States, including upstream inputs that are
critical for the completion of a final product assembly or manufacture.
Too often our policies overlook the components, parts, and upstream raw
materials fundamentally necessary to produce a given product. In a
future emergency, relying only on end products that are assembled or
manufactured in the United States from all or mostly imported products
is not a solution to the problems that have plagued our economy over
the past several years. In fact, such approaches will only set us up to
repeat this failure.
We have seen repeated failures affecting Americans in countless
ways. Just this month, press reports highlighted that cancer patients
and others needing imaging for their care and survival were dependent
on contrast materials coming from China that are now in short
supply.\4\ We have learned in the past that a large number of
components of the pandemic drug Remdesivir are produced in China. We
have seen China threatening to weaponize supplies of rare earths to
advance the CCP's political aims. These are but a few examples of the
dangerous dependence that we now face.
---------------------------------------------------------------------------
\4\ ``Hospitals ration CT scans, other procedures over shortage of
contrast dye,'' Elizabeth Chuck. NBC News. May 18, 2022. Weblink:
https://www.nbcnews.com/news/us-news/shortage-contrast-dye-hospitals-
ration-ct-scans-procedures-rcna29379.
Rebuilding supply chains will chart a course for a stronger future
and create millions of new, well-paid jobs along the way. It's time to
put an industrial policy in place to supercharge domestic manufacturing
and grow supply chains.
aam supports a policy framework for more secure, resilient,
and revitalized supply chains
We must acknowledge that supply chain resiliency is not a challenge
that the private sector alone can fix. There is an appropriate role for
government to provide leadership, coordination, a supportive policy
framework, and funding directed to domestic production expansion where
the vulnerabilities are most critical. This is not an easy task, but it
is one that the American people demand because it is critical to our
future security and prosperity.
Enactment of the Bipartisan Innovation Act (USICA/COMPETES Act)
We support a swift and successful conclusion of conference
committee work on competitiveness and innovation legislation that has
separately worked its way through the House and Senate. Merging the
most attractive provisions from each of these bills offers the
opportunity to create a long-overdue policy framework for supply chain
security, resiliency, and revitalization.
AAM has outlined our conference priorities in a letter to House and
Senate leaders,\5\ but please allow me to outline several topics that
are particularly important to today's hearing.
---------------------------------------------------------------------------
\5\ March 23, 2022, AAM letter regarding UCISA/COMPETES priorities.
Weblink: https://www.americanmanufacturing.org/wp-content/uploads/2022/
04/AAM-letter_USICA-_COM
PETES-Conference.pdf.
Strengthening U.S. investments in critical industries.
Conferees should prioritize CHIPS Act funding to strengthen domestic
semiconductor manufacturing and other Federal assistance to sustain and
expand manufacturing research, development, and deployment efforts
through the network of institutes and State-level extension
partnerships that are crucial to inventing, scaling, and making the
---------------------------------------------------------------------------
next generation of products here in America.
Supply chain resiliency fund. Similarly, the supply chain
resiliency fund in the House bill will act to fill gaps in our Nation's
critical industrial capabilities. I would caution, however, that
critical supply chains strengthened by Federal dollars should be those
here in America, not offshore. Loans, loan guarantees, grants, and
other forms of assistance awarded as part of a supply chain resiliency
fund should be predicated on investments being made in the United
States with construction activities giving preference to goods produced
by American workers. American taxpayers want their hard-earned tax
payments used to promote American jobs.
Trade enforcement. AAM supports strengthening trade
enforcement tools to ensure that our efforts to secure critical supply
chains are not undermined by unfair trade practices from China, Russia,
and other countries. Specifically, we urge inclusion of the Leveling
the Playing Field Act 2.0 \6\ in the final conference report. Several
members of this subcommittee--including Senators Brown, Portman, Casey,
and Young--are sponsors of this timely legislation.
---------------------------------------------------------------------------
\6\ S. 1187--Eliminating Global Market Distortions To Protect
American Jobs Act of 2021.
Within the trade title, AAM also supports efforts to reform
the current de minimis policy and opposes language that would
---------------------------------------------------------------------------
circumvent and undermine USTR's section 301 exclusion process.
Screening outbound investments in critical sectors. AAM
supports the National Critical Capabilities Defense Act--sponsored by
Senator Casey and Ranking Member Cornyn--to establish an outbound
investment review process designed to avert the offshoring of
production capacity to foreign adversaries in critical U.S. sectors.
This legislation--backed up by a 2021 recommendation of the bipartisan,
independent U.S.-China Economic and Security Review Commission--merits
enactment.
Additional Policy Initiatives
More broadly, there are some guiding principles that we believe
Congress and the administration would be wise to follow as a new policy
framework for supply chain resiliency is developed.
Federal dollars and other forms of assistance should not be
available to entities that are owned by or affiliated with the foreign
government or militaries of countries that that are uncooperative or
pose risks to our economic and national security interests. We must
confront the reality that China's government has used and will continue
to use global disruptions, including the pandemic, to advance its own
economic and geopolitical interests. In 2020, an official in China
remarked that ``it is possible to turn the crisis into an opportunity--
to increase the trust and the dependence of all countries around the
world of `Made in China.'''\7\
---------------------------------------------------------------------------
\7\ ``Opinion: How China is planning to use the coronavirus crisis
to its advantage,'' Josh Rogin. Washington Post, March 16, 2020.
Unfortunately, Congress neglected to implement sufficient
guardrails as part of previous COVID relief packages. As a result, The
New York Times reported that more than 125 China-owned or -invested
companies received hundreds of millions of dollars in loans from the
Paycheck Protection Program (PPP)--many of them state-owned with
concerning links to China's military.\8\ The PPP program was created at
the start of the COVID-19 shutdowns to keep America's small businesses
afloat and keep workers employed during this unprecedented crisis--not
to support the CCP's ambitions.
---------------------------------------------------------------------------
\8\ ``U.S. Small Business Bailout Money Flowed to Chinese-Owned
Companies,'' Alan Rappeport. New York Times. August 2, 2020.
The reporting was based on research by Horizon Advisory,\9\ which
noted:
---------------------------------------------------------------------------
\9\ https://www.horizonadvisory.org/paycheckprotection.
These PRC entities span state-owned enterprises (SOEs);
companies with ties to China's military and military-civil
fusion programs; companies that the U.S. Government has
identified as national security threats; companies complicit in
China's genocide against the Uighur minority in Xinjiang; and
---------------------------------------------------------------------------
media outlets owned by, or that take direction from, the CCP.
The identified recipients linked to PRC-based ownership span
critical and strategic industries including aerospace and
defense; pharmaceuticals and medical technology; legacy and
emerging automotive manufacturing; advanced manufacturing and
manufacturing components (e.g., semiconductors, robotics);
telecommunications; financial technology; entertainment; and
media.
Congress should prioritize domestic content in our infrastructure,
procurement, and supply chain rebuilding efforts. Federal financial
assistance should be conditioned on the use of iron, steel,
manufactured products, and construction materials that are produced in
the United States by America's workers.
Reinvesting tax dollars here at home creates American jobs, invests
in goods produced under strong environmental and workplace safety
standards, and protects our economic and national security. Without
these policies in place, predatory foreign governments would be free to
undercut domestic production with dumped and subsidized,
environmentally-unfriendly, and substandard products--bypassing
American workers and sending U.S. tax dollars offshore rather than
reinvesting in the United States.
We applaud Senators Brown and Portman for their leadership in
enacting the Build America, Buy America legislation as part of the
recent Bipartisan Infrastructure Law. Congress now has an important
role to play in seeing that Federal departments and agencies
effectively implement this policy.
It is critically important that our trade policies be closely
aligned and coordinated with supply chain resiliency efforts. To create
the market conditions that allow for the incubation of new technologies
into domestic production, manufacturers should have the confidence that
they will not be wiped out by a surge of subsidized imports from
foreign state-owned enterprises seeking to capture our markets. U.S.
companies and American workers are among the most efficient,
hardworking, and capable in the world, but even they cannot compete
against predatory foreign governments determined to dominate supply
chains and use them as a weapon of foreign coercion. We need to enforce
our trade laws to ensure a level playing field for American workers and
manufacturers.
Congress and the administration must not return to flawed trade
policies. AAM supports smart global engagement in the Indo-Pacific to
advance the rights, interests, and futures of American manufacturing
and its workers. Yet, as the United States commences Indo-Pacific
Economic Framework (IPEF) discussions to deepen economic engagement
within the context of the overall Indo-Pacific Strategy, we cannot
return to the flawed trade and other policies that created our
dangerous reliance on global suppliers or that will exacerbate the
existing imbalanced trade relationships with many of the Indo-Pacific
countries. The United States must learn from its mistakes, not double
down on them. The United States is long overdue for a new and
innovative approach to trade and economic cooperation. It is both
possible and desirable to create a trade and economic policy framework
to support a resurgent, domestic manufacturing base.
It should be noted that the United States already has robust
engagement in the Indo-Pacific region with multiple Free Trade
Agreements, alternative section 232 arrangements with multiple
countries, more than $1 trillion in foreign direct investment in the
region, and various defense and security arrangements. Regrettably, the
United States also has substantial trade deficits with a handful of key
participants. The United States has massive 2021 trade deficits in the
region, including $90 billion with Vietnam, $60 billion with Japan, $41
billion with Malaysia, $35 billion with Thailand, and $33 billion with
India.
So then, the key question for IPEF is determining the goals and
objectives for future engagement in the region. As I write this
testimony, information available on the various issues within a
potential IPEF is simply in development. We do not know which countries
will ultimately participate, whether additional countries will be able
to join via ``docking'' provisions in the future, whether the framework
will include market access commitments now or in the future, the role
of American manufacturing and its workers, and whether enforceable
workers' rights and corporate accountability will apply across all
modules.
The IPEF should not under any circumstances extend benefits, direct
or indirect, to countries like China that are not a signatory. In fact,
IPEF participants should be prepared to join the United States in
confronting China's predatory practices.
While many argue that the IPEF represents an opportunity to address
supply chain challenges, we must not move away from the lessons learned
during the COVID-19 pandemic--that is, that the United States must
prioritize reshoring U.S. supply chains. IPEF cooperation that shifts
production or sourcing decisions away from China may be a worthwhile
endeavor but is nevertheless insufficient without concurrent efforts to
domestically produce goods and materials necessary for our economic,
health, and national security. Merely reshuffling offshore supply chain
continues to leave our Nation overly reliant on foreign production and
susceptible to shocks from geopolitical or other events. The IPEF
represents an opportunity to break the vicious cycle of adopting trade
and economic policies that reward imports over domestic production and
American workers.
Congress and the administration should proceed cautiously with
respect to altering or removing existing trade enforcement actions. Any
proposals to ease imports of finished goods or inputs should be
carefully examined to ensure that we are not doubling down on risky
global supply chains and making it more difficult to reshore them or
undermine existing producers. While an accessible and transparent
exclusion process is essential for trade enforcement actions,
unwarranted tariff relief may very well signal the demise of a U.S.
company that is seeking to establish a market foothold or one that has
reinvented itself to fill gaps in our domestic supply chains.
China has not earned the right to additional U.S. market access. In
fact, China has ramped up its industrial subsidies, strengthened its
state-owned enterprises (SOEs), continued its horrific genocide of
ethnic minorities, taken the side of Vladimir Putin, broken its
promises on Hong Kong, and become more aggressive in the South China
Sea and in its threatening posture towards Taiwan. Despite its empty
promises, Beijing continues these egregious activities to the detriment
of U.S. companies and American workers. If Beijing continues to
disregard its commitments under the modest Phase One agreement, the
United States should pursue its enforcement rights under that deal.
Senators, a brighter future for supply chains and manufacturing is
possible. We see examples of where public policies have invited new
investments over the past several years. Steel and aluminum industry
capital investment in America has boomed since 2018. An electric
vehicle charging network company based in Australia is establishing a
factory in Tennessee thanks in part to new public investments and
domestic preference rules. Semiconductor makers Intel, Texas
Instruments, TSMC, GlobalFoundries, and others have announced new
plants in America, based in part on CHIPS Act support. Ford, General
Motors, and other automakers and partners are establishing EV
production and battery plants in the United States rather than overseas
in part because of USMCA domestic content rules, other existing trade
policies, and public-private partnerships to build out charging
networks. Overall, we've seen robust manufacturing job growth during
this recovery. Just a generation ago, some economists predicted none of
this--large new factories or surges in manufacturing jobs--would ever
be possible again thanks to automation and import competition.
But we should not pretend that a brief focus on supply chains will
right the ship. According to a new CSIS study, China spends 1.73
percent of its GDP on identifiable industrial subsidies, or $407
billion exchange rate weighted equivalent. By contrast, the U.S. spends
0.39 percent for this purpose. The proposed CHIPS Act investment is
exponentially smaller than what China is prepared to invest in
semiconductors: $150 billion. We don't need to spend that much, but we
do need to be much more intentional about policies to strengthen supply
chains for the long haul.
Public policy support for American manufacturing is crucial to
tackling supply chain challenges, and we look forward to working with
you to ensure a better future. Thank you for the opportunity to testify
at today's hearing.
______
Questions Submitted for the Record to Scott N. Paul
Questions Submitted by Hon. Sherrod Brown
Question. Dexstar, a company in Ohio, once told me that keeping
their company running while competing with unfair dumping felt like
what happens when you don't keep up with the maintenance of your car.
You can get away with it for a while--but eventually if you ignore it
for too long, your car breaks down. If you don't invest in your
workers, they'll leave. If you don't invest in your facilities, they
start to fall apart. If you don't invest in new technology or
innovation in your field, you'll fail to keep up.
It's nearly impossible for industries that are constantly battling
unfair dumping to successfully compete. We've seen the importance of
trade enforcement across dozens of industries, from tires, to steel, to
paper making, to washing machines and other household electronics.
Trade remedy laws need to keep up with the ways that countries try to
cheat the rules.
What are some of the ways that countries attempt to circumvent
antidumping and countervailing duties (AD/CVD)? One method of
circumvention involves moving a company's operations to new country in
order to evade trade rules, even when the product is mostly made in the
original country. Why is it important for our trade remedy laws keep up
with enforcement of strong circumvention provisions?
Answer. Thank you for bringing attention to circumvention of
antidumping and countervailing duty (AD/CVD) orders. When domestic
manufacturers and their workers are confronted with circumvention of
trade enforcement actions, it is truly insult upon injury because
injury, lost time, and significant resources have already been incurred
to secure relief in the first place. When circumvention occurs, these
domestic manufacturers and workers are forced to again spend additional
time and resources to reestablish a level playing field for their
operations and workers.
As you note in your question, there are a variety of methods used
by foreign producers--and in some cases in conjunction with
unscrupulous importers--to circumvent AD/CVD orders, including the
relocation or coordination with third parties of downstream finishing,
processing, and often lesser activities to a new country--even when the
product itself is mostly or even entirely made in the subject country.
Moreover, these egregious efforts often involve foreign governments
directly aiding in circumvention. The use of subsidies by China and
other countries to enable these circumvention tactics is especially
concerning as it demonstrates a concerted effort by foreign governments
to undermine American manufacturing, its workers, and our trade
enforcement tools.
It is critical that Congress provide new authorities and tools to
the Department of Commerce to address these increasingly sophisticated,
yet blatant, circumvention tactics. If we do not immediately address
this issue, our efforts to revitalize U.S. manufacturing will face
massive obstacles as it becomes more difficult for the incubation of
new technologies into domestic production. Companies will be reluctant
to invest in the United States for fear of being wiped out by a dumped
and subsidized imports with seemingly no available opportunities to
secure meaningful and sustainable relief.
AAM is a strong supporter of the Eliminating Global Market
Distortions To Protect American Jobs Act (S. 1187/H.R. 6121), also
known as Leveling the Playing Field Act 2.0. We appreciate your
leadership on this issue and urge passage of this bipartisan measure.
Question. Do you have any additional recommendations for updating
our trade remedy laws in a way that centers American workers and
consumers?
Answer. Congressional action is urgently needed to address the
systematic unfair trade practices of China and many other countries who
promote market distorting policies designed to undercut American
workers and U.S. production by passing the Eliminating Global Market
Distortions To Protect American Jobs Act (S. 1187/H.R. 6121), also
known as Leveling the Playing Field Act 2.0. This bipartisan
legislation modernizes our antidumping and countervailing duty (AD/CVD)
trade remedy laws to keep up with new and evolving unfair trade tactics
used by foreign competition to seize U.S. market share.
Moreover, it is imperative that Congress act quickly to reauthorize
Trade Adjustment Assistance (TAA) for these same workers who experience
job losses or wage reductions resulting from unfair and other trade
disruptions. TAA benefits are already disrupted for workers who
experience layoffs after June 30, 2022.
Establishment of an outbound investment review process would warn
of and avert the offshoring of production capacity to foreign
adversaries in critical U.S. sectors. Congress should pass the
bipartisan National Critical Capabilities Defense Act (S. 1854/H.R.
6329) as stand-alone legislation or as part of the National Defense
Authorization Act (NDAA).
Congress should make common-sense reforms to our flawed de minimis
policy that as currently structured invites duty evasion and systematic
abuse of Customs enforcement by passing the Import Security and
Fairness Act (H.R. 6412).
Question. U.S. trade and tax policies over the last 30 years have
incentivized the movement of manufacturing capabilities and risks
offshore in exchange for efficiency and profits. As a result, global
trade is increasingly integral to supply chains. The Supply Chain
Resiliency Act I introduced last November would help ease supply chain
bottlenecks and decrease American reliance on long supply chains. In
response to questions from Senator Whitehouse, a co-sponsor of my
legislation, you expressed support for the establishment of an Office
of Supply Chain Resiliency at the Commerce Department--something the
Supply Chain Resiliency Act would provide for.
How would an Office of Supply Chain Resiliency help to better
address supply chain vulnerabilities and decrease American reliance on
long, off-shore supply chains?
Answer. An Office of Supply Chain Resiliency is an important
component of creating a long-overdue policy framework for supply chain
security, resiliency, and revitalization. This proposed office would
have the ability to work with the private sector to coordinate and
develop standards and best practices that encourage reliance on
existing domestic capabilities. By mapping existing current supply
chain vulnerabilities, it would also enable targeted, proactive policy
actions to incentivize U.S. investments that increase the resiliency of
critical supply chains.
To be effective, the Director of the proposed Supply Chain
Resilience and Crisis Response Office, in setting standards and issuing
guidance, should prioritize the expansion of all stages of
manufacturing, including upstream inputs that are critical for the
completion of a final product assembly or manufacture. Too often our
policies overlook the components, parts, and upstream raw materials
fundamentally necessary to produce a given product. In a future
emergency, relying only on end products that are assembled or
manufactured in the United States from all or mostly imported products
is not a solution to the problems that have plagued our economy over
the past 2-plus years. In fact, such approaches will only set us up to
repeat this failure.
______
Prepared Statement of Douglas L. Potvin,
Chief Financial Officer, Trinity Logistics, Inc.
Chairman Carper, Ranking Member Cornyn, and members of the Finance
Subcommittee on International Trade, Customs, and Global
Competitiveness and other members of the Finance Committee, thank you
for the opportunity to speak with you today regarding how policymakers
and business leaders are addressing the existing backlogs in our supply
chain in the short term and build more resilient supply chains in the
long term. I appreciate the invitation and opportunity to share Trinity
Logistics' perspective on these significant issues facing international
and domestic logistical supply chain issues.
My name is Doug Potvin; I am the chief financial officer of Trinity
Logistics, Inc., a third-party logistics company, headquartered in
Seaford, DE and with regional services centers located in Florida,
Minnesota, Iowa, Missouri, Texas, and Arizona, and with agent offices
located throughout the United States, Canada, and Mexico. I am
privileged, honored, and humbled to be here today representing Trinity
Logistics, our association, the Transportation Intermediaries
Association (TIA), and the entire third-party logistics industry that
we serve.
Trinity Logistics is a Burris Logistics Company, offering people-
centric freight solutions. Our mission is to deliver creative
logistics solutions through a mix of human ingenuity and innovative
technology, enriching the lives of those we serve.
For more than 40 years, Trinity Logistics has been arranging
freight for businesses of all sizes, offering truckload, less-than-
truckload (LTL), warehousing, intermodal, drayage, expedited,
international, and technology solutions. We serve as the intermediary
solving the logistical needs of our shipper customers by sourcing
capacity from our motor carrier and vendor partners. We are proud to
report today that this past year, we generated over $1B in revenue,
arranged over 500,000 shipments nationwide, and offered over 350
individuals full and part time jobs. We are truly a proud Delaware
company.
Trinity is currently recognized in the top 25 freight brokerages on
Transport Topics' Top 100 Freight Brokerage List, in the Top 100 3PLs
list by Inbound Logistics, and is named a top company for women to work
for, in transportation, by Women in Trucking.
From Charles Dickens's novel A Tale of Two Cities, ``It was the
best of times, it was the worst of times, it was a season of Light, it
was the season of Darkness, it was the spring of hope, it was winter of
despair. . . .'' Over the last 2 years, the same can be said for the
international's supply chain, and from our perspective and closer to
home, the domestic transportation industry. In March of 2020, as both
domestic and international countries shuttered businesses (with varying
coordination for closings or determination of essential businesses--
including the shuttering of port cities and operations in China) and
the fact that most consumers were at home facing an uncertain future,
freight volumes plummeted. Motor carrier capacity increased
dramatically due to the steep drop of goods moving and the
transportation market saw prices to motor carriers fall. In fact,
Trinity Logistics was mentioned on a Facebook post that stated we were
earning an average gross margin over 60 percent, which was simply
wrong. In addition, a small number of motor carriers came to
Washington, DC and demanded rate transparency, wanting to know the
rates of what all 3PLs charge shippers. Interestingly, after
businesses, ports, and countries opened up, freight volumes began to
skyrocket, available motor carrier capacity became scarce, rates paid
to the motor carriers increased to reflect the change in the market
conditions, the demand for rate transparency went silent. We believe if
rate transparency is granted to motor carriers, it would cause even
more disruption in the supply chain. Pricing would no longer be based
on the free market. The pricing in our industry is driven by market
conditions, supply and demand on a large scale. No entity, on either
side of the equation, has enough market share to drive rates. In
addition, each shipment has its own variables and considerations to
take into account, including everything from available capacity in the
various regional markets, lead time for products, dwell time at the
shippers and consignees, commodities needing moved, and the type of
equipment needed. All of this happens real time to ensure goods get to
market, keeping our economy moving forward.
Unfortunately, due to the closing of businesses and trade ports, a
surge in consumer spending on goods versus services, a lack of motor
carrier drivers, and several other reasons, the regular and consistent
movement of equipment has become largely imbalanced, hindering the
transport of goods globally and domestically. Due primarily to the
massive lockdowns in China including the closing of port operations, we
have heard that talk of near shoring some of those manufacturing
activities here in the United States, Canada, and Mexico and reducing
our customer's reliance on activities an ocean away. Trinity Logistics
stands ready to assist in sourcing available capacity to ensure those
new investments will have the necessary equipment to meet their
logistical needs.
Now more than ever, the role of the third-party logistics
professionals has become more valuable. Companies like Trinity and the
other 28,000 licensed property brokers are working overtime to ensure
that essential goods continue to be delivered in an efficient manner to
meet our customers and consumer's needs. Our industry, along with motor
carriers, are a main component of why during this crisis and
disruption, the supply chain bent but never broke.
Trinity Logistics applauds the U.S. Senate's and House of
Representatives' bipartisan passage of the Infrastructure Investment
and Jobs Act (IIJA) and the historic investment in transportation and
infrastructure. We were very pleased to hear how quickly the Federal
Motor Carrier Safety Administration (FMCSA) established the Safe Driver
Apprenticeship Pilot Program. Trinity hopes this 3-year pilot program
will be successful, and made permanent, so that individuals ages 18-20
will explore interstate transport careers. This will go a long way in
helping trucking companies hire and train drivers through the program
and help to alleviate driver shortages in the future. Trinity also
believes that as spending under the IIJA ramps up in the near future,
it will provide enough support in the economy to keep the motor
carriers employed as we are starting to see freight volumes begin to
pull back over the last 30 to 60 days.
Trinity would also like to thank Chairman Carper, Ranking Member
Cornyn, Senator Menendez, and Senator Tim Scott for their support in
offering legislation to initiate the pilot program for brokers to
become a part of the Customs Trade Partnership Against Terrorism
program (CTPAT). We believe by allowing freight brokers to become CTPAT
certified, this will add another valuable layer in assisting with
providing a safe and smooth Customs clearance process for shippers
moving cargo cross-border. Today we urge S. 2322 to be quickly sent to
President Biden's desk for signature. We believe the third-party
logistics industry does play a role in the safety and national
security, in that the industry selects motor carriers who enter the
country through our borders and plays an integral role in assuring the
carriers are legitimate and understand the cargo transported.
Currently, the vaccine mandate for truck drivers coming into the
country to deliver freight from Mexico and Canada continues. These
professional drivers spend most of their professional time alone in a
truck cab, presenting 0-percent risk of spreading COVID-19. This should
be lifted immediately to open up capacity and shorten the amount of
time to cover a load.
Another issue that greatly impacts not only the efficient movement
of goods, but also highway safety is the lack of a Federal Motor
Carrier Safety Selection Standard. Currently, because of a broken
safety rating system from the Federal Motor Carrier Safety
Administration (FMCSA) almost 90 percent of trucking companies are
considered ``unrated,'' due to the fact they have not received the in-
person compliance review that promulgates a safety rating. This
confusion logjams the carrier selection process and adds to the time it
takes to vet a trucking company to the extent we are able to without a
standard. Further exacerbate the situation with the fact that there are
no requirements in place before selecting a trucking company
drastically impacts the overall safety on our Nation's highways. The
latest report from the National Highway Traffic Safety Administration
(NHTSA) noted that the number of accidents involving commercial motor
vehicles increased 13 percent in 2021, the status quo is not working,
and highway safety needs to be improved. Trinity Logistics and our
trade association, TIA fully support legislation to create a motor
carrier safety selection and amend the safety rating process by
shifting to a system built on data not physical audits.
I started my testimony with the opening sentence from A Tale of Two
Cities. I wanted to turn our attention to the actual impact on the
domestic transportation industry during the last 2 years, specifically
from the various activities that took place during the COVID
disruption. The activities, as I have mentioned, included the closing/
opening of business, but those did not happen in a coordinated way
globally or domestically. The disruption of manufacturing due to a lack
of raw materials or goods to be utilized, the tremendous amount of
stimulus injected into economies that drove consumer spending in
magnitudes and ways that we had not seen before, the lack of workers
and productivity in some areas, and others as well, caused the supply
chain to experience a level of swings of such magnitudes between high
and low over a very short period. We are just now seeing some return to
normalcy (as best as it can be defined). With that said, let me
interject some metrics to give a perspective of what has happened in
the freight markets. Metrics to review:
The outbound tender rejection rate index--which is an indication of
the percentage of loads being rejected by contract carriers on their
contracted rates with shippers.
The Transactional Spot Market Rate for Dry Van Loads in $/Mile--
these are negotiated rates as mentioned earlier that occur daily
between shipper/broker and motor carrier.
The percent of Freight Volume Increase/Decrease from a 2018
baseline.
------------------------------------------------------------------------
July 2020-
Index--Number December
Approximates 2019 March-June 2020 2021 2022
------------------------------------------------------------------------
Outbound Tender 5 to 6% 1 to 2% 20%-25% Steadil
Rejection Rate approachi y
ng 30% in declin
some ing to
instances 8.4%
(curre
ntly)
------------------------------------------------------------------------
Van Spot Rate <$2.25/mile <$1.50/mile Climbed Steadil
steadily y
to a high declin
$3.75/ ing to
mile $2.80/
mile
(diese
l
price
keep
elevat
ed)
------------------------------------------------------------------------
Freight Volumes Slightly lower 75% to 90% Climbing Steadil
more than y
50% declin
ing to
now
26%
over
2018
------------------------------------------------------------------------
As these numbers indicate, simply the decrease in freight volumes
and excess capacity drove the pricing significantly lower at the
beginning pandemic. Carriers were competing against one another to
secure freight to keep their truck operational, including asset-based
carriers who contracted freight was not available during this time and
added their excess capacity into the spot market. Once the businesses
began to open up (though unevenly thus causing down chain issues),
pricing begin to soar as trucking capacity got tight, and asset-based
carriers were moving away from contracted freight to the spot market,
forcing their customer to post more freight out into the spot market,
driving up prices. Finally, as trucking volumes begin to retreat, the
market forces depressed pricing, though it is still elevated by diesel
prices and port operational challenges.
Another measure of freight capacity that Trinity utilizes is the
Truckstop Market Demand Index (MDI) which measures the number of
shipping loads posted by
shipper/brokers in comparison to motor carriers posting their available
equipment--a higher number indicates trucking capacity has gotten
tighter as motor carriers no longer need to post available equipment as
they are receiving enough inbound traffic from shippers and third-party
logistics to get their equipment on a load. Here are the numbers for
the same period.
------------------------------------------------------------------------
July 2020-
Index--Number 2019 March-June December 2022
Approximates 2020 2021
------------------------------------------------------------------------
MID 35 to 45 Less than 25 On average Steadily
Shipper Shipper Loads over 150 Declining
Loads Per Per One Truck with some to
One Truck Posting periods approxima
Posting (higher truck exceeding tely 100
postings) 200 Shipper Shipper
Loads Per Loads Per
One Truck One Truck
Posting Posting
(currentl
y)
------------------------------------------------------------------------
And finally, I would like to share with you, comments from
Transportation Intermediaries (TIA) Association Chief Economist Noel
Perry from the latest TIA Quarterly Market Report (1Q22).
The latest data released by the U.S. Bureau of Economics (BEA)
show a declining economy in the first quarter of 2022, creating
a second consecutive quarter of slow growth in freight. This
negative news is consistent with an unusual convergence of
negative signals headlined by inflation, energy uncertainty,
the war in Ukraine, and COVID lockdowns in China. Unless those
situations change for the better soon, the U.S. economy is
headed for recession. Fortunately, economists tell us that a
timely resolution of the Ukrainian war could ease inflation and
consumer fears. Also, the growing availability of computer
chips should allow the auto market to recover from its supply-
constrained lethargy. Nonetheless, inflation, lockdowns in
China, and the Ukraine situation have proven surprisingly
resistant to improvement, giving weight to the pessimist's
fears. Deutsche Bank's economists are forecasting a global
recession in 2023, perhaps a bad one. Finally, you will see
that the U.S. trucking spot market conditions have inflected
towards weaker conditions. Whatever the result, conditions in
the second half of 2022 and all of 2023 will not continue the
historically favorable conditions of the last 2 years.
As earlier metrics have indicated, the U.S. trucking spot market
conditions have inflected towards weaker and more normal conditions--
though we will see what the future holds and how that trend continues.
Hopefully, as the result of this meeting and coordinated actions taken
by the U.S., our trading partners, manufacturers, and supply chain
vendors, our Nation will become resilient when facing similar
conditions or uncertainties in the future.
Again, I want to thank you for your time today and the opportunity
to speak before you and present Trinity Logistics' perspective on the
state of the supply chain. I would be happy to answer any questions.
______
Questions Submitted for the Record to Douglas L. Potvin
Question Submitted by Hon. Thomas R. Carper
Question. Regardless of where goods are sourced or manufactured,
how can we ensure they are delivered with efficiency and reliability,
and what resources are needed to make this happen?
Answer. This is a very important question, and the answer is quite
simple. No matter where the freight is sourced from, we as logistics
companies just need the flexibility to continue to do our job without
unnecessary interference and limitations. As I mentioned in my
testimony, we describe the current supply chain discussion as the
perfect storm of multiple factors that eventually bent the supply
chain. Whether it be a shortage of truck drivers, trucks, real estate
to store the containers, etc., all these conditions will over time work
themselves out. The problem occurs when unnecessary constraints are
continued to be added on top. Let me give you two examples, the first
being the cross-border vaccine mandate for Canadian truck drivers.
These mandates put additional constraints on capacity in cross border
movements and added days on the carrier selection process, which causes
disruptions. We in the United States classified our truck drivers as
exempt because they are in a truck by themselves, the same should have
been true for truck drivers entering the country, especially those from
a country with an over 90-percent vaccination rate. Finally,
California's AB5 law, this law now in effect will drastically change
the way business in done in the State of California and could have a
detrimental chain reaction throughout the country, especially if the
PRO Act were to become law. This anti-business law will drive thousands
of owner-operators out of the market and further hamper the capacity
constraints that logistics companies like ours are facing today.
Simply put, the supply chain needs more time to normalize, not
further roadblocks that continue to set back the recovery from this
devastating pandemic and its effects on the supply chain.
______
Questions Submitted by Hon. Todd Young
Question. Earlier this month, the Port of Shanghai began returning
to normal after a 2-month COVID lockdown.
Fortunately, congestion in our major west coast ports of Los
Angeles and Long Beach eased earlier this year, but that doesn't mean
we won't have logistical challenges due to more output from Shanghai.
The bottlenecks that occurred at our west coast ports were perfect
visualizations of logistical breakdowns due to the pandemic. Given your
experience in this sector, how should Congress--or the administration--
prepare for Shanghai's reopening?
Answer. The best thing the Federal Government and the States can do
is remove burdensome constraints on the supply chain. For example, in
the State of California there are extreme regulations in place from the
California Air Resources Board (ARB) that limit capacity (especially at
the ports) and the California law AB5 is now in effect, that will
without a doubt take thousands of trucks out of the State of California
or off the highways completely. We need to ensure that the PRO Act
never becomes law and that logistics companies are given the
flexibility they need to ensure motor carriers are properly registered
through the carrier selection process. As a country, we need to do a
better job incentivizing new truck drivers into the marketplace, not
restricting to the point they want out. These men and women were the
heroes on the front lines during the pandemic that keep the American
economy moving forward.
Question. How can Congress help optimize our logistics sector to
prepare for future surges in product demand?
Answer. One issue that would help ease future surges and
drastically improve safety would be the passage of a Motor Carrier
Safety Selection Standard. As entities that utilize the services of
motor carriers, we are asked to second guess the Federal Motor Carrier
Safety Administration (FMCSA) in determining which carriers are safe to
operate and which are not. FMCSA's incomplete database exposes the
public to an unacceptable level of risk by having 90 percent of the
motor carrier population being rated ``unrated.'' Congress tasked the
FMCSA with evaluating motor carrier safety and empowering them with the
sole authority to revoke the interstate operating authority of unsafe
motor carriers or otherwise place unsafe motor carriers out of service
and off the road. There is bipartisan support to get FMCSA the
necessary resources to continue to expand their reach into the motor
carrier population and shifting the safety rating process to a data
driven system, would greatly reduce the burden on the agency.
The lack of a clear safety standards by which to compare motor
carriers, places entities that utilize motor carriers in an impossible
situation in trying to responsibly select a carrier. It is worth noting
that the situation is exacerbated because there is currently no Federal
or State standard that requires an entity to check a single piece of
information relating to the carrier safety history or credibility.
The Federal Motor Carrier Safety Selection Standard that our
association, the Transportation Intermediaries Association (TIA), has
been advocating for would address these concerns by establishing an
interim selection standard and change the way that motor carriers are
given a safety rating by shifting away from the current physical audit
system. This shift would give logistics companies like Trinity
Logistics the certainty in the carrier selection process, which would
allow us to freely adapt to surges in the supply chain without
hesitation.
______
Communications
----------
American Chemistry Council
700 Second St., NE
Washington, DC 20002
(202) 249-7000
https://www.americanchemistry.com/
The American Chemistry Council (ACC) appreciates the Subcommittee
holding this hearing to examine supply chain resiliency, alleviate
backlogs and strengthen long-term security. ACC represents more than
150 of America's leading chemical companies. Our members manufacture a
wide variety of chemicals, polymers, and related products that make our
lives and our world healthier, safer, more sustainable, and more
productive. The business of chemistry supports over 25% of the U.S. GDP
and directly touches nearly all manufactured goods. In addition to
supporting a vast supply chain, our members help create more than half
a million skilled, good-paying American jobs.
Chemicals and plastics are pivotal inputs to many critical supply
chains such as for semiconductors, high-capacity batteries, critical
minerals, automotive goods, and pharmaceuticals. For example,
fluoropolymer chemistries are essential in the manufacture of
semiconductors; bromine-based chemistries support the development of
printed circuit boards; lithium batteries employ chemistry to create
high-capacity batteries; industry uses many critical minerals to
produce important chemistries of value in a wide range of products,
including renewable energy, polymers, refrigerants, and water
purification chemicals; solar power relies on important silicon-based
chemistry. The business of chemistry is also essential to building and
construction, electronics, farming, food production, vaccines,
medicine, automobiles, aerospace and much more.
Supply chain and freight transportation disruptions have caused
considerable challenges for U.S. chemical producers. In a recent survey
of ACC members,\1\ 97 percent of companies reported that they have been
forced to modify or curtail operations because of supply chain issues
and/or transportation disruptions. ACC recognizes and applauds the
important steps that Congress and the Administration have taken to help
address these challenges, including implementation of the
Infrastructure Investment and Jobs Act, the Senate's passage of the
Ocean Shipping Reform Act, and other supply-chain related measures
included in U.S. Innovation and Competition Act (USICA) S. 1260.
However, more needs to be done.
---------------------------------------------------------------------------
\1\ See ACC's Survey Report: Supply Chain and Freight
Transportation Constraints for Chemical Manufacturers. Learn more at:
https://www.americanchemistry.com/media/files/acc/better-policy-
regulation/transportation-infrastructure/infrastructure/supply-chain-
and-freight-logistics-survey-findings-report.
We would encourage this Subcommittee to take a holistic approach to
these supply chain issues and examine and address policies that
negatively affect the business of chemistry and can harm U.S.
manufacturers, especially small businesses, potentially impairing the
availability of delivering these essential goods across the supply
chain. Such policies can work in cross-purposes to this Subcommittee
and other Administration efforts to facilitate supply chains and make
them more secure and resilient. In particular, several issues have
emerged with one federal agency program, the EPA's Toxic Substances
Control Act (TSCA) program,\2\ that could negatively impact the
resilience of U.S. chemical supply chains. Under the 2016 amendments to
TSCA, EPA is tasked with evaluating potential risks to human health and
the environment from new and existing chemicals and acting to address
any unreasonable risks. New chemistries face regulatory barriers under
TSCA that impact the timing of reviews and availability of products,
creating uncertainty in the supply chain and negatively affecting the
ability of companies to bring new products to market. Such barriers and
delays have led to a lack of innovation and onshoring of new chemicals
in the U.S. Challenges in the EPA's implementation of the TSCA program
also have the potential to jeopardize the availability of existing
chemistries critical to this Subcommittee and other Administration
efforts to promote the use of alternative energy, reduce greenhouse gas
emissions, and ensure the availability of semiconductors and other
critical goods.
---------------------------------------------------------------------------
\2\ See ACC's State of TSCA Report: Fix Implementation Now Before
It Is Too Late. Learn more at: https://www.americanchemistry.com/
better-policy-regulation/chemical-management.
We understand that there are many issues that affect supply chain
resiliency and security, some of which may be outside the direct
control of this Subcommittee and the Government. However, this
Subcommittee can address these regulatory policies and encourage EPA to
adopt a strategic approach to sound chemicals management through the
TSCA program that supports the availability and creation of chemistries
that strengthen supply chains and allows for transparency and
timeliness in their reviews according to statutory requirements.
Because of the chemical industry's large footprint across major
economic sectors, such efforts would pay dividends across all critical
supply chains and industrial bases of concerns to this Subcommittee and
---------------------------------------------------------------------------
the Administration.
ACC stands ready and willing to assist this Subcommittee in such
efforts and hopes the Subcommittee will use ACC as a source of
information and experience regarding the role of the business of
chemistry in enabling more vibrant, resilient, and secure supply chains
in the United States.
______
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chairman Carper and the Ranking Member Cornyn, thank you for the
opportunity to submit these comments for the record to the Subcommittee
on International Trade, Customs, and Global Competitiveness of the
Committee on Finance. Please allow me to mention a few issues that the
invited witnesses cannot.
The first is the role of the Chinese in the supply chain crisis. SARS-
CoV-2 was not the reason for this issue, at least not directly. Rather,
according to published reports, the Chinese government was offended by
off-hand remarks by the Prime Minister of Australia on the origins of
COVID, leading to an embargo on Australian coal. This led to an energy
crisis in the industrial coast of China. In essence, China cut off its
nose to spite its face. When Indonesia suspended all coal exports,
including to China, the crisis deepened.
The Trump-manufactured trade war with China showed how bad petulance
can be in trade policy. Such petulance is a key feature of
authoritarianism. This always backfires on the authoritarian. The
Chinese fit of pique had ramifications for the United States supply
chain. Profiteering by port operators was not the sole cause of our
current supply chain issues.
The United States and its commercial sector need to diversify, but not
in the way capitalists would do so on their own. Africa will be the
next major labor market. In the past, capitalist firms would set up
factories in developing nations with excess labor forces (usually due
to modernization of agriculture or rent seeking by landed elites) and
pay the workers as cheaply as possible. It is the messy way to
industrialize. It seems to work, but it carries human costs while
workers gather the leverage to organize and the power to increase
domestic demand by consumption. Both of these factors increase wages.
We need not be messy about assisting the Motherland on its road to
industrialization. As capitalism moves toward establishing a foothold
in Africa, our trade policy must be ready to insist on the right of
African workers to organize, partnered with the American labor movement
in helping them to do so. We can partner with American colleges to
establish campuses in sub-Saharan Africa so that their best and
brightest need not come to us. We can come to them.
Technical assistance on employee-ownership (which is still emergent in
the United States), as well as in the creation of property rights for
farmers, is essential. Finally, we can assist Africa in creating
commodity futures markets of their own so that farmers can obtain
working capital by selling futures and decide whether it is in their
interest to sell food abroad. The natural progress toward
industrialization is not inevitable. It can move past exploitation
without stopping there.
This brings us to the second supply chain issue: energy prices.
The world has plenty of available oil. What it does not have is an
honest futures market. The Dodd-Frank reforms led to regulation of the
New York Mercantile Exchange, especially the oil futures floor. When
Mick Mulvaney was made acting director of the Consumer Financial
Protection Authority, these regulations were quietly gutted.
The petulance of Trump strikes again. If Obama did it, Trump tried to
undo it. That the inevitable oil futures bubble happened to this
Administration is simply bad luck. The prior Administration did not
have the mental faculties to play such three dimensional chess.
The challenge for the current Administration is to quietly restore
these regulations, which I assume it is doing. If this can be managed,
energy prices will decline rather than crash--as they did in 2008. When
Congress made attempts at regulating oil futures trading, the balloon
burst and traders had to cover their positions. The assets available to
do this were mortgage backed securities and credit default swaps. We
all know where that led.
Action to increase capital gains taxes as part of Build Back Better
will also help deflate commodity prices as smart traders cash out of
all sorts of assets. As they do so, junk assets will quietly be
devalued rather than starting a rush for the exits. When the oil
futures prices begin to slide, those holding the bag may be able to
cover their currently insane bets. At least we can hope so.
Massive pain may be inevitable, but we must at least try to avoid it.
The best shot we have is to Build Back Better. Members of both parties
need to put duty to country ahead of loyalty to party and make sure the
bill passes (even with Potemkin opposition). Overt obstruction will be
remembered in November if it leads to collapse. In November 2008,
voters knew who to blame. They will know who to blame if the economic
ship is not righted soon and obvious sabotage has occurred.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
______
National Electrical Manufacturers Association
1300 North 17th Street, Suite 900
Rosslyn, VA 22209
The National Electrical Manufacturers Association (NEMA) represents
more than 325 electrical equipment and medical-imaging manufacturers
that make safe, reliable, and efficient products and systems. Member
companies support more than 370,000 American manufacturing jobs in
6,100 locations across all 50 states. NEMA companies play a key role in
transportation systems, building systems, lighting, utilities, and
medical-imaging technologies and are playing a critical role in the
implementation of the Bipartisan Infrastructure Law (BIL). These
industries produce $130 billion in shipments and $38 billion in exports
of electrical equipment and medical imaging technologies per year.
NEMA applauds the Subcommittee's leadership in addressing the supply
chain crisis and working to highlight solutions via its hearing
entitled ``Supply Chain Resiliency: Alleviating Backlogs and
Strengthening Long-Term Security.'' NEMA member companies continue to
experience supply chain disruptions, labor shortages, and resulting
inflationary pressures which have resulted in disrupted domestic
production, reduced sales, increased consumer costs, and delayed
delivery of critical products. The electro industry, like many other
industries, has suffered grave supply chain disruptions. Securing
critical components and materials--like semiconductors, transformer
cores and laminations, and small electronic components--has become
increasingly difficult.
Failure to solve short and long-term supply chain challenges stalls the
transformation of U.S. infrastructure and energy systems, potentially
delaying an accessible and electrified transportation system,
modernized buildings and lighting, a more resilient grid, and increased
efficiency of expanded domestic manufacturing. These supply chain
issues require both near-term and long-term solutions and Congress has
a crucial role in leading the nation's strategic solutions. In addition
to Congressional hearings and enhanced oversight of supply chain
challenges, NEMA urges Congress to expeditiously reach a bipartisan
compromise as it continues to work through the conference process for
the pending competitiveness legislation. Specifically, NEMA urges
Congress to:
Support Supply Chain Provisions. The Manufacturing Security and
Resilience Program and other provisions within the America COMPETES Act
would bolster government-wide efforts to strengthen supply chains
deemed critical to the nation's economic and national security. The
bipartisan supply chain provisions would enable a source of funding for
grants, loans, and loan guarantees to increase U.S. domestic
manufacturing capacity as well as help to move manufacturing operations
out of countries of concern into the U.S. or allied nations. These
provisions would also ensure the U.S. can effectively map and monitor
supply chains, identify gaps and vulnerabilities, and take proactive
action in collaboration with manufacturers to mitigate supply chain
vulnerabilities.
Support funding for CHIPS. Efforts to increase onshore chip
manufacturing and build a strong semiconductor supply will help to
alleviate supply chain concerns tied to semiconductor chips in the long
term. NEMA urges Congress to ensure the funding will support the
availability of all types of chips, including legacy chips as well as
elements of the broader semiconductor ecosystem, including transistors,
diodes, and other components which are critical to manufacturing many
electrical products and are not currently available from U.S. sources.
Authorize Key Tariff Relief Measures. One of the most direct and
timely actions Congress could take to alleviate inflationary pressures
in the supply chain is to restart and reform the Section 301 tariff
exclusions process in a way that has clear eligibility standards for
companies, is transparent, and is fair to all who apply. Further, NEMA
supports the re-authorization of the Miscellaneous Tariff Bill and the
Generalized System of Preferences program.
In addition to legislative actions, including enacting key supply chain
provisions via the pending competitiveness legislation, NEMA urges
Congress to use its oversight authority to help proactively identify
and mitigate supply chain pressures and constraints. The Subcommittee's
hearing is a good example of how Congress can evaluate supply chain
concerns, identify solutions, and work in a bipartisan manner to help
address issues both long and short term.
Critically in the near term, the current labor contract between the
International Longshore and Warehouse Union (ILWU) and the Pacific
Maritime Association (PMA) will expire on June 30. Failure for the two
parties to come to a timely contractual agreement would have a
crippling effect on some of our nation's most important ports and
result in additional supply chain disruptions and shipping delays.
Disruptions of essential port operations, even for a limited time,
would result in exacerbating supply chain disruptions for the U.S.
economy and the electro industry. NEMA urges Congress to closely
monitor developments in negotiations between the two parties in advance
of the looming expiration of the current labor contract.
Given the urgency of lingering supply chain disruptions, inflationary
pressures affecting all aspects of the U.S. manufacturing value chain,
long lead times needed for manufacturing investments, volatility in
sourcing material components currently experienced by NEMA member
companies, and the Congress' conciliatory power to bring parties
together to solve supply chain issues, we urge you to exercise your
legislative and oversight responsibilities to identify, mitigate, and
alleviate supply chain constraints in the immediate and long term.
______
National Restaurant Association
2055 L St., NW, Suite 700
Washington, DC 20036
(202) 331-5900
(800) 424-5156
https://restaurant.org/
June 15, 2022
The Honorable Thomas R. Carper The Honorable John Cornyn
Chair Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Subcommittee on International
Trade, Subcommittee on International
Trade,
Customs, and Global Competitiveness Customs, and Global Competitiveness
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510-6200 Washington, DC 20510-6200
Dear Chairman Carper and Ranking Member Cornyn:
Restaurants appreciate the Subcommittee's examination of ``Supply Chain
Resiliency: Alleviating Backlogs and Strengthening Long-Term
Security.'' The current supply chain backlogs and inflationary price
increases are once again ratcheting up anxiety and uncertainty across
our industry. We write today to urge Congress to help remove harmful
tariffs that are contributing these supply chain challenges and price
inflation.
Wholesale food prices increased more than 15% during the last 12
months, according to the consumer price index (CPI). Key commodities
are creating whiplash for restaurants and customers, especially for
eggs (259.9%), butter (50%), unprocessed fin fish (47.3%), flour
(36.7%), fats and oils (32.5%), and processed poultry (25.2%). The
fresh vegetables index jumped 39.6%. During this time, menu prices have
only gone up 7.4%. For an industry that runs on 3-5% pre-tax margins,
these prices increases are unmanageable.
Maguire's Craft Kitchen and Catering in Dallas is experiencing price
increases on an unprecedented scale--if products are available at all.
Fish, cooking oil, and packaging materials have all become unexpectedly
unavailable during portions of the year. This year alone, costs have
doubled or tripled for these ingredients essential to their menu:
Boneless chicken breast Atlantic salmon
Canola oil Grade A large eggs
Jumbo lump crab meat Styrofoam containers
Roof top unit HVAC system
Grotto Pizza in Rehoboth Beach, Del., is experiencing price shocks
across the board. Each of their top ten product expenses rose by 10% or
more over the past 12-18 months. When Grotto Pizza opened a new
location in 2021, the exact same kitchen equipment package was 21%
higher than it was 14 months prior. Skyrocketing prices are causing the
company to hold off on growth.
The chef/owner of Mac's on Main in Grapevine, Texas, recently expanded
her location. The costs to expand the restaurant were about the same as
the total cost of the original location in 2015. Not only was the
equipment generally 20-40% higher than similar items purchased in the
past three years, but she waited more than six months for the delivery
of some items. Tariffs on aluminum, building supplies, and more items
are adding costs and complexity to the supply chain.
Platinum Dining Group in New Castle County, Del., helped sustained
operations during COVID with off-premises sales and takeout orders.
However, the cost for takeout containers and related products have
jumped, nearly eliminating any financial benefit. The group has been
considering additional projects and restaurant locations, which would
significantly expand its 400-employee team. However, price inflation is
putting a hold on much of this growth.
We urge Congress to take action to address cost increases for
restaurants, such as: (1) removing tariffs on U.S. imports and any
retaliatory tariffs; (2) adopting the tariff exclusion process in the
Senate's U.S. Innovation and Competition Act (USICA) conference, and;
(3) including the Senate language on Sec. 71002 seafood regulations,
``Preventing Importation of Seafood and Seafood Products Harvested or
Produced Using Forced Labor,'' in the final USICA conference report.
Restaurants, our employees, and our customers bear the brunt \1\ of
U.S. and global tariffs on the food and equipment supply chain. We
appreciate that both of you signed onto the bipartisan Senate letter in
February urging U.S. Trade Representative (USTR) Katherine Tai to
relaunch a comprehensive tariff exclusion process. However, prices
continue climbing higher each months, and restaurants are left without
any answers on sustainability of operations.
---------------------------------------------------------------------------
\1\ https://thehill.com/policy/finance/trade/554136-trumps-china-
tariffs-hit-us-businesses-consumers-hardest-moodys/.
---------------------------------------------------------------------------
Thank you for your consideration.
Sincerely,
Sean Kennedy
Executive Vice President for Public Affairs
[all]