On Thursday, as Russian troops advanced on Kyiv and Russian President Vladimir Putin threatened nuclear war, the White House declared war on China.
Not a literal war with China, or even a trade war. And I don’t mean to denigrate President Joe Biden’s response to Russian escalation, which included appropriately forceful new sanctions that will block exports that benefit Russia’s aerospace and military sector.
I’m talking about the other economic news that came out of the White House Thursday, which concerned not Russia’s supply chain but our own. The Covid-19 pandemic has disrupted it, and Biden is looking for ways to fix it.
Just about every American is experiencing the global supply chain problem in one way or another. For me, it’s my oven door. It falls to the floor every time I open it because the hinges are shot. My appliance repair company ordered new hinges last month, and these arrived right away, but they require a particular kind of screw that right now is situated in a container ship anchored off Long Beach, California, or some other equally exasperating intermediate destination. Multiply my trivial problem by an adult U.S. population of 258 million, and you get an annualized inflation rate of 7.5 percent that will almost certainly be worsened by Putin’s military adventurism.
A year ago, Biden directed various federal agencies to report on how they can improve U.S. supply chains. On Tuesday nearly all of them said, “Stop buying so much stuff from China.” The word “China” appeared so frequently in these agencies’ reports that I started counting. The Agriculture Department and Transportation Department reports each mentioned China a dozen times. The Energy Department report mentioned China 16 times. The Defense Department report mentioned China 25 times. The Homeland Security and Commerce Department reports, which on close inspection turned out to be the same report, mentioned China 132 times, which was almost as much as the phrase “supply chain” itself. The only report that didn’t put China at the center of our supply chain woes was the one from the Health and Human Services Department, which cited the Middle Kingdom exactly once, forgettably and in passing. The only “Chinese import” HHS loses sleep over, apparently, is the virus.
The common refrain in all these government reports is that when you outsource so much manufacturing to China, well then of course you’re going to encounter supply chain difficulties now and then, some more grave than others.
Lithium batteries lie at the more worrisome end of the spectrum. In the film Don’t Look Up (spoiler alert), the world ends because a tech tycoon played by Mark Rylance wants to mine a comet set to collide with Planet Earth. “China has a strong hold on the mines that produce these valuable rare-earth assets,” Rylance tells a Cabinet meeting at the White House. Don’t Look Up is satire (a brilliant one, in my estimation), but that part could have come verbatim out of the Defense Department’s supply chain report. Here’s what it says:
By far the largest challenge for securing the supply of lithium batteries for DoD is the power of China’s industrial base. China dominates the global advanced battery supply chain, including lithium hydroxide (94 percent), cells (76 percent), electrolyte (76 percent), lithium carbonate (70 percent), anodes (65 percent) and cathodes (53 percent). Even materials and components manufactured domestically often have reliance on China-produced precursors or are fragile suppliers and single point failures within the supply chain.
The Energy Department notes that the Chinese are eating our lunch on solar panels. The Transportation Department notes that China has “near-total” control of maritime shipping, producing 96 percent of the world’s dry cargo containers and 100 percent of its refrigerated containers. The Commerce Department notes that China produces 52.4 percent of the world’s printed circuit boards, an industry dominated by North America as recently as two decades ago. The Agriculture Department points out that Chinese workers do various “difficult or unpleasant jobs” for the U.S. food industry, including the filleting of U.S.-caught fish for processing and the cleaning of U.S. hog intestines to make sausage casings.
For most of these industries (solar panels may be an exception), repatriation to the United States is not going to happen. In some instances—for example, Chinese imports of pesticide components that are too environmentally hazardous to make here—we don’t want the work to come back. Many of these industries won’t remain in China as wages there rise. Already much production of electronics components has migrated to other, poorer nations in Southeast Asia.
Consequently, I’m not going to hold my breath for the U.S. to go toe to toe with China economically. The urgency with which the Biden administration ponders China’s virtual ownership of the global supply chain will diminish as the Covid crisis passes and that supply chain is restored to health.
But the administration reports furnish a useful look back at how quickly the U.S. abandoned its industrial base over the past half-century, and at how high a cost to U.S. workers. Just about every one of these reports contains a passage noting the appalling deterioration of middle-class wages in the U.S. Here’s the Defense Department:
In the past, manufacturing provided middle income jobs that supported local economies and provided stability to American families. This is no longer the case.… The McKinsey Global Institute found that for manufacturing production workers (the lower-tier, lower-skilled workers) real wages “rose by only 0.1 percent since 1990.” The lack of any meaningful increase in real wages in manufacturing jobs makes it more difficult to attract entry-level workers, imperils worker retention, and threatens the manufacturing industry with all the ails associated with increased turnover.
This is true not only for manufacturing but also for the service sector, where you can’t blame the problem on Chinese imports, and where most future middle-class jobs will reside. (Sadly, manufacturing, at least in the U.S., no longer carries a wage premium.) You want a reliable workforce that does the nation’s business day in and day out? Pay it a living wage. The supply I worry about is that of jobs that treat workers like human beings. Allow it to deteriorate much further, and the supply chain will be the least of our problems.
