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      - page 19 / 47





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seaports, airports, and other freight handling infrastructure; promoting faster and more efficient communications networks; and certain tax provisions may increase the incentive to source from abroad or to invest in business operations there. While such policies may work counter to efforts to induce businesses to locate activities in the United States, they also may increase the overall profitability of a U.S. parented global supply chain and may better enable U.S. businesses to leverage their supply chain operations in order to sell product in the foreign market. Therefore, while U.S. efforts at decreasing border barriers abroad tend to have an unequivocally positive impact on U.S. economic well-being by increasing U.S. exports, efforts at improving the business environment in foreign countries (such as protecting intellectual property or easing restrictions on foreign investment) tend to have a dual impact. While such efforts may encourage the location of segments of a supply chain in foreign countries, they also may increase the profitability of the supply chain operations for the U.S. parent company. An analogous argument holds for a policy such as imposing additional import tariffs in the United States. While such a policy may increase the incentive to locate production in the U.S. market, it also may reduce the profitability and competitiveness of supply chain operations for U.S. companies. As a result, the chain as a whole may be less able to compete with other global supply chains, may lose business, and may end up with fewer American employees overall.

The proliferation of global supply chains, therefore, has exacerbated certain trade-offs with respect to the effect or incidence of policies. For a given policy proposal, is the larger effect on the supply chain parent, on overseas operations that also affect the parent company, or on company operations, both domestic and foreign, in the United States? The varying effects of the policy may cause seemingly contradictory reactions to policy initiatives. It should not be a surprise to find various interest groups, even those within certain business sectors, at odds with each other. In view of these disparate responses, business associations, such as the National Association of Manufacturers, tend to take positions only on issues of general interest to their members. They usually do not speak out on industry sectoral issues, unless such issues are non- controversial or have wide member support. 21

Public policy, therefore, affects different segments of the supply chain in different ways. A policy aimed at increasing the number of scientists and engineers in the U.S. economy may help to retain the research and development segment in the United States, but the focus on such high-level skills may lessen the number of new graduates who are willing to take jobs that require only lower- level labor skills and face work processes that tend to be repetitive. A policy aimed at keeping out certain types of imported materials, such as carbon steel, to assist the domestic steel industry may lessen the competitiveness of the automobile and other industries that use steel in their assembly process. The fracturing of the manufacturing process and the outsourcing of components of that process to foreign suppliers, therefore, implies that public policy also may need to be fractured (multidimensional and discriminating), designed to have different effects on different segments of the production chains and the workforce associated with those production activities.

One example of how public policy may enter into business decision making to determine where to manufacture product is an analytical tool reportedly used by Dow Chemical. Dow has manufacturing capacity in several countries and can move production from location to location on


National Association of Manufacturers, “IEAP-01 International Trade Policy

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