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      - page 2 / 47





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In the globalized world of business, production is becoming fragmented into discrete activities and can be spread geographically within and across national borders while remaining integrated organizationally within a multinational company or network of companies. Such globalized production networks are called supply chains or value-added networks. This world of supply chains raises both challenges and opportunities for U.S. policymakers, firms, and workers.

The globalization of production networks has raised policy issues and has called into question certain long-held perceptions about the efficacy and effects of policy initiatives. Traditional trade and investment policy is based on national governments, national economies, and country-to- country relations, but much of trade today is between related companies spread across the globe. How does protecting or promoting one domestic industry affect other parts of its or other supply chains? How does the United States ensure the security and integrity of products assembled offshore from components that are procured from a variety of markets around the world? How does policy affect the competitiveness of U.S.-based businesses in the global marketplace?

Congressional interest in this issue stems from the essential American interests of economic well- being, security, and the projection of values as well as the constitutional mandate for Congress to regulate commerce with foreign nations. Congress also deals with a variety of policies related to investments and capital flows, market access, currency misalignment, intellectual property rights, product safety, shipping security, labor, and the environment. In a broader sweep, the globalization of business strikes directly at issues related to maintaining the U.S. industrial base, the education and training of the American labor force, immigration, health care, and myriad other factors that determine the well-being of Americans.

In international trade, traditional policies aimed at reducing border barriers still tend to increase economic efficiency, but global supply chains may affect the incidence or impact of the policies. Raising import barriers in the United States on products from China, for example, may increase costs for Chinese exporters, but they also have a parallel effect on U.S. multinational companies with manufacturing operations in China that ship to the United States. In fiscal policy, globalized supply chains affect the “multiplier effect” of government policies to stimulate the economy. In shipping security policies, a distinct trade-off exists between greater security and shipping costs. A variety of government policies, both at the national and state level, affect the ability of businesses to compete in the international marketplace and the incentive to locate in the U.S. market. These include tax, labor, environmental, infrastructure, and education policies.

A possible test for policy is to ask if the predominant effect is one of diversion or creation. Does a proposed policy divert production from the U.S. economy to a foreign location, draw production toward a U.S.-based location, or shift production between two foreign locations? Does the proposed policy create more production, or does it discourage productive activity? Does the policy encourage job creation in the United States or does it induce firms to shift jobs overseas? Does the policy disrupt or enhance supply chain operations and decrease or increase overall supply chain efficiency and profitability? And perhaps most fundamentally, how can policy be fashioned to encourage the retention of jobs in the United States while keeping U.S. firms internationally competitive in a complex and globalized world?

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