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      - page 5 / 47

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creating dependency and interaction among trading partners, such as China and Japan or China and Taiwan. These seem to be ameliorating historical friction points and promoting stability in regions. For certain countries, such as China, the nation’s increased economic influence, generated partly from their crucial role in global supply chains, has provided Beijing with greater voice in international fora and arguably some leverage in negotiations with the United States.

The globalization of production networks and supply chains also has raised policy questions and has called into question certain long-held perceptions about the efficacy and effects of policy initiatives. For example, a large proportion of international trade is conducted within production networks and chains that cross international borders. How does this affect traditional trade and investment policy that is based on national governments, national economies, and country-to- country relations? How have global supply chains affected American jobs? 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? Other policy issues include how to target fiscal policy to generate the largest possible beneficial effects, the degree to which the government should act to retain industries and related job opportunities in the United States, the extent to which American jobs are being “outsourced” overseas, the role of U.S. policy in promoting overseas investment, competition by governments (including state governments) to attract foreign investment, and the arguably declining manufacturing base in the United States.

Congressional interest in this issue stems from the aforementioned national interests as well as its constitutional mandate to regulate commerce with foreign nations. Congress also deals with the variety of policies that arise with respect to international trade, import competition, 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, health care, and the myriad other factors that determine the level of competitiveness of U.S.-based business in international commerce.

U.S. public policies combine with business costs and other factors to affect the shape, geographical location, and operation of supply chains. Conversely, the existence of supply chains may affect U.S. policymaking. Trade policy aimed at curbing imports from China, for example, would likely affect Chinese exporters and ancillary sectors, but it also may hit subsidiaries of U.S. companies and manufacturers whose supply chains stretch there. It is not surprising, therefore, that some of the strongest voices both for and against trade protectionism come from American- based manufacturers and service providers.

A crucial issue for U.S. policymakers is how to create conditions that make the U.S. economy more attractive as a location for both U.S. parented supply chains and for segments of supply chains of foreign companies. This directly affects job creation for Americans. A possible test for policy is to ask if the predominant effect is diversion or creation. Does the 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? Does it induce foreign businesses to locate segments of their supply chains here? Does it create jobs in the United States or merely shift them from one foreign country to another? What effect does the policy have on supply chain operations, efficiency, profitability and the distribution of benefits between labor and management?

As the 111th Congress and the new Administration consider changes to economic policy, the basic issues raised by global supply chains may come into play, particularly considerations of the

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