Over the past few weeks, several trade associations have called on the Biden administration to provide some relief over supply chain issues that are creating shortages and driving up prices around the world. Some of their requests (tariff reductions in particular) are good policy to all time, because trade barriers hamper prosperity and innovation. The fact, however, that industry representatives see partial solutions to current economic problems in the federal government reversing its previous interventions is a glimpse of bad policies that have brought us a world of empty shelves and harbors. clogged – and which may continue to plague us in the future.
“Tariffs on raw materials, low-cost technological components, equipment and finished products that are not adequately produced in the United States, result in critical product delivery delays and / or higher consumer costs. high ”, the Association of Home Appliance Manufacturers, the Air-The Conditioning, Heating, and Refrigeration Institute, the North American Association of Food Equipment Manufacturers and the National Electrical Manufacturers Association point out in a white paper sent to the Biden administration Last week. “Plant closures and / or slowdowns caused by the COVID-19 pandemic, including current difficulties in attracting new employees despite competitive compensation and benefits, have reduced manufacturing productivity,” said they added.
Separately, the American Apparel & Footwear Association also requested tariff relief to alleviate “the chaos and cost increases caused by the shipping crisis”.
Trade associations are concerned about the serious global supply chain issues often represented by arrears To ports, but also involving the inability to source both components necessary for production and finished products. Part of the international disconnect between supply and demand can be attributed to specific policies, such as bottlenecks that prevent factories from satisfying customers.
“Governments have struggled to secure doses [of vaccine] and imposed costly closures that left many factories without workers, ”Reuters reported manufacturing difficulties in Asia in August.
Likewise, the shortage of truckers in Britain has been put at the feet border barriers imposed by Brexit, which certainly didn’t help. But neither has the suspension of the approval process for commercial drivers or the blockages that have slowed workers down.
“Covid has had an impact and the most obvious impact of Covid is that normally around 35,000 to 40,000 tests are performed per year for heavy goods vehicles [heavy goods vehicle] drivers and had to be rightly suspended for Covid, and there is a backlog of tests “, the head of a dairy cooperative Recount the Yorkshire Post.
“The foreign workforce was not afraid of Britain because of an abstract legal change; she has been driven out by government foreclosure policies in response to the pandemic, which has shifted many of their jobs to a bloated allowance, ” charges British economist Philip Pilkington, who points out that Ireland, which remains in the EU, also suffers from a shortage of drivers. “Many realized that the allowance was better where they came from on the continent, especially relative to the cost of living, and so they left.” Pilkington also points out that the delay in driver testing is contributing to the shortage.
The closures have also changed people’s lives, closing offices and factories and confining people to their homes. This has resulted in massive and unpredictable changes in demand and unreliable supply. Do you remember the disappearance of the supermarkets in flour and yeast at the start of the pandemic? Who knew people with free time would discover their inner bakers (at least for now)?
“The period of contagion, self-isolation and economic uncertainty will change consumer behavior, in some cases for years to come”, observed the consultancy firm McKinsey & Company. “New consumer behaviors cover all areas of life, from how we work to how we shop to how we have fun. These rapid changes have important implications for retailers and businesses of consumer packaged products. “
How many of these changes will be permanent and which will revert to the old patterns once the restrictions on normal life are gone? Businesses planning for the future must guess, their survival is at stake.
“The idea that an economy can be shut down and re-ignited indiscriminately without far-reaching consequences, as if a switch or a lawn mower, is utterly reprehensible,” he added. charges economist Peter C. Earle. “It could only come from the mind of an individual or a group of individuals, without any understanding or consideration for the extraordinary interdependence of the productive sector.”
“Market economies tend to be good enough to get food from supermarket shelves and fuel from gas stations, if left on their own,” Pilkington agrees. “This last part is essential: if left on its own. Brutal interference in market economies tends to produce the same pathologies that we see in socialist economies, including shortages and inflation. was the unintended consequence of the lockdown. “
Sadly, there is almost certainly more pain along the way. Electricity is now scarce in China, partly because a drought has hampered hydropower, but also because the government is preventing power producers from offsetting rising coal prices.
“Power plants buy coal at market price but are not allowed to increase electricity tariffs on customers beyond small margins set by national planners,” Remarks the Los Angeles Times. “When coal is expensive, many power plants report ‘maintenance failures’ and scale back or shut down their operations rather than incur losses.”
This can alleviate the blockage of shipments, but only because there will be less goods produced by factories. closed by power outages. Europe too, suffers from soaring energy prices as demand recovers from pandemic lockdowns even as fossil fuel prices rise and governments’ planned transition to renewables proves vulnerable to whims of nature. It also leads to manufacturing slowdowns. You can expect the consequences to reverberate around the world, with further no more empty shelves.
The danger is that people will see the economic problems caused by previous manipulations and then demand even more government intervention. The shortage of semiconductors, for example, can be attributed to production reduced by lockdowns as demand for computers skyrocketed among populations forced to work and study at home. But the trade group’s white paper that asked the Biden administration for tariff relief also begged it to “ensure that semiconductor supply is distributed fairly and transparently across industry sectors. and that the administration does not favor, explicitly or implicitly, a single sector ”.
The groups do not specify what a semiconductor policy should look like. But if the government were to interfere further in the market to allocate products made scarce by previous actions, it’s hard to see how the result would be nothing more than increased chaos in the supply chain.