In this globalized world, production is becoming more 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. Globalized manufacturing chains relate directly to the two essential national interests of the United States, security and economic well-being, and relate indirectly to the third—the projection of American values. The globalization of production networks and supply chains also has raised policy issues and has called into question certain long-held perceptions about the efficacy and effects of policy initiatives. 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? 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. A possible test for policy is to ask if the predominant effect is trade diversion or trade creation. For example, is the goal of a policy to support business to promote the overall efficiency and profitability of U.S. parented supply chains even if significant segments of those chains are located abroad, or is the goal to induce companies to move production or other business activity to the United States even if such action reduces supply chain efficiency and the ability of the U.S.-parented supply chain to compete in the global marketplace? This integrated world economy raises both challenges and opportunities for U.S. policymakers. Should it be done in the United States, in China, or elsewhere? Does a proposed policy divert production (including services, research, and marketing) and employment that goes with 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 disrupt or enhance supply chain operations and decrease or increase overall supply chain efficiency and profitability? 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. A complication in trade policy caused by the globalization of supply networks occurs in the incidence of policy. Most of these companies are parts of globalized supply networks. The costs for health care in the United States are the highest in the world. A distinct trade-off exists, however, between ensuring security and facilitating the free flow of commerce.
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 those 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 trade diversion or trade 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?