Supply chain resilience needs a strong trade policy

I recently testified before the Office of the United States Trade Representative on the issue of supply chain resilience. My testimony was in response to USTR’s Federal Register Notice seeking comments on “Promoting Supply Chain Resilience”; the panel included representatives from the Department of the Treasury, Department of Commerce and the Department of Labor.

In addition to the comments, USTR will hold a series of four hearings to hear from interested stakeholders. NRF submitted written comments on April 22 and testified during the May 2 hearing.

The ability to ensure that products are available for the consumer depends on a safe, efficient, predictable and resilient supply chain. While the pandemic-induced supply chain disruptions were unique in size and global in nature, disruptions in the supply chains are not uncommon.

Retailers know to expect the unexpected. Be it weather incidents, labor disruptions or something else, risk mitigation is a fundamental component of retail supply chain plans.

Benefits for American workers, consumers and businesses

This year alone, retailers are dealing with supply chain disruptions from ongoing Houthi attacks on commercial vessels in the Red Sea, restrictions on using the Panama Canal due to water volumes and, most recently, a shutdown of vessel traffic at the Port of Baltimore because of the collapse of the Francis Scott Key bridge.

Yet trade continues to flow. We are back to pre-pandemic growth levels. Retail supply chains adjust, and cargo continues to get where it needs to go. This shows supply chain resiliency and mitigation practices in action.

So where does trade policy and USTR’s role in supply chain resilience fit into this?

As a starting point, NRF took exception to some of USTR’s assessments of the previous impacts of trade as stated in the FRN. Specifically, USTR said, “global supply chains have been designed to maximize short-term efficiency and minimize costs, leading to greater vulnerability and unsustainable dependencies, and furthermore have promoted trade that may not reflect our core values.”

NRF wholeheartedly disagrees with this assessment.

The efficiencies and costs that are referenced have led to benefits for American workers, consumers and businesses. The administration’s own economists agree: The Council of Economic Advisers’ 2024 Economic Report points out, “There are well-documented gains from trade and cross-border investment flows. The benefits of global integration include lower inflation, a greater variety of goods and services, more innovation, higher productivity, good jobs for American workers in exporting sectors, foreign direct investment in U.S. industries, and a higher likelihood of achieving our climate goals.”

The report also highlights that lower-income families benefit the most from imports, with an increased variety of products and reduced costs. That is consistent with what NRF members have witnessed, and too quickly dismissed by USTR as a benefit of trade.

Strength in diversification

As USTR evaluates trade policy and supply chain resiliency, we need to make sure those policies are based on an accurate assessment of the costs and benefits of trade, and modeled to address challenges and opportunities for a 21st century supply chain. That means more modern rules of origin and systems that provide more opportunities for supply chain diversification, not less.

We caution the administration from concluding that the fastest way to promote supply chain resilience is to onshore or reshore more manufacturing. Utilizing domestic manufacturing is an important component of resiliency, but it cannot be the sole focus.

The resiliency we saw during the pandemic was made possible because retailers and others had redundancies built into their supply chains and were able to shift sourcing of key products to suppliers, in whatever country they worked, that had capacity.

It is important to understand the many factors that drive a retailer’s supply chain and sourcing decisions. These vary depending on the product, but generally include quality of production, capacity requirements, availability of skilled workforce, adherence to standards, codes of conduct and rule of law, local infrastructure considerations, port capacity and sailings and many others.

There is no “one-size-fits-all” approach to resiliency. Each company has a different strategy depending upon their business model and what level of risk they are willing to accept in their supply chain. These risks are managed by diversifying supply chains.

Tariffs, managed trade and protectionism will not help improve supply chain resiliency. This includes the failed Section 301 China tariffs, which NRF continues to believe only raise costs for consumers. We need USTR and the administration to move away from these policies and focus again on providing real incentives to shift supply chains, which includes negotiating new trade agreements that are focused on the needs of the 21st century global supply chain that help advance supply chain resiliency as well as other key U.S. priorities.