Trade Expert Breaks Down Supply Chain Crisis

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Editor’s note: Why is the U.S. suddenly in the midst of a supply chain crisis? Heritage Foundation’s Tori Smith, a senior policy analyst who focuses on trade joins Tim Doescher, host of the “Heritage Explains” podcast to discuss. Watch or read an abridged and edited transcript below.

Tim Doescher: So welcome. Now let’s cut right to it. We’re seeing it all over the country, all over the news, in our grocery stores, in our hardware stores, on menus at restaurants, shelves are empty, prices are higher. The term supply chain is everywhere and I’m not sure I ever remember it being such a prevalent term, but it is. We see ships parked off of the Los Angeles coast. It’s unlike anything I’ve really ever seen before in my mid to short life, Tori, but everybody is talking about it. So we wanted to take a break from the news hype and get to the heart of it.

My name is Tim Doescher. I’m the co-host of the “Heritage Explains” podcast here at The Heritage Foundation. And I’m very excited, very, very excited to welcome my friend, my colleague, Tori Smith. She is the trade economist here at The Heritage Foundation. And she’s going to break this down for us today as best as possible, right? You’re going to do it.

Tori Smith: I’m going to try.

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Doescher: So first question, just set the stage for us. What are we seeing when we see those ships parked out? What are we seeing when we see these bare shelves? What is the cause?

Smith: Yeah. So I think a lot of people, Tim, tell you that the cause is because of COVID or it’s because of increased consumer demand so you and I are out there, we got money in our pocket and we’re buying more. And I mean, I think there’s a lot of different factors that play into it.

But I think that the government and the Biden administration specifically is using that as a scapegoat to cover up the decades of horrible government policies that embolden unions, disincentivize work and make it more difficult for Americans to just buy and sell with the world. And on top of that, blaming China for our problems, which we can all agree on China and trade that we have some issues, right? But if we’ve got 50 ships piled up in our ports, I don’t think that trade with China is a problem because if it were, there wouldn’t be any ships.

Doescher: So let me just ask you this because people in the Biden administration will say, hey, but without this, we wouldn’t have this. We didn’t have this five years ago, we didn’t have this three years ago. So how are they justifying saying that? Saying that it is because of COVID that this is happening?

Smith: Well, the thing is, like I said, it’s a multitude of factors. So all of these different things that the Biden administration is saying play into the equation, but the root cause of the problem … is labor unions and longshoremen that are part of those unions refusing to work …

Doescher: This didn’t happen when President Trump was handling the administration. This didn’t happen. These ships off the coast wasn’t happening. This seems characteristic and symptomatic of a new administration.

Smith: And not only that, Tim, but this didn’t happen during the 2008 financial crisis either. We’re talking about massive financial crisis, major disruptions in the global supply chains. And yet you didn’t see these sorts of stalemates of processing of goods being into the ports during that, which was a much greater economic downturn than the one that we’ve experienced over the last year or so.

Doescher: Yeah. So Sandy, she’s watching [this Facebook Live] in New Mexico, Sandy, welcome. Thank you so much for being here. She brings up an awesome point. And this is something that we’re talking about the ships, but once the ships come into port and they unload the ships, they got to get on trucks or they got to get on trains and that’s a whole other issue here. And she says the crossroad of I-25 and I-40 are very congested with truckers. So I don’t understand why truckers are being blamed. Is it more unions blocking independent truckers? I mean, that’s a really good question.

Smith: Yeah. So this is a really complicated one as well, and it plays into the equation. So first of all, you have California laws that make it really difficult to be an independent trucker in the state of California. On top of that, you have environmental regulations that make it difficult for truckers to stay in business because they’re being forced in the very near future to upgrade to these eco-friendly trucks that are in sanely expensive. And so that’s going to disincentivize you from having a future career in trucking, right? If you’re going to be hamstrung by the government to be able to do your job. And then on top of that, you’re not even getting goods processed at the port to go on to the trucks because of the issue with the longshoreman that I was saying before.

Doescher: Wow. And let’s also not forget, when you extend unemployment benefits to people, that disincentivize work as well. … I’m curious because back in August, I was just scrolling through the news and came across this headline with Vice President [Kamala] Harris saying something along the lines of get your Christmas presents early, alluding to the fact that there were going to be problems in the supply chain.

And she must’ve known something the rest of the world didn’t know because nobody was talking about it. She said something about it. So my question is why wasn’t there anything done once she posited that? Because that obviously isn’t going to be a good situation if you’re being told to shop in August for Christmas presents, more than proactivity. So what were some of the things that could have been done or should have been done back then when that was being posited?

Smith: Absolutely. I mean, we saw these things being on the horizon, I think, long before now. These ships have been piling up in LA for months and now it’s just in the mainstream media and everyone’s talking about it, but it wasn’t just one day, 50 ships showed up, right? They’ve been collecting there over time. So I think that one of the first things that we could have been doing is reducing some of the policies that one, disincentivize work as this is going to be a theme I think for us the whole time.

Doescher: I think it’s worth it. Yeah.

Smith: This is the real story, but also addressing some of these current concerns of the unions that are in the actual ports. I mean, you have to remember these ports are state-owned ports. They are run by the government. There are unions and union workers who are there and they are not responding to supply and demand.

When there is an increase in demand for the processing in a port, you run more shifts. My dad is a business owner in Michigan, in Jackson, and when he is busy, they don’t just run first shift. They run second shift, they run third shift, they run overtime. My dad works extra hours. He works the weekend.

Doescher: The ports aren’t doing this? They’re not going 24/7 right now?

Smith: No. I mean, Biden says [recently]… now the port of LA finally, it’s going to be running 24/7, but the port of Long Beach was allegedly running 24/7 a couple of months prior. But again, that doesn’t mean 24/7 like you and I think it means 24/7, like every single hour of the day. It means, oh, we’ll work for 10 hours instead of eight hours, five days a week or something like that.

But the thing is, with my dad’s company, if they don’t meet their deadlines, they will lose the business to someone else. And the problem is you have this government-run port and where is that business going to go? It’s going to pile up and then you and I pay the consequences for not only not having our products that we would like to buy, but I’m sure that somehow Biden made some sort of deal with this union to get them to run alleged 24/7 shifts.

Doescher: One thing that I saw, Tori, is Gov. [Ron] DeSantis stepping up and saying, hey, we’re making capacity. If you want to come to our ports, come to our ports, kind of a thing and we’ll help get this thing going. We’ll help do this. We’ll help alleviate the stockpiles kind of a thing. … Instead of looking to D.C., should we be looking to Florida? Should we be looking elsewhere?

Smith: Yeah. I mean, I think that there is some legitimacy to go into some other ports. The problem is just logistics partially. So you have logistics of all the paperwork that these companies have filed to be able to have their goods processed in the port of LA or the port or the adjacent port there. You also have the port of Seattle, which is on the West Coast as well. But again, there’s a lot of planning that goes into what port your goods are going to. Not to mention, then you have the different navigation of going through the Panama Canal rather than just coming straight over to the West Coast and then getting on a truck or rail. So it’s definitely complex logistically to make that happen, but I think it’s great and innovative that at least the offers are out there and people are thinking outside the box on how do we get these goods off the ships and out of the containers as quickly as possible,

Doescher: What is China’s role in all of this? You mentioned it earlier, but I just wanted to hone in a little bit more on this because obviously they have a pretty significant part of our trade relationship and this has to be affected because of our dealings with them. So just talk a little bit about that.

Smith: Yeah, absolutely. So we do import a lot of goods from China. The majority of the goods that come from China actually come through ports in the West Coast because again, of proximity. It’s a lot easier to ship things just across one ocean way. So that is a factor.

And you have to remember, during the Trump administration, we had a lot more tariffs on goods coming from China so it makes it more expensive already for us to buy those goods, which the Heritage Foundation has been very vocal on holding China accountable while not taxing you to do that. And the tariffs we have in place are taxes on you to make it more expensive. But in terms of the supply chain issues that we’re dealing with, there’s a lot of, I think, misinformation going on out there that this is China’s fault, or China’s playing a factor because there was some news about China having a couple of ports that were closed for a period of time having to do with COVID outbreaks or something like that.

But we I’m assuming have many of the ships that are in the port area are probably from China. And if trade with China was a problem, if we weren’t getting goods from China, if China was holding things back or whatever it was, we wouldn’t have that buildup of ships. So I think that this is sort of very separate from the China issue and I think, again, it’s being used as kind of another distraction mechanism from the real issues, which is all the government policies that have enabled this storm to really get moving.

Doescher: Let’s move to a little bit more proactivity here. What can be done right now? And I’ve seen this question, heard this question, and it’s important to ask. I’m not sure the administration … is taking it as seriously as we would hope, but I’m curious if you have a couple of thoughts as to a good way of taking this on … right now.

Smith: Yeah. I think policy number one is to actually ensure that there is 24/7 processing of goods in the ports. We have to be getting those things moving. And not to mention, we’re not even just talking about goods like tricycles and things you’re going to buy your children for Christmas. We’re talking about perishable goods as well. I mean, there’s a multitude of things that are on a clock to get off of those ships otherwise, there’ll be no use to us once they get to us. So processing as quickly as possible is number one.

Making it easier for these truckers to be able to do their jobs too, right? If you have goods in the port, but you don’t have anyone to take it to the rail, to take it to the grocery store or to take it to the wholesaler, whoever it might be, then you just got a bunch of goods sitting around in a container. So that is definitely number two, so that has to be making it easier for independent truckers to get out there.

And then the last thing I would say, Tim, is on the trade side, there’s this really archaic policy called the Jones Act that basically makes it near impossible for us to ship goods from one US port to another. … It has to be a US made, US manned ship.

Doescher: Sounds good.

Smith: Sure. It sounds good, but there’s really not many of these things in existence and they’re all typically being used. There’s been a lot of stories in the past—there was this really famous story a while back in New Jersey, where they ran out of salt for the roads and had a huge snow storm coming in. And who had salt? Florida had salt or South Carolina or something like that and they could not get the salt up to New Jersey. So there was a salt shortage in New Jersey, even though there was a surplus in another U.S. state. I mean, we have the commerce clause, so you can ship things without barriers between the U.S. states, but apparently that doesn’t count when it’s over.

Doescher: It’s funny. We met with a distiller of rum. A rum distiller in Hawaii who it’s cheaper for him to ship from Hawaii to Australia, and then Australia to California to get his rum to the continental U.S. because of the Jones Act, because it’s so much more expensive to have these ships manned by union crews and things like that. It is a really huge deal.

Smith: It really is.

Doescher: Yeah. Well, anyway, I think we’re going to leave it there for today.

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