Pandemic shows US must make vital products at home

The writer is the Republican leader of the US House of Representatives

As the coronavirus pandemic swept the world, we as a nation were forced at times to rely on other countries for supplies critical to our health and wellbeing. We must learn the lesson. Our vulnerability to unreliable foreign supply chains for products we rely on, especially in emergencies, demands attention. We must encourage a variety of domestic makers of medicines and personal protective equipment, so that we are less vulnerable when other supply chains fail, as they did in China earlier this year. 

Deliberately bad behaviour on the part of governments such as China’s ruling Communist party may threaten the availability of certain products. The largest exporter to the US of active pharmaceutical ingredients for antibiotics, as well as finished penicillin and streptomycin, is China. Some 75 per cent of US spending on antibiotics, and 55 per cent of US vaccine spending, is on imported products. 

Many of the inner workings of modern technologies, such as semiconductors, transistors and microchips, are not American-made. The US was the birthplace of these innovations, but their manufacturing has developed faster overseas than at home. For instance, most US semiconductor companies design and sell chips. But their production is outsourced to foundries, which are almost exclusively located in Asia, where China is investing billions of dollars to secure its top spot in semiconductor manufacturing.

All these issues are matters of public health, national security and economic prosperity. The good news is that business and government leaders have warned for years against the instability of our supply chains and should be ready to act. Better still, North America now offers the most competitive investment climate, thanks to the United States-Mexico-Canada Agreement forged by President Donald Trump.

This accord strengthens the continental supply chains that have helped North American economies to compete globally. Now Congress needs to consider solutions that reward the gradual return of supply chains while preserving free enterprise. The US tax code should offer incentives for domestic production, with a modernised Section 199 deduction or credit to reflect the global competition for investment. Full expensing should be offered not only to companies bringing production capacity home, but on a permanent basis for all investment by firms in the US.

In addition to locating physical infrastructure on US soil, we should design our tax policies in such a way as to lower the cost to firms of relocating their intellectual property. This valuable information can then be placed alongside the manufacturing assets it supports. Republicans on the House Ways and Means Committee have introduced many of these ideas. Congress should include them in the Covid-19 relief package now under discussion.

We should incentivise reinvestments in urban and rural communities left behind from decades of offshoring. Opportunity zone designations, which have successfully increased investment in distressed and forgotten communities, should have priority over where we place manufacturing. We can also increase the purchasing power of the Strategic National Stockpile to supply essential products that are produced in different regions across the US.

This ambitious effort requires a commitment not seen in decades. For semiconductor and medicine manufacturing, it costs billions and takes years to construct a plant and create committed research and workforce development strategies. But it’s possible.

In the absence of legislation, a “Made in America” sentiment is already delivering results. Taiwan Semiconductor Manufacturing Company, the world’s largest chip manufacturer, recently announced plans to build a $12bn chip factory in Arizona. Congress should consider a public-private prize competition for undergraduate and graduate students to research and develop semiconductor technology. 

We should enhance the ability of firms to use scarce dollars today to invest in the R&D that drives tomorrow’s innovation. This means ensuring that R&D costs continue to be fully expensed beyond 2022, as current law dictates, and expanding R&D credits to maintain competitiveness and maximise their effectiveness, especially for pre-revenue, early-stage firms.

We will not reshore everything, nor should we. But the US and our allies, especially our USMCA partners, have the capabilities and resources to protect and provide for ourselves. We just need the same strong leadership we’ve seen from Mr Trump for our government and businesses to take action on behalf of the American people. 

Source: Economy - ft.com